Internal Revenue Service
Revenue Ruling
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smRev. Rul. 76-24
1976-1 C.B. 334
IRS Headnote
Hydraulic crane unit installed on truck tractor. A hydraulic crane unit installed by a company on a trucking operator's new truck tractor and used primarily to load and unload semitrailers pulled by the tractor is a taxable part or accessory, the installation of which constitutes further manufacture by the operator for purposes of the manufacturers tax, and the tax due on the completed tractor is computed by use of the constructive sale price.
Full Text
Rev. Rul. 76-24
Advice has been requested regarding the application of the manufacturers excise taxes imposed by section 4061 of the Internal Revenue Code of 1954 to the sale and installation of a crane for a new truck tractor under the circumstances described below.
A company purchases two hydraulic lift cylinders and a pump that it combines with a crane of its manufacture. The company sells the complete hydraulic crane unit and installs it on a truck operator's new truck tractor between the fifth wheel and the cab, by means of "U" clamps attached to the base of the crane. Bolts are also attached through the chassis frame and the hydraulic lift cylinder supports of the crane. The crane, which weighs 1700 pounds, has a capacity of 7000 pounds, a working reach of four feet, and a loading height from ground level of 11 feet, six inches. The crane is primarily used to load and unload the semitrailer that is pulled by the tractor upon which the crane is mounted. When not in use, the crane is lowered alongside the chassis frame so as not to interfere with the use of the tractor in pulling semitrailers.
Three questions have been asked:
1. Are sales of the crane by the company subject to the manufacturers excise tax on automotive parts or accessories imposed by section 4061(b)(1) of the Code?
2. Is the installation of the crane further manufacture of the tractor for purposes of the manufacturers excise tax on motor vehicle articles imposed by section 4061(a)(1) of the Code?
3. If the answer to (2) is yes, how to compute the amount of tax due on the use of the complete tractor.
Section 4061(a)(1) of the Code imposes a tax upon the sale by the manufacturer, producer, or importer of certain motor vehicle articles, including tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. Included in each case are parts or accessories for such article sold on or in connection therewith or with the sale thereof.
Section 4061(b)(1) of the Code imposes a tax upon parts or accessories (other than tires and inner tubes) for any article enumerated in section 4061(a)(1), when sold by the manufacturer, producer, or importer.
Section 4218(a) of the Code provides, with certain exceptions not applicable here, that if any person manufactures, produces, or imports an article and uses it (otherwise than as material in the manufacture or production of, or as a component part of, another taxable article manufactured or produced by him), he shall be liable for the tax in the same manner as if such article was sold by him.
Section 4221(a)(1) of the Code provides that manufacturers excise tax shall not apply to the sale by the manufacturer of an article for use by the purchaser for further manufacture, or for resale by the purchaser to a second purchaser for use by such second manufacturer in further manufacture, if such use or resale occurs before any other use.
Section 48.4061(b)-2(a) of the Manufacturers and Retailers Excise Tax Regulations provides that, in general, the term "parts or accessories" includes (1) any article the primary use of which is to improve, repair, or serve as a component part of an automobile truck or bus chassis or body, or taxable tractor, (2) any article designed to be attached to or used in connection with such chassis, body, or tractor to add to its utility or ornamentation, and (3) any article the primary use of which is in connection with such chassis, body, or tractor, whether or not essential to its operation or use. That section of the regulations further provides that an article such as a towing cradle or loading or unloading equipment designed to be attached to or to be primarily used in connection with a truck is a taxable part or accessory inasmuch as the article contributes to the load-carrying function of the truck.
Section 316.4 of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, 1954-2 C.B. 47, provides that the term "manufacturer" includes a person who produces a taxable article by combining or assembling two or more articles. That section further provides that under certain circumstances, as where a person manufactures or produces a taxable article for a person who furnishes materials and retains title thereto, the person for whom the taxable article is manufactured or produced, and not the person who actually manufactures or produces it, will be considered the manufacturer.
With respect to the first question, since the crane described above is designed to be attached to and used in connection with taxable tractors in the loading and unloading of semitrailers pulled by the tractors, the crane is an automotive part or accessory within the meaning of section 4061(b)(1) of the Code. Therefore, sales thereof by the manufacturer are subject to the tax imposed by that section.
With respect to the second question, whether further manufacture has occurred for purposes of section 4061(a)(1) of the Code depends on whether a different article has been produced. For example, additions or modifications to a chassis or body that significantly improve the transportation function of the chassis or body is the production of a different article. Therefore, such additions or modifications are considered to be further manufacture of the chassis or body.
In the instant case, as a result of the installation of the crane, the tractor is capable of not only towing semitrailers but also loading and unloading them. Thus, the installation of the crane significantly improves the transportation function of the tractor, and is the production of a different article. Accordingly, the installation of the crane on the tractor is further manufacture of the tractor. See Rev. Rul. 73-343, 1973-2 C.B. 346, which holds that installation of a crane on a truck chassis in such a manner that its primary function is the loading and unloading of the vehicle on which it is mounted is further manufacture of the chassis.
In accordance with section 316.4 of Regulations 46, in the instant case the owner of the tractor on which the crane is mounted is the manufacturer, and is liable for the tax imposed by section 4061(a)(1) of the Code upon his sale or use of such tractor. Since the installation of the crane is further manufacture, the tax-free sale provision of section 4221(a)(1) applies to sales of the crane for installation on the tractor, or for resale for such use.
The third question concerns the computation of tax on the use of the complete tractor.
Section 4218(e) of the Code provides that in any case (other than situations in which section 4223(b) applies) where a person is made liable for the tax on the use of an article by the provisions of section 4218, the tax (if based on the price for which the article is sold) shall be computed on the price at which such or similar articles are sold, in the ordinary course of trade, by manufacturers, producers, or importers thereof, as determined by the Secretary or his delegate.
Section 48.4218-5(b) of the Manufacturers and Retailers Excise Tax Regulations provides that, where a manufacturer does not regularly sell a taxable article at wholesale in an arm's length transaction, a constructive price (tax base) on which the use tax must be computed will be determined by the Commissioner after considering the selling practices and price structures of manufacturers of similar articles.
For constructive sales price purposes the material facts in this case are substantially similar to those in Rev. Rul. 71-170, 1971-1 C.B. 365, amplified by Rev. Rul. 71-400, 1971-2 C.B. 358. Rev. Rul. 71-170 (as amplified) deals with, among other things, the question of determining the tax due on the use of a complete truck tractor where a truck operator acquires the tractor from a truck dealer, and a fifth wheel from a different dealer who installs the fifth wheel on the tractor. As in that situation, although a truck tractor equipped with a crane of the type described herein is a single article for manufacturers excise tax purposes, it is necessary to treat the tractor and crane as consisting of two elements in constructing a sales price: one that relates to the tractor and one that relates to the crane installed. The element relating to the tractor is an amount equal to the tax base (sale price determined under section 4216(a) and (f) of the Code) on which the original tractor manufacturer computed the manufacturers excise tax due on his sale. The element relating to the crane installed is an amount equal to the crane manufacturer's tax base, plus the amount charged the tractor operator for installation of the crane.