Rev. Proc. 71-24

Section 1. Purpose

The purpose of this Revenue Procedure is to set forth a method for computing the manufacturers excise tax acceptable to the Internal Revenue Service as an alternative to the method set forth in Revenue Ruling 71-170, C.B. 1971-1, 365. The alternative method for determining the tax may be availed of only by certain dealers and trucking operators who, by virtue of their having installed a fifth wheel on a highway-type tractor, are held to be manufacturers under the provisions of Revenue Ruling 71-170. This alternative method of computation is made available for the convenience of dealers and trucking operators in those situations where they do not have access to all of the information required to use the constructive sale price formula set forth in Revenue Ruling 71-170.

Sec. 2. Background

.01 Revenue Ruling 71-170 holds that a dealer who purchases a new highway-type tractor from a tractor manufacturer, and installs a fifth wheel on the tractor, has performed an act of further manufacture. The Revenue Ruling also holds that a trucking operator who purchases a new highway-type tractor from a retail dealer, and a new fifth wheel from another retail dealer and installs the fifth wheel on the tractor, has performed an act of further manufacture. The tractors and fifth wheels involved were sold by the original manufacturers thereof in transactions subject to manufacturers excise taxes. The Revenue Ruling concludes that the dealer or operator is liable for the manufacturers excise tax imposed by section 4061(a)(1) of the Internal Revenue Code of 1954 on his sale or use of the completed tractor. It should be noted that Revenue Ruling 71-170 is concerned with dealers or operators who personally install fifth wheels on tractors. Revenue Ruling 71-400 page 358, this Bulletin, amplifies Revenue Ruling 71-170 to include a situation where a dealer or operator acquires a fifth wheel from a fifth wheel dealer who also installs the fifth wheel for the dealer or operator.

.02 The method for computing the manufacturers excise tax set forth in Revenue Ruling 71-170 requires the further manufacturer to apply the 10 percent rate of tax imposed by section 4061(a)(1) of the Code to a constructive sales price. The constructive sales price is the total of the excise tax bases of the original manufacturers of the tractor and fifth wheel, and the cost of installation of the fifth wheel. The resultant amount of gross tax is reduced by tax credits for (1) tax paid by the original manufacturer on his sale of the tractor, (2) tax paid by the original manufacturer on his sale of the fifth wheel, and (3) tire tax credit claimed by the original manufacturer of the tractor.

.03 It has been brought to the attention of the Service that the dealers and operators may not be able to obtain the tax reporting data from the tractor manufacturer and the fifth wheel manufacturer. Without this tax reporting data, computation of the manufacturers excise tax liability under the Revenue Ruling is, of course, not possible.

Sec. 3. Alternative Method

Where the actual reporting data is not available to the dealer or operator, the Service will accept a manufacturers excise tax liability computed on the basis of the following example:

A dealer or operator purchases a new tractor for $13,200, and purchases a fifth wheel for $486. The dealer or operator installs the fifth wheel on the tractor at a cost of $100. As indicated in Revenue Ruling 71-170, such dealer or operator is the manufacturer of the completed tractor, for manufacturers excise tax purposes. Both the 10 percent excise tax on the tractor and the 8 percent excise tax on the fifth wheel were paid by the original manufacturers on their respective sales of the articles. When the dealer or operator sells or uses the complete vehicle, he is liable for excise tax at the 10 percent rate. The taxpayer should normally use the constructive sale price formula contained in Revenue Ruling 71-170, to compute his liability. However, in this example the taxpayer does not know the exact amounts of excise tax paid by the tractor manufacturer and fifth wheel manufacturer, or the other tax reporting information mentioned in section 2.02.

 Further manufacturer's

¹ Also released as News Release IR-1159, dated August 17, 1971.