Rev. Rul. 64-34

Advice has been requested concerning the application of the manufacturers excise tax imposed by section 4061 of the Internal Revenue Code of 1954 under the circumstances described below.

A company is engaged in the business of transporting cargo over the highway. For several years, the company has used certain semitrailers, measuring 35 feet in length. In order to carry the maximum payload permitted by the states in which it operates, the company has lengthened several of these used semitrailers so that each is 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 rejoin the vehicle for the desired 40-foot length. Necessary cross sills for the floor and bows for the roof were bolted 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 vertical side posts, and a flat metal roof was riveted to the roof bows. 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 certain `lengthening kits' which were purchased from various manufacturers. These kits are recognized and sold as automobile `parts or accessories' within the meaning of section 4061(b) of the Code, and they were purchased by the company on a taxpaid basis. The kits were combined with the other parts and material as a part of the lengthening operations.

After the lengthening operations were completed, the resultant 40-foot semitrailers were subjected to other incidental repairs, if necessary, which were unrelated to the lengthening operations. Then, the semitrailers were put back into service by the company.

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 semitrailer bodies.

Section 4061(b) of the Code imposes a tax upon parts or accessories (with certain exceptions not applicable here) for any of the articles enumerated in section 4061(a) when sold by the manufacturer, producer, or importer.

Under the provisions of section 4218(c), if any person manufactures, produces, or imports a part or accessory taxable under section 4061(b) and uses it (otherwise than as material in the manufacture or production of, or as a component part of, any other article to be manufactured or produced by him), then he shall be liable for tax in the same manner as if such article were sold by him. In accordance with section 4218(e) of the Code, the tax is to be computed on the price at which such or similar articles are sold, in the ordinary course of trade by manufacturers, producers, or importers, thereof, as determined by the Secretary of the Treasury or his delegate .

Section 316.4(a) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that the term `manufacturer' includes a person who produces a taxable article from scrap, salvage, or junk material, as well as from new or raw material, (1) by processing, manipulating, or changing the form of an article, or (2) by combining or assembling two or more articles.

Section 316.7(d) of the regulations provides that the use by any person, in the operation of a business in which he is engaged, of any taxable article which has been manufactured, produced, or imported by him or his agent, makes such person liable to tax on such use.

Based on the facts and the description of the lengthening operations performed by the company in the instant case, it is concluded that the company combined or assembled various articles or components (including the lengthening kits) to produce an article (that is, the new five-foot section) for each semitrailer. This extension section comes within the scope of the term `parts or accessories' as used in section 4061(b) of the Code. Accordingly, under the provisions of section 4218(c) of the Code, the company is liable for the manufacturers excise tax imposed by section 4061(b) with respect to its use of the extension sections.

Since the extension sections produced by the company in the manner described above are not normally sold by manufacturers in the ordinary course of trade, it has been determined that the tax imposed by section 4061(b) should be based on the total cost of lengthening the semitrailers in order to put them in condition ready for use, plus a markup of ten percent. The `cost' should include all parts, material, labor, and overhead attributable to the lengthening of the vehicles. With respect to any `parts or accessories' (such as the lengthening kits) purchased on a taxpaid basis, the company's `cost' for this purpose is its tax-excluded purchase price. The company is entitled to a credit or refund of the tax paid by the manufacturers of those `parts or accessories.' See Rev. Rul. 62-173, C.B. 1962-2, 249.

The company's `cost' of lengthening the semitrailers should not include any amounts attributable to the incidental repairs performed on the semitrailers which are not related to the lengthening operations.