Rev. Rul. 64-335

Advice has been requested concerning the application of the manufacturers excise tax on motor vehicle articles to the sale or use of certain vehicles in the situations set forth below.

Situation (1) .-A company engaged in the transportation business purchases a van-type semitrailer consisting of a complete chassis and a `body shell.' The body shell has reached a stage of manufacture at the time of purchase by the company so as to be considered a taxable body. See Revenue Ruling 60-271, C.B. 1960-2, 332.

To make the semitrailer suitable for use in transporting perishable products, the company adds insulation, lining materials, and insulated floors. The company also constructs meat rails and installs them in the body shell. In some instances, the completion process may include the addition of other articles, such as an insulated door.

Situation (2) .-A company engaged in the transportation business purchases an insulated van-type semitrailer consisting of a complete chassis and an insulated body. The company installs a refrigeration unit in the body.

Sometimes the companies in these situations engage the services of others to perform the above-described operations rather than performing them in their own shops. Title to the bodies remains in the companies during the performance of the operations. Although the companies generally use the completed bodies in their businesses, they occasionally sell them to other transportation companies.

Section 4061(a)(1) of the Internal Revenue Code of 1954 imposes a tax upon sales by the manufacturer, producer, or importer of certain enumerated motor vehicle articles, including automobile truck, trailer, and semitrailer bodies. This section further provides that the sale of a vehicle shall be considered to be a sale of a chassis and a body.

Under the provisions of section 4218(a) of the Code, insofar as applicable to the situations presented here, if any person manufactures or produces an article and uses it (otherwise than as material in the manufacture or production of, or as a component part of, another taxable article to be manufactured or produced by him), then he shall be liable for the manufacturers excise tax in the same manner is if such article were sold by him.

The operations described above, involving the installation of insulating materials or a refrigeration unit in a body, constitute `further manufacture' of the body. Accordingly, the transportation companies are deemed to be the manufacturers of the insulated or refrigerated bodies. It is immaterial that, in some cases, the operations are performed by persons other than the owners of the bodies, since such persons are merely `manufacturing agents' for the companies.

In view of the foregoing, it is held that the use of the completed bodies by the transportation companies in the operation of their businesses makes those companies liable, under the provisions of section 4218(a) of the Code, for the manufacturers excise tax imposed by section 4061(a)(1) of the Code in the same manner as if the bodies were sold by them.

On the other hand, where the companies sell the completed bodies, they are liable for the tax under the provisions of section 4061(a)(1) of the Code.

It should be noted, however, that the original manufacturers of the `body shell' and the semitrailer body may sell those articles to the transportation companies on a tax-exempt basis, under the provisions of section 4221(a)(1) of the Code and the applicable regulations.