Rev. Rul. 72-461

The Internal Revenue Service has reconsidered Revenue Ruling 70-178, C.B. 1970-1, 229, which sets forth a constructive sale price formula for use by a retail dealer in computing the manufacturers excise tax imposed by section 4061(a)(1) of the Internal Revenue Code of 1954 on his sales at retail of truck bodies and hoists that he has further manufactured in the manner described in Revenue Ruling 69-195, C.B. 1969-1, 276.

Section 4216(b)(1) of the Code provides that if an article is sold at retail the tax shall be computed on the price for which such articles are sold, in the ordinary course of trade, by manufacturers or producers thereof, as determined by the Secretary or his delegate. The computation shall be on whichever of the following prices is the lower: (i) the price for which such article is sold, or (ii) the highest price for which such articles are sold to wholesale distributors, in the ordinary course of trade, by manufacturers or producers thereof, as determined by the Secretary or his delegate.

Section 148.1-5(b)(1) of the temporary regulations relating to constructive sale price provides that where a manufacturer, producer, or importer regularly sells an article at retail, the tax on his retail sale ordinarily will be computed upon the highest price for which similar articles are sold by him to wholesale distributors. However, in such cases it must be shown that he has a bona fide practice of selling such articles in substantial quantities to wholesale distributors. If he has no such sales to wholesale distributors, a fair market price will be determined by the Commissioner.

In the situation described in Revenue Ruling 69-195, a retail dealer purchased dump truck bodies or chassis from the manufacturer thereof and separately purchases hoists from the hoist manufacturer. The dealer sold these bodies or chassis with hoists at retail in the same transaction. That Revenue Ruling holds that the combining or assembling of a body or chassis and hoist for sale or use is an act of further manufacture, and the manufacturer is therefore liable for the manufacturers excise tax imposed by section 4061(a) of the Code on its sale or use of the bodies or chassis (with hoists). Revenue Ruling 70-178 holds that, in accordance with the provisions of section 4216(b)(1) of the Code, the manufacturers excise tax on the dealer's sale at retail of bodies or chassis (with hoists) under the circumstances described in Revenue Ruling 69-195, is to be computed on a constructive sale price which is the lower of (i) the price for which the article is sold, or (ii) a constructive sale price determined by the Commissioner. For this purpose the Commissioner determined the constructive sale price to be 75 percent of the dealer's established retail price for each type of body or chassis (with hoist) but not less than the dealer's cost.

From the standpoint of determining a constructive sale price, the material facts in Revenue Ruling 69-195 are substantially similar to the problem considered in Revenue Ruling 71-170, C.B. 1971-1, 365. In that latter ruling, the Internal Revenue Service considered, among other things, the question of determining the amount of tax due on the sale of a completed highway-type tractor where a retail dealer acquired the tractor and a fifth wheel from two different manufacturing sources, installed the fifth wheel on the tractor, and sold the completed tractor at retail. As in that situation, although a truck body or chassis equipped with a hoist is a single article for manufacturers excise tax purposes, to construct a sale price it is necessary to treat the body or chassis and hoist as consisting of two elements: one that relates to the body or chassis, and one that relates to the hoist installed.

Accordingly, it is held that the constructive sale price formula set forth in Revenue Ruling 71-170, as amplified by Revenue Ruling 71-400, C.B. 1971-2, 358, shall be used to compute the tax in the factual situations described in Revenue Ruling 69-195. As applied to the situations in Revenue Ruling 69-195, the aforementioned two elements in the formula shall consist of (1) the original body or chassis and (2) the new hoist installed. The element relating to the body or chassis is an amount equal to the tax base (sales price as determined under section 4216(a) and (f) of the Code) on which the original body or chassis manufacturer computed his manufacturers excise tax liability on his sale to the dealer. The element relating to the new hoist installed is an amount equal to the original hoist manufacturer's tax base, plus the cost of installation, and the normal markup allocable to such manufacturing.

Where the actual reporting data of the original body or chassis and hoist manufacturers is not available to the dealer, the Service will accept the further manufacturer's excise tax liability computed under the alternative method illustrated in Revenue Procedure 71-24, C.B. 1971-2, 552, regarding fifth wheel installations.

Revenue Ruling 70-178 is hereby revoked, and Revenue Ruling 69-195 is amplified. Revenue Procedure 71-24 is hereby extended to apply to certain dealers and trucking operators who are manufacturers under the provisions of Revenue Ruling 69-195.