Rev. Rul. 80-354

ISSUE

For purposes of the manufacturers excise tax exemption provided by section 4081(c)(1) of the Internal Revenue Code, is S a producer under the circumstances described below?

FACTS

P, the parent company of S, is the sole supplier of gasoline to S. S operates a chain of retail service stations. To make gasohol, S purchases gasoline from P and alcohol from an independent alcohol supplier. The alcohol S purchases is not made from petroleum, natural gas, or coal. The gasoline and alcohol are mixed when loaded into S's transport trucks. The mixture is then transported to and unloaded into its underground storage tanks at S's service stations. The mixture contains 10 percent alcohol.

LAW AND ANALYSIS

Section 4081(a) of the Code imposes on gasoline sold by the producer or importer a tax of 4 cents a gallon. Section 4081(c) provides that no tax shall be imposed by section 4081(a) on the sale of gasoline (A) in a mixture with alcohol, if at least 10 percent of the mixture is alcohol, or (B) for use in producing a mixture at least 10 percent of which is alcohol.

Section 48.4081-2(a) of the Manufacturers and Retailers Excise Tax Regulations provides that under section 4081(c) of the Code the tax imposed by section 4081 on the sale of gasoline does not apply to the sale of qualifying gasohol or to the sale of gasoline for the purpose of producing gasohol if the requirements of this section are met. Qualifying gasohol is referred to in this section as gasohol. Gasohol is a blend of gasoline and alcohol (whether domestic or imported alcohol) in a mixture at least 10 percent of which is alcohol made from any product other than petroleum, natural gas, or coal.

Section 48.4081-2(b) of the regulations provides that under section 4081(c) of the Code sales of gasoline for the purpose of producing gasohol are not exempt unless the sale is in bulk quantities for delivery into a bulk storage tank of a producer who meets the requirements of this section. For purposes of section 4081(c) the term "producer" means any person who in the ordinary course of its trade or business regularly buys gasoline and alcohol in bulk quantities for blending for use in its trade or business or for resale. Thus, the mere purchase of gasoline for blending into gasohol does not qualify a person as a producer. A person is not a producer for purposes of section 4082 (which defines a producer for purposes of the tax imposed on gasoline by section 4081) merely because such a person is a producer of gasohol for purposes of section 4081(c). Thus, the provisions of section 4083 (relating to certain exempt sales to producers) do not necessarily apply.

S regularly buys gasoline and alcohol in bulk quantities for blending, storage in the bulk tanks at its service stations, and for resale. Although the regulations require only that a mixture of gasoline and alcohol yield a product that is at least 10 percent alcohol and the alcohol may not be from certain sources, neither the Code nor the regulations indicate that a special process is required in the production of gasohol. The mixing of the gasoline and alcohol on the transport trucks constitutes the blending of gasohol.

HOLDING S meets the requirements of section 48.4081-2(b) of the regulations and is a producer of gasohol for resale. The sale of gasoline by P to S qualifies for the exemption from manufacturers excise tax provided by section 4081(c) of the Code.