Rev. Rul. 66-308

The Internal Revenue Service has been asked whether the vehicles described below are automobile trucks subject to tax under section 4061(a)(1) of the Internal Revenue Code of 1954 or whether they are other automobiles subject to tax under section 4061(a)(2). Examples of such vehicles are the various models of the `Bronco,' `Jeep,' and `Scout.' These vehicles are merely illustrative of a larger number of domestic and foreign vehicles.

Section 201(a) of the Excise Tax Reduction Act of 1965, C.B. 1965-2, 568, at 569, amended paragraph (2) of section 4061(a) of the Code to impose lower rates of tax on articles enumerated therein than on articles enumerated in paragraph (1). Prior to this amendment, the articles enumerated in paragraphs (1) and (2) were subject to the same rates of tax. Thus, it was unnecessary, for tax rate purposes, to distinguish between articles taxable under paragraph (1) and those taxable under paragraph (2). Under present law, however, a manufacturer, producer, or importer of automotive vehicles must be able to specifically classify a vehicle under either paragraph (1) or paragraph (2) at the time of his sale in order to apply the correct rate of tax to the sale.

The characteristics and specifications of the vehicles in question are somewhat similar and can be described generally as follows:

The basic vehicle consists of a chassis and an open body with provision for mounting various types of removable tops. Some of the chassis are available in a two-wheel drive, some in a four-wheel drive, and others in optional two- or four-wheel drive. Various options for seating arrangements are available: either a bench-type front seat or bucket seats, and with or without seats in the rear. Some of the various removable tops available are:

(a) Enclosed full-length metal or fabric top with side windows in the front and back seat area;

(b) Enclosed full-length metal or fabric top with side windows in the front seat area only;

(c) Metal or fabric half-top to enclose the front seat area only. The area behind the front seat is available as cargo space. This is also true with respect to the full-length tops described in (a) and (b) above when the rear area is not equipped with seats.

Vehicles of the type described are designed as rugged, all-purpose sports or utility vehicles. Consequently, a variety of optional equipment is available. This includes power takeoffs, winches, wrecker cranes, snowplows, rotary mowers, post hole diggers, rotary brooms, and implement lifts.

A tax is imposed under paragraph (1) of section 4061(a) of the Code at the rate of 10 percent upon the sale by the manufacturer, producer, or importer of certain articles including automobile truck chassis and bodies; and at variable rates (now 7 percent) by paragraph (2) upon automobile chassis and bodies other than those taxable under paragraph (1). Paragraphs (1) and (2) each provide that the sale of a complete vehicle shall be considered a sale of a chassis and of a body enumerated in the specific paragraph. Thus, where a complete vehicle is classified as a passenger car, the chassis will be classified as a passenger car chassis even though it could have been used with a truck body.

The information set forth above indicates that the basic open bodies and bodies equipped with tops of the type described in (a) above have been designed primarily as passenger carrying bodies. However, bodies equipped with tops of the type described in (b) and (c) above have been designed primarily as bodies for vehicles to transport property. It is recognized that the bodies in each of the two classifications have capabilities related to the other group. For example, bodies primarily designed as passenger carrying bodies are also capable of transporting property. However, this function is considered incidental to the function of transporting passengers.

Accordingly, it is held that sales by the manufacturer, producer, or importer of vehicles incorporating open bodies of the type described above or with bodies of the type described in (a), are subject to the tax imposed by section 4061(a)(2) of the Code. Also, it is held that vehicles with a body style described in (b) and (c) above are subject to the tax imposed by section 4061(a)(1).

In view of the interchangeability of the various types of tops and enclosures, the classification of a particular vehicle can be changed by an act of further manufacture after the original sale by the vehicle manufacturer. For example, if a retail dealer purchases from the original manufacturer a vehicle with an open body (classified above as a passenger automobile) and installs a truck-type cab enclosure, he is considered to be the manufacturer of a truck taxable under section 4061(a)(1) of the Code and is liable for tax at a rate of 10 percent of the price for which the vehicle is sold by him, subject to the provisions of section 4216 of the Code. See Revenue Ruling 54-25, C.B. 1954-1, 258. Conversely, a dealer who purchases from the original manufacturer a vehicle (classified above as a truck) and converts it into a passenger automobile by removal or replacement of the top or enclosure, is considered to be the manufacturer of a passenger automobile, taxable under section 4061(a)(2) of the Code and is liable for tax at the rate in effect at the time of his sale of the passenger automobile. In both of these situations the dealer-manufacturer would be entitled to a credit or refund of the tax paid by the original manufacturer of the vehicle. See section 6416(b)(3)(A).

If in either of the above situations the dealer-manufacturer purchases the vehicle from an intervening vendor, credit or refund of the tax previously paid by the original manufacturer can be allowed only to the original manufacturer under the provisions of section 6416(b)(2)(E) of the Code.