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 Rev. Rul. 77-90

1977-1 C.B. 334

Section 4071 -- Tax on Tires and Tubes

IRS Headnote

Tread rubber; retreaded tires exported. The sale of tread rubber by the manufacturer to a tire retreader for use in recapping tires from bead to bead is a sale for further manufacture exempt from tax under section 4221(a)(1) of the Code, and the retreader's subsequent sale of the tires for export is exempt under section 4221(a)(2) provided the registration requirements of section 4222 are met. However, the sale of tread rubber for recapping tires from shoulder to shoulder is not a sale for further manufacture but is a sale subject to tax. Sale of the tire for export does not give rise to a credit for the tax. Rev. Rul. 58-400 superseded.

Full Text

Rev. Rul. 77-90

Advice has been requested whether relief from the manufacturers excise tax on tread rubber, imposed by section 4071(a) of the Internal Revenue Code of 1954, is available where tread rubber is sold for use in recapping or retreading tires that are subsequently exported.

A company manufacturers tread rubber that it sells to a tire retreader for use in recapping or retreading tires that when new were previously sold in the United States. Some of the tires are recapped from shoulder to shoulder whereas the other tires are recapped from bead to bead. The tire retreader either exports the recapped tires or sells them to a customer, located in a foreign country, who exports them from the United States.

Section 4071(a) of the Code imposes a tax on tires, inner tubes, and tread rubber sold by the manufacturer, producer, or importer.

Section 4221(a) of the Code provides that the manufacturers excise tax shall not apply to the sale by the manufacturer of an article (1) for use by the purchaser for further manufacture, or for resale by the purchaser to a second purchaser for use by such second purchaser in further manufacture, or (2) for export, or for resale by the purchaser to a second purchaser for export. The exemption applies only if such exportation or use is to occur before any other use. Section 4221(b) provides that where an article has been sold tax free under one of the aforementioned exemptions (with the exception of a direct sale by the manufacturer for use in further manufacture), the exemption shall cease to apply in respect to such sale of such article unless, within the 6-month period which begins on the date of the sale by the manufacturer (or, if earlier, on the date of shipment by the manufacturer), the manufacturer receives proof that the article has been exported or resold for use in further manufacture.

Section 48.4071-1(d) of the Manufacturers and Retailers Excise Tax Regulations provides that the recapping or retreading of a tire (other than from bead to bead) is not manufacturing and the tax imposed by section 4071 does not apply to the sale of a tire so recapped or retreaded, if before such sale there had been a sale of the tire in the United States. The regulations further provide that the recapping or retreading of a tire from bead to bead whether or not the original tire has lost its identity is manufacturing and the tax imposed by section 4071 applies to the sale of a tire which has been so recapped or retreaded.

Rev. Rul. 58-400, 1958-2 C.B. 774, concludes that there is no tax on the sale of retreaded tires as such and that the exemption for export is not applicable to sales of tread rubber for use in retreading tires that are then exported since the tread rubber was used in the retreading process prior to exportation. Accordingly, that Revenue Ruling concludes that no refund or credit may be obtained of the manufacturers excise tax paid by the manufacturer of the tread rubber on its sales of the tread rubber used in retreading of tires that were then exported.

Rev. Rul. 58-400 was published prior to the promulgation of section 48.4071-1(d) of the regulations. In accordance with that section of the regulations, the recapping or retreading of a tire from bead to bead results in the manufacture of a new tire and the tax imposed by section 4071 of the Code applies to the retreader's sale of the tire.

Therefore, where tread rubber is sold by the manufacturer in the instant case for use by the retreader in recapping tires from bead to bead, the tread rubber is sold for use in further manufacture and the exemption under section 4221(a)(1) of the Code is applicable to such sale. Further, the tires resulting from such recapping are subject to the tax imposed by section 4071(a). However, the exemption under section 4221(a)(2) is applicable to the retreader's sales of such tires for export or for resale by the purchaser to a second purchaser for export. In order to make tax-free sales for further manufacture and for export under the foregoing sections of the Code, the registration requirements of section 4222 and applicable regulations must be met.

On the other hand, when the manufacturer sells tread rubber for use in retreading or recapping tires from shoulder to shoulder, such sale is not a sale of tread rubber for further manufacture and the exemption provided by section 4221(a)(1) of the Code does not apply. Further, since the tread rubber is used by the retreader prior to any exportation, the exemption for export provided by section 4221(a)(2) also does not apply. Therefore, sales of such tread rubber by the manufacturer are subject to the tax imposed by section 4071(a) and there is no relief from the tax in this situation.

With respect to the registration requirements for making tax-free sales for export under section 4222 of the Code, section 148.1-3(i)(2) of the Temporary Regulations under the Excise Tax Technical Changes Act of 1958 provides that in the case of sales for export or for resale for export, where the first purchaser or the second purchaser is located in a foreign country or possession of the United States, such purchaser is not required to register. That section further provides that to establish the right to sell articles tax free for export to a purchaser who is not registered and who is located in a foreign country or a possession of the United States, the manufacturer must obtain from such purchaser the information required in section 316.25 of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, 1954-2 C.B. 47.

Under the provisions of section 6416(b)(3)(A) of the Code, if tread rubber is sold tax paid by the manufacturer to the tire retreader who uses it in bead to bead retreading or recapping of a tire, such tax is deemed to be an overpayment by the retreader as a subsequent manufacturer and the retreader will be entitled to credit or refund of such tax.

Rev. Rul. 58-400 is modified and, as modified, is superseded since the position stated in that Revenue Ruling is restated under current law and regulations in this Revenue Ruling.