Rev. Rul. 79-36
Rev. Rul. 79-36; 1979-1 C.B. 336
- Cross-Reference
26 CFR 48.4061(a)-1: Imposition of tax; exclusion for light-duty
trucks, etc.
(Also Section 4216; 48.4216(f)-1.)
- LanguageEnglish
- Tax Analysts Electronic Citationnot available
ISSUE
Is the value of owner-supplied replacement engines or salvaged parts from the owner's old truck excludible from the manufacturers excise tax base where the engines and parts are used in manufacturing new trucks?
FACTS
X owns and operates a fleet of trucks that it purchased new. After the trucks have been in service approximately eight years, at which time the physical usefulness of the trucks has been exhausted, X purchases new replacement engines tax paid and, in some cases, installs the engines in the trucks. X then sends each truck with a replacement engine (installed or not installed) to service company Y. Y combines the salvaged parts from the truck with glider kits and, where received separately, installs the replacement engines to make a new truck. The new trucks are then delivered to X.
LAW AND ANALYSIS
The applicable sections of the Internal Revenue Code of 1954 are 4061(a)(1), imposing a tax on the manufacturer's sale of trucks, and 4216(f), providing an exclusion for the value of any used component in determining the taxable price.
Under Rev. Rul. 71-584, 1971-2 C.B. 358, the assembly of a glider kit and salvaged parts from a used truck-tractor is the manufacture of a taxable motor vehicle. The value of the salvaged parts is excluded from the tax base as provided in section 4216 of the Code.
Under section 4216(f) of the Code, the value of any component used in the manufacture of a truck is to be excluded from the tax base if the person supplying it, who must also be the first user of the truck, had used it prior to supplying it.
The purpose of this section is to prevent taxing used components twice in a situation where, for example, a person builds a truck for a customer incorporating usable parts from a wrecked vehicle owned by the customer. See S. Rep. No. 324, 89th Cong., 1st Sess. 45 (1965), 1965-2 C.B. 676, 712.
Where a new truck is built by combining components of an owner's old truck with new components that are purchased for use in manufacture of the new truck, the purchased components may not be excluded from the tax base of the new truck. It is immaterial that some of the components may be installed in the old truck prior to its delivery to the fabricator. Such components are not "used" components intended to be excludible by section 4216(f) of the Code.
HOLDING
The value of the salvaged parts from X's old truck, including replacement parts installed in the course of the regular maintenance of the old truck, are excludible where used in the manufacture of the new truck.
The value of the new engines installed either by X in old trucks prior to sending the trucks to Y, or sent separately by X to Y and installed by Y, may not be excluded from the computation of manufacturers excise tax on the new trucks fabricated by Y. However, under section 6416(b)(3)(B) of the Code, credit or refund of the parts or accessories tax paid by the engine manufacturer on such engines is available.
- Cross-Reference
26 CFR 48.4061(a)-1: Imposition of tax; exclusion for light-duty
trucks, etc.
(Also Section 4216; 48.4216(f)-1.)
- LanguageEnglish
- Tax Analysts Electronic Citationnot available