Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 65-75

1965-1 C.B. 469

IRS Headnote

The manufacturers excise tax on tread rubber imposed by section 4071(a)(4) of the Internal Revenue Code of 1954 applies to the sale or use by a recapper or retreader of a `rubber ribbon' which is produced by a special extrusion process for recapping or retreading tires of the type used on highway vehicles.

Full Text

Rev. Rul. 65-75

Advice has been requested whether recappers or retreaders are liable for the manufacturers excise tax on tread rubber under the circumstances described below.

Various persons, known as recappers or retreaders, use a rubber processing machine which is designed for use in recapping or retreading highway-type tires. Rubber in various shapes and forms (including slab, strip, pellet, etc.) is fed into the machine without preheating. The masticating action of an extruder screw heats the rubber, which is extruded in a continuous ribbon 1 inch wide and one-tenth of an inch thick. This hot-rubber ribbon is wound directly around the circumference of a buffed and cemented tire casing in an electronically controlled pattern. Some of the rubber which is fed into the machine may already have reached such a stage of processing that it is known as tread rubber.

Section 4071(a)(4) of the Internal Revenue Code of 1954 imposes a tax on tread rubber sold by the manufacturer, producer, or importer thereof. This tax is based upon the weight of the tread rubber.

Section 4072(b) of the Code defines the term `tread rubber' to mean any material which is commonly or commercially known as tread rubber or camelback, or which is a substitute for such material and is of the type used in recapping or retreading tires.

Section 4073(c) of the Code provides that, under regulations prescribed by the Secretary of the Treasury or his delegate, 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.

Under the provisions of section 4218(a) of the Code, any person who manufactures, produces, or imports tread rubber and uses it (otherwise than as material in the manufacture or production is another taxable article to be manufactured or produced by him) is liable for the manufacturers excise tax as if the tread rubber were sold by him.

Section 48.4072-1(b) of the Manufacturers and Retailers Excise Tax Regulations provides that the term `tread rubber' includes, for example, strips of material, wholly or partially of rubber, natural or synthetic, intended to be vulcanized or otherwise affixed to a tire casing to form the outside perimeter of the tire, smooth or treaded. It further includes treading material produced by reprocessing scrap, salvage, or junk rubber. Tread rubber loses its identity as such when it has been used in the recapping or retreading of a tire.

The rubber ribbon produced in the manner described above comes within the meaning of the term `tread rubber' as defined by section 4072(b) of the Code and section 48.4072-1(b) of the regulations. Accordingly, it is held that, under the provisions of sections 4071(a)(4) and 4218(a) of the Code, the recappers or retreaders are liable for the manufacturers excise tax on their sale or use of this tread rubber for the recapping or retreading of tires of the type used on highway vehicles.

On the other hand, under the provisions of sections 4073(c) and 4218(a) of the Code, no tax would apply to the sale or use of this tread rubber for purposes other than the recapping or retreading of tires of the type used on highway vehicles.

Where the tax has been paid in respect of tread rubber which is used or sold for use otherwise than in the recapping or retreading of tires of the type used on highway vehicles, the person who paid the tax is entitled to a credit or refund (without interest) under the provisions of section 6416(b)(2)(L) of the Code. If the tread rubber is sold taxpaid directly to a second manufacturer or producer who uses it as material in the manufacture or production of another taxable article, the tax is deemed to be an overpayment by the second manufacturer or producer under the provisions of section 6416(b)(3) of the Code. Where, however, taxpaid tread rubber is resold by any person to a manufacturer or producer who uses it as material in the manufacture or production of another taxable article, the tax is deemed, under the provisions of section 6416(b)(2)(E) of the Code, to be an overpayment by the person who originally paid it.