Rev. Rul. 63-163

Advice has been requested concerning the applicability, under the circumstances described below, of the exemption from the manufacturers excise tax provided by section 4221(a)(2) of the Internal Revenue Code of 1954 with respect to articles which are sold by the manufacturer for export.

United States manufacturers frequently sell automobiles to United States citizens who are travelling to or located in foreign countries. Under procedures which have been developed in accordance with the provisions of S.T. 939, C.B. 1951-2, 216, the manufacturers obtain statements from the purchasers indicating that the articles are being purchased for export. Within the six-month period prescribed by section 4221(b) of the Code, the manufacturers receive proof that the articles have been exported.

Occasionally, one of these purchasers returns the automobile to the United States, having failed to dispose of it in the foreign country because of circumstances which were not foreseen at the time of purchase. The manufacturers have asked whether the return of an automobile in this manner affects the exempt character of the manufacturer's sale for export.

Under the provisions of section 4221(a)(2) of the Code, no manufacturers excise tax is imposed on the sale by the manufacturer of an article for export but only if such exportation is to occur before any other use. Section 4221(b) of the Code provides that this exemption shall cease to apply in respect of such sale of such article unless, within the six-month period which begins on the date of the sale by the manufacturer (or, if earlier, on the date of shipment by the manufacturer), the manufacturer receives proof that the article has been exported.

Section 316.1(d) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, defines the term `exportation' to mean the severance of an article from the mass of things belonging within the United States with the intention of uniting it with the mass of things belonging within some foreign country or within a possession of the United States.

Under the provisions of sections 316.1(d) and 316.25 of Regulations 46, S.T. 939 prescribes the conditions under which sales of articles to United States citizens may be considered to be sales for export and, therefore, exempt from the manufacturers excise tax. In order for such a sale to be exempt from the tax, the manufacturer must have knowledge that the article is being purchased for export, that the purchaser intends that it will be sold or otherwise disposed of in a foreign country or a possession of the United States by the purchaser, and that the purchaser has a bona fide intention not to return the article to the United States at any time. Such knowledge may be evidenced by a statement or other equivalent proof furnished to the manufacturer by the purchaser before or at the time of sale or shipment.

This knowledge on the part of the manufacturer relates to the intention of the purchaser, at the time the article is severed from the mass of things belonging within the United States, to unite the article with the mass of things belonging within some foreign country or within a possession of the United States. If the manufacturer has knowledge of such a bona fide intention at the time of his sale of the article, the exempt character of the manufacturer's sale is not affected by the purchaser's subsequent return of the article to the United States as a result of circumstances which were not foreseen at the time of his purchase of the article.

Accordingly, under the provisions of section 4221(a)(2) of the Code and subject to the proof of exportation requirements of section 4221(b) of the Code, it is held that an automobile manufacturer is not liable for the manufacturers excise tax on an automobile which is sold to a United States citizen for export to a foreign country, if the manufacturer has knowledge at the time of his sale of the automobile that it is the bona fide intention of the purchaser not to return the automobile to the United States.

On the other hand, the exemption does not apply to a manufacturer's sale of an automobile for export if the manufacturer has knowledge that the purchaser intends at that time to return the automobile to the United States. Furthermore, it should be noted that any person who fraudulently uses the prescribed exemption certificate procedure subjects himself to the penalty provisions of the law.