Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 62-99

1962-2 C.B. 252

IRS Headnote

A manufacturer sells automobile buses to a county school district. The school district immediately transfers the buses, under oral financing agreements, to individuals who transport pupils to and from public schools pursuant to contracts entered into with the school district. For purposes of state motor vehicle registration, titles to the buses remain in the name of the school district. However, the operators use the buses for transportation other than for the school district and otherwise treat the buses as being their own property. Held , sales of those buses by the manufacturer to the school district under these circumstances are not `for the exclusive use of' a State or local government within the meaning of section 4221(a)(4) of the Internal Revenue Code of 1954. Therefore, sales of the buses to the school district under such circumstances are not exempt from the manufacturers excise tax imposed by section 4061(a)(1) of the Code.

Full Text

Rev. Rul. 62-99

Advice has been requested whether, for purposes of exemption from the manufacturers excise tax, automobile buses may be considered as sold `for the exclusive use of' a State or local government when sold to a county school district under the circumstances described below.

In order to provide transportation for pupils to and from public schools, a county school district enters into contracts with various individuals under which each individual contractor agrees to furnish and operate at his own expense a school bus which meets the specifications of the State board of education. The school bus operators are paid periodically by the county school district for the transportation services furnished under the terms of the contract.

In some instances, manufacturers sell school buses to the school district, and the school district immediately transfers them to the operators under financing plans which are orally agreed upon. Under the terms of these agreements, the operators' periodic payments for the buses are deducted from the payments due them for transportation services furnished. For purposes of State motor vehicle registration, titles to the buses are in the name of the school district, and they normally remain in the name of the school district even after the operators complete payment to the district for the buses. However, after completion of payment, the titles may be transferred at the request of the operators.

These buses are used to a substantial extent by the operators for transportation other than for the school district. Fares charged for this transportation are collected and retained by the operators. The operators furnish the gasoline, oil, and maintenance for the buses and otherwise treat them as being their own property.

Section 4061(a)(1) of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of certain enumerated motor vehicle articles, including automobile bus chassis and bodies.

Section 4221(a)(4) of the Code provides that, under regulations prescribed by the Secretary of the Treasury or his delegate, no manufacturers excise tax shall be imposed on the sale by the manufacturer of an article to a State or local government for the exclusive use of a State or local government, but only if such use is to occur before any other use. A county school district comes within the meaning of the term `State or local government' as defined in section 4221(d)(4) of the Code.

Based on the facts set forth above, it is held that the sales of the buses by the manufacturer to the school district are not `for the exclusive use of' a State or local government within the meaning of section 4221(a)(4) of the Code. Therefore, such sales are not exempt from the manufacturers excise tax imposed by section 4061(a)(1) of the Code.

For a similar conclusion, see Revenue Ruling 58-413, C.B. 1958-2, 813, which holds that sales of automobiles to a county expressly for resale to the sheriff and his deputies are not considered to be for the exclusive use of the State or political subdivision. Also, see Revenue Ruling 58-572, C.B. 1958-2, 815, and Revenue Ruling 60-116, C.B. 1960-1, 508, which hold that sales of new automobiles by dealers to a State and to a city school district are not `for the exclusive use of' those governmental units where the automobiles are sold under certain described agreements which provide that the State or local government will trade or return the automobiles to the dealers after a limited period of ownership.