Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 70-12

1970-1 C.B. 229

IRS Headnote

Taxability of automobiles sold for export, held in customs bond in a foreign country, and subsequently returned to the United States and sold by the bank which financed the transaction; S.T. 410 superseded and Revenue Ruling 56-562 distinguished.

Full Text

Rev. Rul. 70-12 /1/

The purpose of this Revenue Ruling is to update and restate under the current statute and regulations the conclusion set forth in S.T. 410, C.B. II-1, 297 (1923).

A motor vehicle manufacturer sold automobiles for export to a foreign country. The automobiles consisted of bodies and chassis enumerated in section 4061(a) of the Internal Revenue Code of 1954 as articles subject to the manufacturers excise tax imposed by that section. The manufacturer sold the vehicles tax free for export under the provisions of section 4221(a)(2) of the Code. The transaction was financed by letters of credit issued by a United States bank to the manufacturer who drew drafts thereunder and attached bills of lading and invoices covering the automobiles shipped to the foreign purchaser. When the purchaser was unable to make payment as required by the letters of credit, the automobiles were not cleared through the foreign country's customs office, and no foreign customs duties were claimed thereon. Subsequently the automobiles were returned to the United States, where the bank sold them to recover the balance owed on the letters of credit.

Two questions have been presented regarding the manufacturers excise tax consequences of the described transactions:

Question 1. Under the circumstances of the case were the automobiles "exported in due course" within the meaning of section 316.25(a) of Regulations 46, so as to relieve the manufacturer of the vehicles of manufacturers excise tax liability on their sale?

Question 2. Assuming the sale of the automobiles by the manufacturer was exempt from manufacturers excise tax as a sale for export, when the automobiles were returned to the United States were they "imported" for purposes of section 4061(a)(2) of the Code, and subject to the tax imposed by that section when sold by the importer?

Section 4221(a)(2) 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 for export, or for resale by the purchaser to a second purchaser for export, but only if such exportation is to occur before any other use.

Section 316.1(d) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, defines the term "exportation" to mean "* * * the severance of an article from the mass of things belonging within the United States with the intention of uniting it with the mass of things belonging within some foreign country or within a possession of the United States."

Section 316.25(a) of Regulations 46 states that to exempt a sale for export one condition to be met is that the articles be exported in due course.

For purposes of the exemption provided by section 4221(a)(2) of the Code, the automobiles sold by the manufacturer in the instant case were "exported in due course" within the meaning of section 316.1(d) of the regulations because they were in fact separated from the mass of things belonging in the United States with the intention of uniting them with the mass of things belonging within a foreign country, and the articles were actually landed in a foreign country. The fact that the articles did not clear customs in the foreign country is immaterial to a determination of whether they were exported "in due course." Therefore, since section 4221(a)(2) of the Code applies in this case the answer to Question 1 is that no tax attaches to the manufacturer's sale of the automobiles for export.

Revenue Ruling 56-562, C.B. 1956-2, 798, concludes that "* * * where articles subject to the manufacturers excise tax are sold in the United States and are subsequently shipped out of the United States, they are not subject to the manufacturers excise tax when returned to the United States and sold by the importer, irrespective of whether the original or initial sale in the United States by the manufacturer was made on a tax-free or tax-paid basis."

The facts in the United States Truck Sales Company case and in Revenue Ruling 56-562 are substantially different from those in the instant case. In the case under consideration, while there is compliance with the export requirements for a tax-free sale in that there is a separation of the automobiles from the mass of things belonging in the United States with the intention of uniting them with the mass of things belonging in a foreign country, the intention of the exporter to unite the automobiles with the mass of things belonging in a foreign country was never accomplished, and the automobiles were returned to the United States for sale in an unused condition. These facts are clearly distinguishable from those in United States Truck Sales Company and Revenue Ruling 56-562, and there is no basis in the law for concluding articles exported under these circumstances should not be held subject to the manufacturers excise tax when returned for sale or use in the United States.

In view of the foregoing, with respect to Question 2, it is held that the bank's sale of the imported automobiles in the United States is subject to the manufacturers excise tax imposed by section 4061(a)(2) of the Code, and the bank is liable for reporting and paying the tax due.

Revenue Ruling 56-562 is hereby distinguished; S.T. 410 is hereby superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

/1/ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 567.