Rev. Rul. 63-80

Advice has been requested whether, under the circumstances described below, the consignee may elect to be treated as a `producer' for purposes of the manufacturers excise tax on gasoline.

X company is engaged in the business of selling gasoline to retailers. X company entered into an agreement with Y company, a producer of gasoline, which provides for the consignment of gasoline and other products to X company for sale, usually at a price established by Y company.

Under the consignment agreement, title to the products remains in Y company until sold by X company. X company pays the expenses of storage, sale, handling, transportation, etc., the amount of the commissions payable to X company having been computed to allow for such expenses. X company also is liable for losses and damage to consigned products in its possession.

The agreement provides that, on or before a specified day of each week after the original consignment delivery, X company shall account for and pay over to Y company the proceeds from sales of the previous week as though sales of consigned products had been made during that week by the consignee on the dates on which the consignee received replacement deliveries of consigned products. Upon termination of the agreement, all unsold consigned products must be redelivered to Y company.

The specific question presented is whether, under the provisions of section 4082(d) of the Internal Revenue Code of 1954, X company may elect to register as a `wholesale distributor' and to pay the manufacturers excise tax on the gasoline sold under the agreement described above.

Section 4081(a) of the Code imposes a tax on gasoline sold by the producer or importer thereof, or by any producer of gasoline.

Section 4083 of the Code provides that under regulations prescribed by the Secretary of the Treasury or his delegate the tax imposed by section 4081 shall not apply in the case of sales of gasoline to a producer of gasoline.

As amended by section 201(e) of the Federal-Aid Highway Act of 1959, Public Law 86-342, C.B. 1959-2, 697, effective January 1, 1960, section 4082(a) of the Code defines the term `producer' to include a refiner, compounder, blender, or wholesale distributor, and a dealer selling gasoline exclusively to producers of gasoline, as well as a producer.

Section 4082(d) of the Code, as added by section 201(e) of the Federal-Aid Highway Act of 1959, provides that the term `wholesale distributor' includes any person who (1) sells gasoline to producers, to retailers, or to users who purchase in bulk quantities for delivery into bulk storage tanks, and (2) elects to register and give a bond with respect to the tax imposed by section 4081.

Section 48.4082-1(e)(2) of the Manufacturers and Retailers Excise Tax Regulations provides that the election by a wholesale distributor to be treated as a producer of gasoline shall be made by furnishing bond and registering as a producer of gasoline in accordance with the provisions of section 4101 and the regulations thereunder. A wholesale distributor will be considered a producer of gasoline only with respect to gasoline sold by him on and after the date on which he is issued a Certificate of Registry (Form 637) as a producer of gasoline, but in no case before January 1, 1960.

Section 4082(d) was added to the Code in order to permit an independent wholesale distributor to purchase gasoline on a tax-free basis and to pay the tax upon his subsequent sale. This relieves the wholesale distributor of the expense of carrying his inventory on a tax-paid basis and permits the payment of the tax only on the gasoline sold by the wholesale distributor without regard to losses through evaporation and spillage. See House of Representative Report No. 1120, Eighty-sixth Congress, C.B. 1959-2, 871, at 879.

For purposes of the manufacturers excise tax on gasoline, a wholesale distributor can be treated as a `producer' only with respect to gasoline which is purchased and sold by him. If the distributor is only a conduit through which an actual producer transacts sales, the responsibility for reporting and paying the manufacturers excise tax remains with the producer. Consequently, the answer to the question in the instant case depends on whether the transfer of gasoline by Y company to X company is a sale rather than a consignment.

A Consignment for sale which gives rise to a relationship of principal and agent must be distinguished from a Sale . Whether a particular transaction is a consignment rather than a sale depends upon all of the relevant facts. Generally, in a sale, title passes to the buyer, whereas in a consignment to an agent, title remains in the principal although possession passes to the agent. The liability of the agent is not to pay a price but to account for the proceeds of the goods when sold. Therefore, when gasoline is consigned to an agent, no liability for the manufacturers excise tax is incurred. The liability for tax is not incurred until the gasoline is sold by the consignee, and that liability is incurred by the consignor-producer rather than by the consignee.

Based on the facts stated in the instant case, Y company consigns, rather than sells, gasoline to X company. Accordingly, it is held that Y company retains responsibility for the manufacturers excise tax on gasoline which it consigns to X company. Even though X company may be a registered and bonded `wholesale distributor' for other purposes, it cannot be treated as a `producer' with respect to gasoline delivered to it on consignment. However, since the tax is not due from the consignor until after the gasoline is sold through the consignee, Y company should compute and pay the tax on the actual quantities of gasoline sold through X company rather than on the basis of the quantity of the original consignment delivery and each subsequent replacement delivery to X company.