Rev. Rul. 75-216

Advice has been requested whether the manufacturers excise tax on motor vehicle articles imposed by section 4061(a) of the Internal Revenue Code of 1954 may be credited or refunded to the manufacturer of vehicles damaged or destroyed under the circumstances described below.

A manufacturer of motor vehicles sells vehicles to franchised dealers. The vehicles are subject to the tax imposed by section 4061(a) of the Code when sold by the manufacturer. Each sale is subject to the terms of a franchise agreement between the manufacturer and the dealer.

Under the terms of the franchise agreement, title to the vehicles is transferred from the manufacturer to the dealer when the vehicles are turned over to the public carrier for shipment to the dealer. However, the agreement also provides that the manufacturer shall assume all risk of loss or damage to the vehicles while they are in the possession of a carrier, to the extent that such loss or damage is not the responsibility of the carrier. Furthermore, under the agreement, where the manufacturer must assume all risk of loss or damage, title to the vehicles so lost or damaged while in the possession of the carrier reverts to the manufacturer and the manufacturer is required to issue a full credit or refund of the sales price to the dealer.

When the vehicles in question are turned over to a carrier for shipment to the dealer, the manufacturer accrues the related manufacturers excise tax liability on its books, and pays such liability on the due date, unless the sale has been rescinded in the interim. A vehicle was lost and another was damaged during shipment to the dealer under circumstances which were not the responsibility of the carrier. Pursuant to the agreement the manufacturer assumed all risk of loss and damage and issued a full (excise tax included) credit of the sales price to the dealer.

Section 4061(a)(1) of the Code imposes a tax upon the sale by the manufacturer, producer, or importer of certain enumerated motor vehicle articles.

Section 316.1(f) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, 1954-2 C.B. 47, defines the term "sale" for purposes of the manufacturers excise tax as an agreement whereby the seller transfers the property (that is, the title or the substantial incidents of ownership) in goods to the buyer for a consideration called the price, which may consist of money, services, or other things.

Section 316.5 of Regulations 46 provides that, in general, the tax attaches when the title to the article sold passes from the manufacturer to a purchaser. When title passes is dependent upon the intention of the parties as gathered from the contract of sale and the attendant circumstances. Generally, title passes upon delivery of the article to the purchaser or to a carrier for the purchaser. In the case of a sale on credit, it is immaterial whether or not the purchase price is actually collected.

Under the provisions of section 6416(b)(1) of the Code, if the price of any article in respect of which a tax, based on such price, is imposed by chapter 32, is readjusted by reason of the return or repossession of the article, the part of the tax proportionate to the part of the price repaid or credited to the purchaser shall be deemed to be an overpayment, and credit or refund shall be allowed or made in respect of such overpayments.

Section 48.6416(b)-1(b)(2)(i) of the Manufacturers and Retailers Excise Tax Regulations provides that if a taxable article is returned before use to the person who paid the tax to the United States on the sale of such article, and all of the purchase price is repaid to the vendee or credited to his account, a price readjustment giving rise to an overpayment results.

In the instant case, title to a vehicle passes to the dealer when the vehicle is turned over to the public carrier for shipment to the dealer, and manufacturers excise tax liability is incurred at that time. The terms of the sales agreement provide, however, that if the vehicle is damaged or lost in transit under circumstances which are not the responsibility of the carrier, the manufacturer is obligated to credit or refund the full sale price (including the excise tax) to the dealer. In such event, the sale is effectively rescinded. Such a transaction qualifies as a price readjustment within the purview of section 48.6416(b)-1(b)(2)(i) of the regulations giving rise to an overpayment under section 6416(b)(1) of the Code.

Accordingly, in the instant case, the manufacturer is entitled to credit or refund of the manufacturers excise tax paid on the sale of the vehicles, under the provisions of section 6416(b)(1) of the Code.

Rev. Rul. 56-361, 1956-2 C.B. 794, holds, in part, that where title to an article passes from the manufacturer to the purchaser upon delivery to a carrier, the manufacturer incurs liability for tax at that time and the subsequent damage to or destruction of the article has no effect on the manufacturer's liability for tax on the sale of the article.

Rev. Rul. 68-559, 1968-2 C.B. 504, holds that liability for manufacturers or retailers excise tax is incurred at the time of sale of the article by the manufacturer or retailer, and that a subsequent loss of the tax-paid article through casualty does not give rise to a claim for credit or refund of the tax. Rev. Ruls. 56-361 and 68-559 are distinguishable from the instant case because in neither of those Revenue Rulings was there an agreement that if there was damage or loss in transit, credit or refund of the full sale price was required to be given by the manufacturer to the dealer that effectively rescinds the sale resulting in a price readjustment, within the meaning of section 6416(b)(1) of the Code.

Rev. Ruls. 56-361 and 68-559 are hereby distinguished.