Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 56-4

1956-1 C.B. 687

IRS Headnote

A redevelopment agency, which is an instrumentaltiy of a political subdivision of a state, is entitled to (1) exemption from the tax on the transportation of persons on amounts paid for transportation and facilities furnished to the agency, and (2) exemption from manufacturers and retailers excise taxes with respect to taxable articles sold to the agency, even though its funds are furnished by the Federal Government.

Full Text

Rev. Rul. 56-4

Advice has been requested whether a redevelopment agency, which is an instrumentality of a political subdivision of a state, is entitled to (1) exemption from the tax on the transportation of persons on amounts paid for transportation and facilities furnished to the agency and (2) exemption from the manufacturers and retailers excise taxes with respect to taxable articles sold to the agency, where its funds are furnished by the Federal Government.

A redevelopment agency, which pursuant to state law is an instrumentality of the municipality creating it, is permitted under the provisions of the Housing Act of 1949, as amended, 63 Stat. 624, 42 U.S.C. 1452, 1453, to borrow money from the Federal Government to conduct certain surveys and make certain plans in connection with the redevelopment program of the agency. This program consists of three general phases, namely, the preliminary planning stage, the final planning stage, and the loan and grant stage. At any time during the preliminary or final planning stage, the redevelopment agency has the right, on behalf of the municipality, to terminate its program without committing the municipality to any financial responsibility for the repayment of money advanced during such states. However, once the agency enters into the loan and grant stage, which is actually the termination stage of the program, the municipality is responsible for the repayment of one-third of the amount of all funds advanced by the Federal Government to the redevelopment agency during all three stages , plus accrued interest.

Section 3469(f)(1) of the Internal Revenue Code of 1939 provides that the tax on the transportation of persons shall not apply to the payment for transportation or facilities furnished to any State, Territory of the United States, or political subdivision thereof, or the District of Columbia.

Sections 3442(3) and 2406(a) of the Code allow exemptions from the Federal manufacturers and retailers excise taxes in the case of articles and products sold for the exclusive use of any State, Territory of the United States, or any political subdivision of the foregoing, or the District of Columbia.

It is held that, since the redevelopment agency is an instrumentality of a political subdivision of the state, the exemptions from Federal excise taxes provided (1) with respect to taxable transportation and facilities furnished to a state or political subdivision thereof and (2) with respect to taxable articles sold to a state or political subdivision thereof are applicable where taxable transportation or facilities are furnished to such a redevelopment agency and where taxable articles are sold to the agency for its exclusive use, provided the requirements of the law and applicable regulations with respect to the particular exemption are met. The exemptions apply even though the purchase of the taxable transportation or facilities or the purchase of the taxable articles is made by the agency from funds furnished to it by the Federal Government during the preliminary or final planning stage of its redevelopment program, and even though the agency does not enter into the loan and grant stage of such program.