Rev. Rul. 57-593

The Internal Revenue Service has been asked to explain how the principles set forth in Revenue Ruling 54-329, C.B. 1954-2, 405, may be applied in the transactions below in determining the consequences of the tax on automobile parts or accessories imposed by section 4061(b) of the Internal Revenue Code of 1954.

M company is engaged in the business of rebuilding and selling rebuilt automobile parts or accessories on an exchange basis or out-right. It accepts in trade and restores to operating condition parts and accessories turned over to it by customers. In order to accommodate its customers and supply their demands as promptly as possible, the company keeps on hand a float or inventory of articles which have been previously rebuilt to replace articles turned in which are incapable of being restored. Customers are interested only in satisfying their needs for usable rebuilt parts or accessories and are not concerned whether the articles they get in return are the same articles they turned in.

It is held where there is a sale of rebuilt articles, either outright or on an exchange basis, by the person restoring the articles to operating condition, that such person is the manufacturer or rebuilder. Under the circumstances outlined in the transaction above, title to the articles turned in is presumed to vest in the M company and the company is liable for tax as the manufacturer of the articles sold. This is so, even though some of the articles returned to the customer may happen to be the identical ones turned in by him.

N company is also engaged in the business of restoring automobile parts or accessories to operating condition. Its business, however, is primarily a service operation and the company charges a customer only for the labor and materials furnished in performing a job. The articles restored are the property of the customer or the person for whom he is acting. The customer understands that the articles will remain his property or the property of the person for whom he is acting, that the identity of the articles will be preserved by the person restoring them, and that the identical articles will be returned to him. The person restoring the articles recognizes this understanding of his customer and accepts the job on such basis.

In a transaction such as this, the operation performed is a repair operation, provided the articles are not restored for purposes of sale or for use as components of other articles for sale. Under these circumstances, the N company would not be regarded as the manufacturer and accordingly would not be subject to tax.

No set form of proof has been prescribed to establish that title to the articles restored remained in the customer or in the person for whom the customer acted. Such proof may be in the form of correspondence between the arties, contracts executed by them, or may be established by the ordinary records and entries made in books of account by the person restoring the articles. The character of the transaction may be apparent also from the customs of the trade and from a study of the regular business practices of the repairer. Revenue Ruling 54-329, supra , amplified.