Rev. Rul. 62-142

For purposes of determining the applicability of the manufacturers excise tax on automobile parts or accessories, advice has been requested whether the restoration of automobile shock absorbers in the manner and for the purpose described below is considered to be `rebuilding' (which constitutes `manufacturing') as distinguished from `reconditioning.'

A company is engaged in the business of restoring and selling automobile shock absorbers of the tubular type. The company obtains unserviceable shock absorbers (either by outright purchase or in exchange transactions) and restores them to serviceable condition in the manner described below for sale (either outright or on an exchange basis).

The major operations in the company's restoration of the unserviceable shock absorbers to serviceable condition involve drilling and tapping a hole in each article and installing a filler plug to allow the addition of fluid. This process changes the article from an unserviceable shock absorber of the nonrefillable type to a serviceable shock absorber of the refillable type. Upon completion of the restoration process, the shock absorbers are placed in stock for sale.

Section 4061(b) of the Internal Revenue Code of 1954 imposes a tax on the sale by the manufacturer, producer, or importer of parts or accessories (other than tires and inner tubes and other than automobile radio and television receiving sets) for any of the motor vehicle articles enumerated in section 4061(a) of the Code.

Section 40.4061(b)-3(a) of the Manufacturers and Retailers Excise Tax Regulations provides that rebuilding of automobile parts or accessories, as distinguished from reconditioning or repairing, constitutes manufacturing, and the rebuilder of such parts or accessories is liable for the tax imposed by section 4061(b) with respect to his sales of such rebuilt parts or accessories. Reboring or other machining, rewinding and comparable major operations constitute rebuilding.

The operations which are performed by the instant company in restoring unserviceable shock absorbers to serviceable condition for sale constitute `rebuilding' (manufacturing) within the meaning of section 40.4061(b)-3(a) of the regulations. Therefore, it is held that the manufacturers excise tax on automobile parts or accessories, imposed by section 4061(b) of the Code, applies to the company's sales of the rebuilt shock absorbers.

When the rebuilt shock absorbers are sold on an exchange basis, the sale price upon which the tax is to be computed does not include the value of the like articles accepted in exchange, under the provisions of section 4062(b) of the Code and section 40.4062(b)-1 of the regulations.