Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 78-36

1978-1 C.B. 435

Section 6416 -- Excise Tax Refunds

IRS Headnote

Refund; manufacturers; tax-paid motor vehicle sold for an exempt use. The sale of a taxable motor vehicle used by a dealer as a demonstrator prior to its being sold to a customer for an exempt purpose will not qualify for the credit or refund provided by section 6416(b)(2) of the Code regardless of whether it had been titled or licensed prior to the sale.

Full Text

Rev. Rul. 78-36

Advice has been requested whether, under the circumstances described below, the sale of a taxable motor vehicle that has been used as a demonstrator qualifies for a credit or refund of the manufacturers excise tax as provided by section 6416(b)(2) of the Internal Revenue Code of 1954.

A dealer purchased from a manufacturer or importer a motor vehicle, the sale of which was subject to the tax imposed by section 4061(a)(1) of the Code. The dealer used the vehicle as a demonstrator prior to selling it to a customer to be used for one of the exempt purposes described in section 6416(b)(2). The vehicle had not previously been titled or licensed at the time of sale by the dealer.

Under section 6416(b)(2) of the Code, credit or refund of manufacturers excise tax is allowed with respect to manufacturers excise tax paid on articles sold for certain specified uses or to certain classes of purchasers, including State or local governments and nonprofit educational organizations. That section provides further that the credit or refund in respect of an article is allowable only if the exempt use occurs before any other use or, in the case of a sale or resale, the exempt use is to occur before any other use.

The use of a motor vehicle as a demonstrator is the use of an article as contemplated by section 6416(2)(b) of the Code. Therefore, where a motor vehicle is used by a dealer as a demonstrator prior to being sold to a customer who uses it for an exempt purpose, the exempt use has not occurred before any other use within the meaning of section 6416(b)(2).

Accordingly, the sale of the motor vehicle by the dealer in this case does not qualify for the credit or refund provided by section 6416(b)(2) of the Code, regardless of whether the vehicle had previously been titled or licensed prior to such sale.