Rev. Rul. 69-392

Advice has been requested as to the status, for purposes of the manufacturers excise tax imposed by section 4061 of the Internal Revenue Code of 1954, of the various types of refrigeration equipment described below, in the light of the decision in the case of U.S. Thermo Control Co. v. United States and Thermo King Corporation v. United States, 372 F. 2d 964 (1967), certiorari denied 389 U.S. 839 (1967).

Type 1. This unit is self-contained and is designed for use in refrigerating truck or truck trailer bodies subject to the tax imposed on automotive bodies by section 4061(a) of the Code. Each unit consists of a compressor, condenser, and an evaporator. The evaporator is of the conventional fin and tube type. When installed in a truck or trailer body, the self-contained unit is usually mounted in a housing attached to the outside of the front or rear wall of the body. In the case of a split unit the evaporator is mounted outside of either the front or rear wall and the compressor-condenser unit is mounted under the floor of the body. The split unit and self-contained unit are typical of those that were involved in the U.S. Thermo Control Co. case.

Type 2. This unit consists of a compressor and a condenser similar to those contained in the Type 1 unit. However, instead of a fin and tube type evaporator, the system employs "holdover plates" that are connected to the compressor and condenser and mounted or hung within the truck or trailer body. The compressor and condenser may be mounted in a housing attached to the outside of the body, or in the skirting, or it may be attached to the chassis. The electrical power to activate this unit is frequently derived from a source outside the vehicle. However, some models are so equipped that the power source is within or mounted on the vehicle.

Type 3. Although it is designed to perform the same function as the Type 1 and Type 2 units (i.e., to provide refrigeration for a truck or truck trailer body), this unit operates on a different refrigeration principle. No compressor, condenser, or evaporator is employed. The system consists of a container, tubing, and a thermostatic control. The refrigerating element is liquid nitrogen which is stored in the container. Upon a signal from the thermostat, the liquid nitrogen is released from the container through a perforated overhead tube. The liquid nitrogen instantly turns to vapor, absorbing heat in the process and producing the controlled temperature desired.

Type 4. This type is a holdover cabinet designed to be installed in a truck or truck trailer body. It is usually found in a local-delivery truck body and is used to preserve ice cream and milk as well as frozen food during the delivery period. In some models compressors and condensers are parts of the holdover cabinets. In other models the compressors and condensers are mounted in the vehicle separate from the cabinets. Some of the cabinets are designed to be activated from an electrical source removed from the vehicle, while others are so designed that they are activated from a power source within, or mounted on, the body. The cabinets are chilled prior to the start of delivery rounds, and the refrigeration is "held over" during the delivery period.

Section 4061(a)(1) of the Code imposes a tax upon various motor vehicle articles, including truck and truck trailer bodies, sold by the manufacturer, producer, or importer thereof (including in each case parts or accessories sold on or in connection therewith or with the sale thereof).

Section 4061(b)(1) of the Code imposes a tax upon parts or accessories for articles enumerated in section 4061(a)(1), sold by the manufacturer, producer, or importer thereof.

Section 48.4061(b)-2(a) of the Manufacturers and Retailers Excise Tax Regulations provides that the term "parts or accessories" includes (1) any article the primary use of which is to improve, repair, replace, or serve as a component part of an automobile truck or bus chassis or body, or taxable tractor, (2) any article designed to be attached to or used in connection with such chassis, body, or tractor to add to its utility or ornamentation, and (3) any article the primary use of which is in connection with such chassis, body, or tractor, whether or not essential to its operation or use.

In the U.S. Thermo Control Co. case, the United States Court of Claims concluded that certain mechanical refrigeration units designed to be installed in taxable truck or truck trailer bodies are not subject to the tax imposed by section 4061(b)(1) of the Code when sold by the manufacturer, producer, or importer of the units.

Revenue Ruling 68-136, C.B. 1968-1, 453, holds that refrigeration units of the type involved in the U.S. Thermo Control Co. case are not subject to the tax imposed on parts or accessories by section 4061(b)(1) of the Code. The Revenue Ruling also holds that in computing the tax imposed by section 4061(a)(1) of the Code upon the sale of truck and trailer bodies, the portion of the sale price attributable to refrigeration units sold on or in connection with the sale of such bodies is to be excluded from the tax base.

The questions presented in this Revenue Ruling relate specifically to (a) the type of refrigeration units that are considered to come within the ambit of the decision in the U.S. Thermo Control Co. case, and (b) assuming a truck or trailer body is refrigerated by a nontaxable unit, the part of the selling price of the body that may be considered attributable to the sale price of the nontaxable refrigeration unit.

A manufacturers excise tax was first imposed on mechanical refrigerators and refrigeration equipment by section 546 of the Revenue Act of 1941. The following year that tax was limited to refrigerators and refrigeration equipment of the "household type" by section 614 of the Revenue Act of 1942. Essential to the decision in U.S. Thermo Control Co. was the court's conclusion that the units there involved were of a type that would have been taxable under the Revenue Act of 1941, but would have been excluded from tax by the Revenue Act of 1942 by reason of the fact that the units were of a commercial rather than a "household type." It was further concluded by the court that the removal of the tax from commercial refrigeration equipment by the Revenue Act of 1942 was evidence of Congressional intent to remove such equipment from all manufacturers excise taxation, including the tax on automotive articles currently imposed by section 4061 of the Code.

The Internal Revenue Service has concluded that the Type 1 units described above are physically like those in U.S. Thermo Control Co. Although the Types 2, 3, and 4 units described above are physically different in some respects they are considered comparable to those in the court case in that they are mechanical refrigeration units of a kind that would have been subject to the manufacturers excise tax imposed by section 546 of the Revenue Act of 1941. Furthermore, because these units are of a commercial rather than a household type they would also have been excluded from that tax when section 614 of the 1942 Act was adopted. Since the Types 1, 2, 3, and 4 units are comparable to the units in U.S. Thermo Control Co., they are considered to come within the ambit of the decision in that case, and, accordingly, it is held that they are not articles subject to the manufacturers excise taxes imposed by sections 4061(a) and 4061(b) of the Code.

In determining the taxable sale price of an automotive body containing a Type 1, 2, 3, or 4 unit there should be excluded from the total sale price of the body an amount representing the sale price of the refrigeration unit. The sale price of the refrigeration unit includes that portion of the total sale price of the automotive body that represents a charge for installing the unit and for any additional parts added to complete the installation.

If a body manufacturer sells, for a single price, a taxable truck or truck trailer body with a nontaxable refrigeration unit installed therein, the tax base for the body is to be determined by allocating the total selling price of the body in the manner described below.

If the manufacturer makes separate sales in substantial quantities at established prices of both the taxable body (without the refrigeration unit) and the nontaxable refrigeration unit installed (that is, the manufacturer sells units installed to customers who own bodies), the tax base should be determined by applying to the manufacturer's sale price of the combination, the ratio that the manufacturer's separate sale price of the taxable body (without the refrigeration unit) bears to the sum of the separate sale prices of the taxable body (without the refrigeration unit) and the nontaxable refrigeration unit installed.

Where the articles are not sold separately by the manufacturer, or where they are sold separately but not in substantial quantities at established prices, the tax base should be determined by applying to the total sale price of the body (including the refrigeration unit), the ratio that the manufacturer's cost of the body without the refrigeration unit bears to the total cost of the body including the installed refrigeration unit.

In view of the conclusion that the Type 2 unit described above is not a taxable automotive part or accessory, it follows that holdover plates, and hangers therefor, designed for use with Type 2 units are not taxable automotive parts or accessories. Accordingly, Revenue Ruling 63-23, C.B. 1963-1, 206, is hereby modified to the extent that it concludes that holdover plates, and hangers therefor, designed for use in truck or truck trailer bodies are taxable automotive parts or accessories.