Rev. Rul. 71-259

Advice has been requested as to the applicability of the manufacturers excise tax imposed by section 4061(a)(2) of the Internal Revenue Code of 1954 under the circumstances described below.

X company is engaged in the business of armoring the bodies of passenger automobiles for use in situations where maximum security for the passengers is required. X purchases new automobiles with standard bodies from Y company, the manufacturer, who ships the automobiles directly to X's plant. All required chassis modifications are made by Y prior to its sale of the automobiles to X.

To armor an automobile body, X forms 3/16-inch thick aluminum armor plate to the general shape of the body panels, including the roof, and installs it inside the panels with bolts and screws. X also installs armor plate on the dashboard, under the floor, and under the back and cushion of the rear seat. Bullet resisting stainless steel mesh is installed in the grill to protect the radiator. All of the standard glass is removed and replaced with 11/8-inch thick bullet resisting glass and the doors are equipped with electric window lifts. Other operations performed include the removal of molding and trim and reinstallation after armoring, and adapting glass openings to accommodate the thicker bullet resisting glass.

Section 4061(a)(2) of the Code imposes a tax upon the sale by the manufacturer, producer, or importer of certain enumerated motor vehicle articles including automobile chassis and bodies. That section further provides that a sale of an automobile shall be considered a sale of a chassis and of a body.

Thus, Y's sale of a complete automobile to X is considered to be the sale of an automobile chassis and an automobile body. However, the above-described modifications to the body by X constitute an act of further manufacture of the body by X, thereby producing a new taxable article for purposes of the manufacturers excise tax. Therefore, the tax imposed by section 4061(a)(2) of the Code on automobile bodies applies to that portion of X's sale price of the completed vehicle attributable to the body, subject to the adjustments provided by section 4216(a).

Since the bodies of the automobiles are further manufactured, under the provisions of section 4221(a)(1) of the Code, Y may sell the complete bodies tax free to X provided the requirements of section 4222 and the regulations relating to tax-free sales and registration are met. However, since X does not further manufacture the chassis of the automobiles, the chassis may not be sold tax free.

In any instance where X purchases a complete automobile on which the manufacturer has paid the total tax, credit or refund with respect to the tax paid on the body may be claimed by X under the provisions of section 6416(b)(3) of the Code.