Rev. Rul. 64-180

Advice has been requested concerning the applicability of the manufacturers excise tax to the sale of chrome-plated automobile `show wheels' under the circumstances described below.

A company acquires title to both new and used automobile wheels. New wheels are purchased from the original manufacturer. Used wheels are purchased from various sources or accepted in exchange sales, but only if the wheels are free from structural defects, dents, scratches, or other injuries to the metal which are not curable by ordinary grinding and polishing.

The core of each wheel so acquired is cut from the rim by severing the rivets or spot welds. The rim and core are ground, polished, and chrome-plated by the standard method of electrolysis used for plating metal articles. The rim and the core are then placed in a jig for the purpose of proper alignment and are rewelded together in such a manner that the core is more deeply inset than it was orginally.

The operability or utility of the wheels is not improved by the chrome-plating process or by the inset placement of the core. However, as a result of insetting the core more deeply, a greater portion of the rim is exposed, thus making a greater area of chrome-plating visible. The company sells the `show wheels' to be used by ultimate purchasers to enhance the appearance of their automobiles.

The specific question is whether, by reason of the operation described above, the company is a `manufacturer' for purposes of the manufacturers excise tax and is, therefore, liable for tax with respect to its sales of the chrome-plated wheels.

Section 4061(b) of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of parts or accessories (other than tires and inner tubes, and other than automobile radio and television receiving sets) for any of the articles enumerated in section 4061(a) of the Code.

Section 316.4(a) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that the term `manufacturer' includes a person who produces a taxable article from scrap, salvage, or junk material, as well as from new or raw material, (1) by processing, manipulating, or changing the form of an article, or (2) by combining or assembling two or more articles.

The operation performed on each wheel, including the plating thereof with chromium through an electrolytic process, is a manufacturing operation which changes the form of the article, as contemplated by the regulations, and results in the production of a new and different article for purposes of the manufacturers excise tax. Therefore, it is held that the company is the manufacturer of the chrome-plated automobile wheels and is liable for the manufacturers excise tax imposed by section 4061(b) of the Code with respect to its sales of the wheels. The tax applies to the price for which the wheels are sold without exclusion for the value of any wheels accepted in exchange, since the chrome-plated wheels are not `rebuilt' within the meaning of section 4062(b) of the Code.

It should be noted, however, that where the company purchases new wheels from the manufacturer thereof for the purpose of chromeplating them prior to any other use, the wheels are considered to have been sold for `further manufacture' within the meaning of the provisions of section 4221 of the Code. Accordingly, the company may purchase the wheels from the original manufacturer on a tax-free basis under the provisions of section 4221(a) of the Code, provided the registration requirements of section 4222 of the Code are met. Alternatively, if the wheels have been purchased on a tax-paid basis, the company is entitled to a credit or refund of the tax paid by the original manufacturer on the sale of the wheels to the company, under the provisions of section 6146(b)(3) of the Code.

On the other hand, where the company acquires used wheels and performs the described operation thereon it is not entitled to credit or refund of any manufacturers excise tax paid with respect to the sale by the original manufacturer of such used wheels, since section 6416(b) of the Code applies only if the use in further manufacture occurs before any other use.