Rev. Rul. 65-153

Advice has been requested whether a credit or refund of the manufacturers excise tax on gasoline is allowable under the circumstances described below.

A company manufactures and sells automobiles and automobile trucks which are subject to the manufacturers excise tax imposed by section 4061(a) of the Internal Revenue Code of 1954.

Near the final stages of its manufacturing processes, the company places a measured portion of gasoline in each vehicle for purposes of testing, inspecting, etc. The amount of gasoline placed in the vehicles has been determined on the basis of an analysis of the company's normal maximum requirements for these purposes.

Much of the gasoline is consumed in the processing. However, some of the gasoline is not consumed but remains in the vehicles when they are sold by the company. The gasoline involved has been purchased on a tax-paid basis from the producer thereof, who paid the manufacturers excise tax imposed by section 4081 of the Code.

Specifically, the question presented is whether the company may, under the provisions of section 6416(b)(3)(A) of the Code, take a credit or be allowed a refund of the manufacturers excise tax paid on the unconsumed gasoline remaining in the vehicles when they are sold by the manufacturer.

Under the provisions of section 6416(b)(3)(A) of the Code, if the manufacturers excise tax has been paid with respect to the sale of gasoline by the producer or importer thereof to a manufacturer or producer of a taxable article, such tax shall be deemed to be an overpayment by the purchasing manufacturer or producer if such gasoline is used by the purchasing manufacturer or producer as material in the manufacture or production of, or as a component part of, a taxable article manufactured or produced by him.

Sections 48.6416(b)-3(a) and (b) of the Manufacturers and Retailers Excise Tax Regulations provide, in pertinent part, as follows:

(a) In general .-Section 6416(b)(3) and paragraph (b) of this section provide that under certain circumstances tax under chapter 32 (manufacturers excise tax) paid to the United States on the sale of an article by the manufacturer thereof direct to a second manufacturer who uses the article in further manufacture of a second article or sells the article with or as a part of a second article manufactured or produced by him shall be deemed to be an overpayment. Any overpayment of tax within the meaning of section 6416(b)(3) and paragraph (b) of this section is deemed to have been made by the second manufacturer, and such second manufacturer may file claim for refund of any such overpayment or may claim credit for the overpayment on any return of tax under chapter 32 which he subsequently files. Any such claim for refund shall be filed with the district director of the district in which such second manufacturer files his returns of tax under chapter 32, or would file such returns if required. No interest shall be allowed on any refund or credit of an overpayment determined under section 6416(b)(3) and paragraph (b) of this section. * * *

(b) Conditions relating to use of article .-(1) Used in further manufacture .-(i) General rule .-* * * tax under chapter 32 paid to the United States on the sale of an article by the manufacturer thereof to a second manufacturer is considered to be an overpayment if-

(a) The tax-paid article is used by the second manufacturer as material in the manufacture or production of, or as a component part of, a second article manufactured or produced by him, and

(b) The second article is an article which is taxable under chapter 32.

It is immaterial for purposes of this subdivision whether the second article is sold or otherwise disposed of, or if sold, whether the sale is a taxable sale.

Where the manufacturer of automobiles and automobile trucks sells such vehicles under the circumstances set forth above, the gasoline remaining in each vehicle when sold by the manufacturer is considered to be used by the vehicle manufacturer as a component part of a taxable article for purposes of section 6416(b)(3)(A) of the Code. Therefore, the tax which was paid by the producer with respect to that portion of the gasoline remaining in each vehicle at the time of its sale is deemed to be an overpayment made by the vehicle manufacturer.

Accordingly, it is held that, under the provisions of section 6416(b)(3)(A) of the Code, the vehicle manufacturer may claim a credit or a refund (without interest) of the amount of tax paid on the gasoline which is normally placed in the vehicles in the final stages of the manufacturing operation and which, pursuant to the manufacturer's usual manufacturing processes and procedures, remains in the vehicles when they are sold.

For a comparable conclusion, see Revenue Ruling 59-204, C.B. 1959-1,358, which holds that lubricating oil may be sold by the manufacturer or producer thereof, free of the tax imposed by section 4091, for use in the manufacture of a taxable article. That conclusion is based upon a situation in which lubricating oil is placed in an enclosed assembly or housing of a taxable article in such a manner that it is a part of the taxable article which is sold by the manufacturer. Thus, the lubricating oil is considered as being used as a component material in the manufacture of the taxable article.