Rev. Rul. 60-81

Advice has been requested as to the applicability of the provisions of the Internal Revenue Code of 1954 relating to tax-free sales of articles for export and the provisions relating to credit or refund when automobiles are sold under the circumstances described below.

M company manufactures complete automobiles which it sells to `converter' O for the purpose of export. Converter O `stretches' these automobiles into limousines, hearses, ambulances, etc. This is accomplished by extending the frame, installing additional doors and a roof panel, retrimming the interior, modifying the sheet metal, lengthening the drive shaft, and repainting. At the time of the sale, M company receives a statement from converter O showing intent to export, and later M receives proof of export in the form of a copy of the export bill of lading. In the specific situation with respect to which advice has been requested, M company paid the manufacturers excise tax on its sales of the automobiles, but desires a refund of the tax paid on the basis that the automobiles were exported and that the operations described above do not constitute further manufacture of the automobiles.

Section 4061(a) of the Code imposes a tax upon the sale by the manufacturer, producer, or importer of automobile chassis, automobile bodies, and other enumerated motor vehicle articles. A sale of an automobile shall, for the purposes of this paragraph, be considered to be a sale of the chassis and of the body.

Section 4221(a)(2) of the Code provides that under regulations prescribed by the Secretary of the Treasury or his delegate, no manufacturers excise tax shall be imposed on the sale by the manufacturer of an article for export, or for resale by the purchaser to a second purchaser for export. Section 6416(b)(2)(A) provides that the manufacturers excise tax paid in respect of any article shall be deemed to be an overpayment if such article was, by any person, exported.

Section 316.25(a) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that to exempt from tax a sale for export it is necessary that two conditions be met; namely, (1) that the article be identified as having been sold by the manufacturer for export and (2) that it be exported in due course. Section 316.25(b) of the regulations provides, in part, that where delivery by the manufacturer of an article is to be made in the United States, such article will be regarded as having been sold by the manufacturer for export if the manufacturer has in his possession at the time title passes or at the time of shipment a statement from the purchaser showing that such article will be transported to its foreign destination in due course prior to use or further manufacture and prior to any resale except for export. Section 316.26(a) of the regulations provides, in part, that exportation may be evidenced by a copy of the export bill of lading issued by the delivering carrier.

Revenue Ruling 58-32, C.B. 1958-1, 391, holds, in part, that the conversion of passenger automobile chassis and bodies to chassis and bodies suitable for use in making a funeral coach or ambulance is considered to be an act of further manufacture, since new and different chassis or bodies are the result of such conversion.

Similarly, the conversion of automobiles into limousines, hearses, ambulances, etc., in the manner employed by converter O constitutes an act of further manufacture of both the chassis and the bodies.

Accordingly, since the automobiles sold by M are further manufactured prior to exportation, it is held that they may not be considered as having been sold by M for export. Therefore, neither the exemption with respect to articles sold for export, provided by section 4121(a)(2) of the Code, nor the credit or refund provisions, provided by section 6416(b)(2)(A) of the Code, are applicable. Moreover, when O sells the limousines, etc., for export there is no provision of law or regulations under which M may obtain a credit or refund of the tax paid. However, under the circumstances stated, O may obtain a credit or refund, without interest, in the amount of the tax paid by M , under the provisions of section 6416(b)(3)(A) of the Code.

On the other hand, under the circumstances present in this case, M may sell the automobiles tax-exempt under the provisions of sections 4221(a)(1) and 4222 of the Code, relating to sales of articles for further manufacture.