Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 60-28

1960-1 C.B. 421

Section 6011 -- Return Filing Requirement

Caution: Obsoleted by Rev. Rul. 92-18

IRS Headnote

Where a recapper returns tax-paid tread rubber of an obsolete die size, retaining title thereto, to the mill from which it was originally purchased for reprocessing into tread rubber of another die size, it is considered that the returned tread rubber has been scrapped and that the recapper, rather than the remiller, is the manufacturer of the new tread rubber. Accordingly, the recapper is liable for the manufacturers excise tax on tread rubber imposed by section 4071 of the Internal Revenue Code of 1954 on his sale or use of the tread rubber for the recapping or retreading of tires of the type used on highway vehicles. In computing his liability for the tax, the recapper is not entitled to a credit or refund for tax previously paid by the remiller on the original sale of the scrapped tread rubber.

Rev. Rul. 58-438, C.B. 1958-2, 775, amplified.

Full Text

Rev. Rul. 60-28

Advice has been requested whether the conclusion stated in Revenue Ruling 58-438, C.B. 1958-2, 775, is applicable to the situation described below.

A recapper changed the dies upon which he recaps tires. After chaging the dies, the recapper had tread rubber on hand which was not usable with the new dies. The manufacturers excise tax was paid by the producer when this tread rubber was originally sold to the recapper. The recapper returned the tread rubber, retaining title thereto, to the mill from which it was purchased to be remilled into tread rubber which could be used with the new dies. At the mill the returned rubber was rewarmed, combined with new rubber for efficiency of operation, and extruded in the form of tread rubber of the desired die size.

Section 4071(a)(4) of the Internal Revenue Code of 1954 imposes a tax on tread rubber sold by the manufacturer, producer, or importer. Section 4073(c) of the Code provides that the tax imposed by section 4071(a)(4) of the Code shall not apply to tread rubber sold by the manufacturer, producer, or importer to any person for use by such person otherwise than in the recapping or retreading of tires of the type used on highway vehicles.

Section 48.4072-1(b) of the Manufacturers and Retailers Excise Tax Regulations, T.D. 6408, C.B. 1950-2, 269, defines the term `tread rubber,' for purposes of the manufacturers excise tax, to include treading material produced by reprocessing scrap, salvage, or junk rubber. Revenue Ruling 57-219, C.B. 1957-1, 370, holds that the manufacturers excise tax applies to the sale of tread rubber produced by reprocessing salvage rubber materials on which the manufacturers excise tax had previously been paid.

Section 316.4 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. That section also provides that where a person manufactures or produces a taxable article for a person who furnishes materials and retains title thereto, the person for whom the taxable article is manufactured or produced, and not the person who actually manufactures or produces it, will be considered the manufacturer. Generally, in such cases, the proportion of the materials furnished by the person for whom the taxable article is manufactured is not considered in determining who is the manufacturer.

Section 6416(b)(3)(A) of the Code, as amended by the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92, provides, with certain exceptions not here material, that if the manufacturers excise tax has been paid with respect to the sale of any article by the manufacturer, producer, or importer thereof to a second manufacturer or producer, such tax shall be deemed to be an overpayment by such second manufacturer or producer if such article is used by the second manufacturer or producer as material in the manufacture or production of, or as a component part of, another article taxable under chapter 32 of the Code manufactured or produced by him.

Revenue Ruling 58-438, supra , holds that where a customer furnishes scrap rubber, to which he retains title, to be reprocessed and returned to him in the form of usable tread rubber, the customer is the `manufacturer,' as that term is used in the statute, and the person who performs the actual reprocessing is the manufacturing agent. Therefore, the customer is liable for the manufacturers excise tax imposed by section 4071 of the Code on his sale or use of the tread rubber for the recapping or retreading of tires of the type used on highway vehicles. His liability is not affected by the fact that the processor may have added some new material to the scrap rubber which the customer furnished.

In the instant case, the recapper is considered to have scrapped the tax-paid tread rubber in his inventory, which loses its identity as such, when he furnishes the material to the remiller for use in the remilling operation. Therefore, in accordance with the provisions of Revenue Ruling 58-438, it is held that, since the recapper retains title to the rubber material which is returned to the remiller to be reprocessed into tread rubber of the desired die size, the recapper rather than the remiller is the manufacturer of the tread rubber so produced. Accordingly, the recapper is liable for the manufacturers excise tax on tread rubber, imposed by section 4071 of the Code, on his sale or use of the tread rubber for the recapping or retreading of tires of the type used on highway vehicles. It is further held that the recapper, in computing his liability for the manufacturers excise tax on the tread rubber, is not entitled to a credit or refund for tax previously paid by the remiller on the original sale of the tread rubber which was converted to scrap for use in the further manufacture of tread rubber.

Revenue Ruling 58-438, supra , is hereby amplified.