Rev. Rul. 65-239

Advice has been requested concerning the treatment of demonstrator automobiles by manufacturers and dealers under the floor stocks refund and consumer refund provisions of the Excise Tax Reduction Act of 1965, Public Law 89-44, page 568, this Bulletin.

Section 6412(a)(1) of the Internal Revenue Code of 1954, as amended by section 209(a) of the Excise Tax Reduction Act of 1965, provides for floor stocks refunds to manufacturers of passenger automobiles. That section provides for credit or refund to the manufacturer of an amount equal to the difference between the tax paid on the manufacturer's sale to the dealer and the amount of tax made applicable to the sale of such automobiles on the date the tax is reduced. However, the manufacturer may only claim refund for passenger automobiles held by a dealer which have not been used and are intended for sale on the date the tax is reduced. Other conditions involving the time for claims to be submitted, requests for payment by the dealers, and reimbursements or written consents of dealers are also provided before the manufacturer may receive a credit or refund.

Section 209(c) of the Excise Tax Reduction Act of 1965 provides for other credits or refunds to manufacturers of passenger automobiles which were sold to the ultimate purchaser after May 14, 1965, and before June 22, 1965. These credits or refunds (referred to as consumer refunds) are also amounts equal to the difference between the tax paid on the manufacturer's sale to the dealer and the amount of tax made applicable to the sale of such automobiles on the date the tax is reduced. However, the manufacturer may only claim credit or refund for new passenger automobiles with respect to which he has previously made reimbursement to the ultimate purchaser based upon information submitted by the person who sold the automobile to the ultimate purchaser.

The report of the Committee on Finance (S. Rept. No. 324, 89th Cong., June 14, 1965, page 676, this Bulletin) provides, at page 693, that for purposes of the consumer refund provision, `a dealer is considered to be an ultimate purchaser of cars which he uses as demonstrators.' Section 145.2-2(b)(2) of the Temporary Regulations in connection with the Excise Tax Reduction Act of 1965, Treasury Decision 6846, page 964, this Bulletin, provides, in pertinent part, that the term `ultimate purchaser' includes a dealer with respect to a demonstrator unless sold as a new car. Section 145.2-1(b)(4)(iv)( a ) of such Temporary Regulations cites demonstrators as an example of articles which shall be considered unusued, held by a dealer, and includible in floor stocks inventory on June 22, 1965, if, on such date, they are to be sold as new articles rather than as used articles.

In order to provide dealers and manufacturers with uniform guidelines to apply the Temporary Regulations under the Act, the Revenue Service will, for purposes of consumer refunds and floor stocks refunds, treat demonstrator automobiles as follows:

(1) Where a passenger automobile purchased from the manufacturer by a dealer after May 14, 1965, was used by the dealer as a demonstrator before June 22, 1965 (whether or not sold by the dealer to a consumer prior to June 22), the dealer is eligible for a consumer refund. For administrative purposes, the dealer may elect (with the consent of the manufacturer) to include such automobile in his floor stocks inventory (whether or not held on June 22) as an alternative to requesting separate reimbursement under the consumer refund provisions of the Act.

(2) Where a passenger automobile was purchased from the manufacturer by a dealer prior to May 15, 1965, and was used by the dealer as a demonstrator, the consumer refund is not available to the dealer because the consumer refund applies only to articles sold to an ultimate purchaser after May 14, 1965.

(3) Where a passenger automobile purchased from the manufacturer by a dealer before May 15, 1965, was put to use as a demonstrator prior to June 22, 1965, such automobile may be included in the dealer's floor stocks inventory on June 22 if, on such date, it was intended to be sold as a new automobile rather than a used one. The fact the automobile was intended for sale as a new vehicle rather than a used one may be evidenced by the dealer by showing that, on June 22, the label required by the Automobile Information Disclosure Act of 1958, Public Law 85-506, 72 Stat. 325, was affixed to a window of the vehicle, that the vehicle was to sold by the dealer under a written or express warranty by which the manufacturer is obligated to the consumer, or by any other evidence acceptable to the Revenue Service.

¹ Also released as Technical Information Release No. 771, dated Oct. 6, 1965.