Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 67-27

1967-1 C.B. 358

IRS Headnote

Buses sold by the manufacturer to a person (lessor) who leases the buses to another person (lessee) for use exclusively in transporting students are not considered `sold' to the lessee within the meaning of section 6416(b)(2)(R) of the Internal Revenue Code of 1954. Therefore, the manufacturer of the buses is not entitled to a credit or refund of the tax paid on his sales of the buses to the lessor.

Full Text

Rev. Rul. 67-27

Advice has been requested whether, under the provisions of section 6416(b)(2)(R) of the Internal Revenue Code of 1954, a bus manufacturer is entitled to a credit or refund of the manufacturers excise tax paid on certain buses under the circumstances described below.

A bus manufacturer paid to the United States the manufacturers excise tax, imposed by section 4061(a)(1) of the Code, on certain buses which were sold by the manufactuer to a person who leased the buses to another person who used them exclusively in transporting students of a State-operated school.

Section 4221(e)(5) of the Code provides that under regulations prescribed by the Secretary or his delegate, the tax imposed by section 4061(a) of the Code shall not apply to a bus sold to any person for use exclusively in transporting students and employees of schools operated by State or local governments or by nonprofit educational organizations.

Section 145.3-1(a) of the Temporary Manufacturers and Retailers Excise Tax Regulations states that under section 4221(e)(5) of the Code the tax imposed by section 4061(a) shall not apply to the sale of a bus by the manufacturer to any person for use exclusively in transporting students and employees of schools operated by a State or local government or by a nonprofit educational organization.

Paragraph (e) of this section of the regulations states that under section 6416(b)(2)(R) of the Code, tax under section 4061(a) paid to the United States on the sale of any bus is considered to be an overpayment if such bus is, on or after June 22, 1965, and prior to any other use, sold to a purchaser by any person for use exclusively in transporting students or employees of a school operated by a State or local government or by a nonprofit educational organization and the bus is so used.

With respect to the effect of a lease in the case of any manufacturers excise tax imposed by chapter 32 of the Code, section 4217(a) states that the lease of an article by the manufacturer, producer, or importer shall be considered a sale of such article.

In the instant case, the sale of the buses of the manufacturer to the lessor cannot be made tax free under the provisions of section 4221(e)(5) of the Code because they are not for use by the lessor exclusively in transporting students and employees of schools operated by a State or local government or by nonprofit educational organizations. Furthermore, the tax paid on the buses leased by the lessor to the lessee who uses them exclusively in transporting students cannot be considered to be an overpayment under section 6416(b)(2)(R) of the Code because a sale within the meaning of that section has not occurred.

The provisions of section 4217(a) of the Code relate only to the lease of an article by the manufacturer, producer, or importer of that article. It does not apply to a lease entered into by a vendee of the manufacturer, producer, or importer. Accordingly, in the instant case, it is held that the schoolbuses leased by the lessor cannot be considered sold by him to the lessee for purposes of the credit or refund provisions of section 6416(b)(2)(R) of the Code.