Rev. Rul. 62-173

Advice has been requested concerning the manner in which the manufacturers excise tax imposed by section 4061(a) of the Internal Revenue Code of 1954 should be applied to a company's sales of specially designed automobile trucks manufactured and sold by the company under the circumstances described below.

For use in the manufacture of these trucks, the company purchased from other manufacturers various articles which are subject to the manufacturers excise tax on automobile parts or accessories, imposed by section 4061(b) of the Code. Although these articles could have been purchased tax free under the provisions of section 4221(a)(1) and section 4222 of the Code, they were purchased on a tax-paid basis, and the tax on those parts or accessories was paid by the manufacturers thereof.

Also, for sale on or in connection with these trucks, the company purchased on a tax-paid basis tires and inner tubes, which are taxable under section 4071 of the Code, and automobile radio receiving sets, which are taxable under section 4141 of the Code.

The company sells these trucks only at retail. Pursuant to the provisions of section 4216(b)(1) of the Code, the constructive sale price of the trucks has been determined to be a stated percentage of the established retail price for the articles, but not less than the company's cost of the trucks. The specific question presented is whether, in computing the company's `cost' of the trucks for this purpose, there should be included the total tax-paid cost of the taxable article purchased for use in the manufacture of the trucks.

Section 6416(b)(3)(B) of the Code provides, insofar as applicable here, that if the tax imposed on a part or accessory taxable under section 4061(b) has been paid with respect to the sale of any article by the manufacturer, producer, or importer thereof to a second manufacturer or producer, such tax shall be deemed to be an overpayment by such second manufacturer or producer if such article is used by the second manufacturer or producer as material in the manufacture or production of, or as a component part of, any other article manufactured or produced by him.

The statute contains no similar provision regarding tires or inner tubes taxable under section 4071 or automobile radio receiving sets taxable under section 4141. However, section 6416(c) of the Code provides, insofar as applicable to the situation presented here, that if tires, inner tubes, or automobile radio receiving sets on which tax has been paid are sold on or in connection with, or with the sale of, another article subject to the manufacturers excise tax, there shall be credited against the tax imposed on the sale of such other article an amount determined by multiplying the applicable percentage rate of tax for such other article by the purchase price of the tires, inner tubes, or automobile radio receiving sets.

For purposes of computing the manufacturers excise tax in those cases in which a manufacturer's `cost' of taxable articles becomes relevant, that `cost' should be determined in accordance with accepted accounting methods. Thus, the `cost' of the taxable articles should include all manufacturing, selling, and administrative expenses attributable to the articles except those expenses relating to charges which are excludable from the sale price under section 4216(a) of the Code. However, it should not include an amount which has been paid by the manufacturer but to which he has a right of reimbursement.

The manufacturers excise tax is imposed upon the seller of taxable articles rather than upon the purchaser. Therefore, the total, or tax-included, price of the articles ordinarily represents the cost of the articles to the purchaser. However, under the provisions of section 6416(b)(3)(B) of the Code, the amount of tax which has been paid by the manufacturers of the parts or accessories used in the manufacture of the trucks in the instant case is deemed to be an `overpayment' by the company which manufactures the trucks. The company is entitled to a credit or refund in the amount of that `overpayment.'

Accordingly, it is held that, for purposes of computing the company's `cost' of the trucks, its `cost' of the parts or accessories referred to above is the tax-excluded purchase price rather than the tax-included purchase price.

On the other hand, although section 6416(c) of the Code permits the company to take a credit against the tax imposed on the trucks , and that credit is based upon its purchase price of the tires, inner tubes, and automobile radio receiving sets, there is no provision that the tax which has been paid on the tires, inner tubes, and automobile radio receiving sets purchased by the company is deemed to be an `overpayment.' Therefore, the company's `cost' of those articles is the total, or tax-included, purchase price.