Rev. Rul. 78-205

The Internal Revenue Service has reconsidered its position in Rev. Rul. 64-34, 1964-1 C.B. 363, which holds that in lengthening a semitrailer chassis or body a part or accessory has been manufactured that is subject to the manufacturers excise tax imposed by section 4061(b) of the Internal Revenue Code of 1954.

Rev. Rul. 64-34 concerns a company engaged in the business of transporting cargo over the highway. In order to carry the maximum payload permitted by the states in which it operates, the company converts several of its used 35-foot semitrailers into semitrailers 40 feet in length.

The lengthening of a 35-foot semitrailer required the cutting of the top, sides, and floor-chassis a few feet from the front of the semitrailer. After the semitrailer was separated into two sections, bottom and top side rails were spliced into position to extend the vehicle to the desired 40-foot length. Necessary cross sills for the floor and bows for the roof were bolted to the side rails along the new five-foot section. Vertical side posts were riveted into position at intervals on both sides of the new section. Flat sheets of aluminum were riveted to the roof bows and the sides. Sheets of plywood were attached to the interior, and a combination metal and wood floor was attached to the floor sills.

In performing the lengthening operations, the company used lengthening kits purchased from various manufacturers. The kits were recognized and sold as automobile parts or accessories within the meaning of section 4061(b) of the Code, and were purchased by the company on a tax-paid basis. The kits were combined with the other parts and materials to produce the extension section used in the lengthening operations. Section 4061(a)(1) of the Code imposes a tax upon the sale by the manufacturer, producer, or importer of certain enumerated motor vehicle articles, including semitrailer chassis and bodies.

Section 4216(f) of the Code states that for purposes of the tax imposed by section 4061(a)(1), in determining the price for which an article is sold, the value of any component of such article shall be excluded from the price if (1) such component is furnished by the first user of such article, and (2) such component has been used prior to such furnishing.

Section 4218(a) of the Code provides that if any person manufactures, produces, or imports an article (other than specified articles not involved here) and uses it (otherwise than as material in the manufacture or production of, or as a component part of, another article taxable under chapter 32 of the Code) the liability for the tax under chapter 32 applies in the same manner as if such article were sold by the manufacturer, producer, or importer.

Under section 4221(a)(1) of the Code there is no manufacturers tax on the sale by the manufacturer of a part or accessory for use by the purchaser or a second purchaser in the manufacture of another article.

Under section 48.0-2(a)(4) of the Manufacturers and Retailers Excise Tax Regulations the term "manufacturer" includes any person who produces a taxable article from scrap, salvage, or junk material, as well as from new or raw material, by processing, manipulating, or changing the form of an article, or by combining or assembling two or more articles.

By cutting the semitrailer body and chassis and combining the salvaged parts with the lengthening kit, the company is the manufacturer of a new and different article within the meaning of the regulations.

Accordingly, under the provisions of section 4218 of the Code the company, as the manufacturer of a new 40-foot semitrailer, is liable for the tax imposed by section 4061(a)(1) on its use of the semitrailer. In determining the tax base of the new semitrailer, the value of the components used from the 35-foot semitrailer are excludible under section 4216(f).

In addition, the company is entitled under the provisions of section 6416(b)(3)(B) of the Code to a credit or refund of an amount equal to the tax paid by the lengthening kit manufacturer on its sale of such kits used in the manufacture of the new semitrailer. Further, under section 4221(a)(1), the company may purchase directly from the manufacturer or through one intervening purchaser lengthening kits tax free for use in the manufacture of the new semitrailer, provided the parties to the transactions are registered under section 4222.

Under the authority granted by section 7805(b) of the Code this revenue ruling will not be applied to use of the new 40-foot semitrailer prior to October 1, 1978.

Rev. Rul. 64-34 is revoked.