Rev. Rul. 71-400

Revenue Ruling 71-170, C.B. 1971-1, 365, discusses the method for computing manufacturers excise tax under the constructive sale price provisions of section 4216(b)(1) of the Internal Revenue Code of 1954 in the following two situations.

Situation (1). A dealer purchases a new highway-type tractor from a tractor manufacturer, and a new fifth wheel from a fifth wheel manufacturer and installs the fifth wheel on the tractor. Situation (2). A trucking operator purchases a new highway-type tractor from a retail dealer and a new fifth wheel from another retail dealer and installs the fifth wheel on the tractor. In both Situations (1) and (2) the tractor and fifth wheel were sold by the original manufacturers on a tax-paid basis.

Revenue Ruling 71-170 holds that both the dealer in Situation (1) and the operator in Situation (2) have performed an act of further manufacture and are liable for the manufacturers excise tax imposed by section 4061(a)(1) of the Code upon their sale or use of the completed tractors. The Revenue Ruling provides a constructive sale price formula under which both manufacturers may compute their manufacturers excise tax liability. The formula utilizes the actual tax reporting data obtained from the tractor manufacturer and fifth wheel manufacturer. The element of the formula relating to the new fifth wheel installed is an amount equal to the original fifth wheel manufacturer's tax base plus the cost of installation of the fifth wheel, and the normal markup allocable to such manufacturing, which in Situations (1) and (2) is represented to be zero.

Revenue Ruling 71-170 is concerned with truck dealers and trucking operators who personally install fifth wheels on truck tractors. It has come to the attention of the Internal Revenue Service that in many instances dealers and operators purchase fifth wheels from fifth wheel dealers who also install the fifth wheels on truck tractors owned by the dealers or operators. An inquiry has been received as to the effect this method of installation may have on the constructive sale price formula set forth in Revenue Ruling 71-170.

Held: In those instances where truck dealers or trucking operators purchase fifth wheels from fifth wheel dealers who also install the fifth wheels on tractors owned by the truck dealers or operators, the amount to be included by the truck dealers or trucking operators in the constructive sale price formula as "cost of installation" of the fifth wheel is the total amount charged the truck dealer or trucking operator for installation of the fifth wheel.

Revenue Ruling 71-170 is hereby amplified.

¹ Also released as News Release IR-1159, dated August 17, 1971.