Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 60-53

1960-1 C.B. 185

Sec. 453

Caution:Amplified by Rev. Rul. 79-196

IRS Headnote

In determining the gross profit, for a taxable year, of a dealer who regularly sells personal property on the installment plan and reports income therefrom on the installment method of accounting, the `total contract price,' when applied to articles subject to the Federal retailers excise tax, means the total sale price including an amount equal to the retailers excise tax. Likewise, the term `installment payments actually received' means the total amount received without reduction by an amount equal to the retailer's excise tax applicable to the amount received. Furthermore, similar treatment is to be accorded state sales taxes which are imposed upon such dealers rather than upon the dealers' vendees.

Full Text

Rev. Rul. 60-53

Advice has been requested whether, for purposes of computing gross profit on installment sales of personal property, an amount equal to the Federal retailers excise tax, as well as the tax imposed on dealers by the Tennessee Retailers' Sales Tax Act, approved January 24, 1947, should be included as part of the `total contract price.'

Section 453(a) of the Internal Revenue Code of 1954 provides that a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year which the gross profit, realized or to be realized when payment is completed, bears to the total contract price.

Section 1.453-1(b) of the Income Tax Regulations provides that, for this purpose, gross profit means sales less cost of goods sold. Section 1.453-2(b) of the regulations provides that the income from installment sales of a dealer, that is, a person regularly engaged in the sale of personal property on the installment plan, may be ascertained by treating as income that proportion of the total payments received in the taxable year from installment sales (such payments being allocated to the year against the sales of which they apply) which the gross profit realized or to be realized on the total installment sales made during each year bears to the total contract price of all such sales made during that respective year.

A Federal retailers excise tax is imposed upon the price for which various articles are sold at retail. Liability for the retailers excise tax is incurred by the retailer and not by his customers. While the retailer includes in the price charged for a taxable article an amount equal to the tax, such amount becomes a part of the price payable by the customer for the article rather than a payment of tax as such. This is true regardless of whether the retailer invoices taxable articles (1) for a tax-excluded price plus an amount equal to the tax or (2) for a total price, which is presumed to be a tax-included price whether or not it is so stated.

Accordingly, it is held that, in determining the income of a dealer employing the installment method of accounting, the term `total contract price' means the total sale price including an amount equal to any applicable Federal retailers excise tax. Likewise, the term `installment payments actually received' means the total amount received without reduction by an amount equal to the retailers excise tax for which the dealer becomes liable.

Furthermore, similar treatment is to be accorded state sales taxes which are imposed upon such dealers rather than upon the dealers' vendees. This conclusion applies to the tax imposed by the Tennessee Retailers' Sales Tax Act, approved January 24, 1974, since the tax is imposed upon the dealers. See I.T. 3865, C.B. 1947-2, 20.