Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 78-65

1978-1 C.B. 350

Section 4071 -- Tax on Tires and Tubes

IRS Headnote

Tread rubber slabs. The entire weight of tread rubber slabs produced by reprocessing scrap, salvage, or junk rubber and used by the producer in its business of recapping and retreading tires is subject to tax under section 4071(a) of the Code, even though in affixing the slabs to tires an overlapping "slab excess" is cut off to make a single splice in the tire. No credit will be allowed for the tax previously paid on the slab excesses when they are reprocessed to produce new slabs.

Full Text

Rev. Rul. 78-65

Advice has been requested concerning the application of manufacturers excise tax imposed by section 4071(a) of the Internal Revenue Code of 1954 to the manufacture and use of tread rubber under the circumstances described below.

A company is engaged in the business of recapping and retreading tires of a highway-type that were previously sold in the United States. It purchases salvage rubber materials or tread compounds in sheets or lumps from scrap dealers and tire manufacturers. The scrap materials, including so-called "slab excesses," are ground until small enough for devulcanization. After devulcanization the scrap is plasticized. This mixture is then processed and extruded to produce rubber slabs of an approximate size and weight for affixing to a tire. The product is then ready for use in the company's recapping operation.

The rubber slabs are about twelve inches longer than the circumference of a tire casing and, in affixing a rubber slab to a tire, this overlapping slab excess is cut off in order to make a single splice on the tire. The slab excess is subsequently remilled with other scrap materials as described above.

The question presented is whether, for purposes of the tax imposed by section 4071(a) of the Code, the entire rubber slab is used within the meaning of section 4218(a) even though a portion of such slab does not become physically incorporated in, or a component part or accessory of, the particular recapped or retreaded tire.

Section 4071(a)(4) of the Code imposes a tax based on the weight of tread rubber sold by the manufacturer producer, or importer.

Section 4218(a) provides that if any person manufactures, produces, or imports an article (with exceptions not here relevant) and uses it (otherwise than as material in the manufacture or production of, or as a component part of, another article taxable under this chapter to be manufactured or produced by him), then he shall be liable for tax in the same manner as if such article were sold by him.

Section 48.4072-1(b) of the Manufacturers and Retailers Excise Tax Regulations provides that the term "tread rubber" means any material (1) that is commonly or commercially known as tread rubber or camelback, or (2) that is a substitute for any material commonly or commercially known as tread rubber or camelback and is of a type used in recapping or retreading tires. The term includes, for example, strips of material, wholly or partially of rubber, natural or synthetic, intended to be vulcanized or otherwise affixed to a tire casing to form the outside perimeter of the tire, smooth or treaded. It further includes treading material produced by reprocessing scrap, salvage, or junk rubber. Tread rubber loses its identity as such when it has been used in the recapping or retreading of a tire.

The slabs described above are tread material produced by reprocessing scrap, salvage, or junk rubber, and are produced in strips of necessary size to be vulcanized or otherwise affixed to a tire casing to form the outside perimeter of the tire. Therefore, the slabs are tread rubber within the meaning of the regulations.

Section 4071(a)(4) of the Code bases the tax on the weight of tread rubber sold by a manufacturer. The amount of such a tax is not affected by the fact that a portion of a tread rubber slab does not become affixed to the tire casing in the recapping or retreading process. Accordingly, the manufacturer in the instant case is liable under section 4218(a) of the Code for the tax imposed by section 4071(a)(4) on its use of tread rubber slabs in recapping or retreading tires, in the same manner as if the slabs were sold by it.

Furthermore, it is immaterial that the slab excesses are remilled along with other scrap rubber in the production of new rubber slabs. See Rev. Rul. 57-219, 1957-1 C.B. 370, which holds that the manufacturers excise tax on tread rubber applies to the sale of tread rubber produced by reprocessing salvage rubber materials, including tread rubber. That Revenue Ruling further concludes there is no provision of law that would exempt such a sale from the tax merely because the scrap materials used in the manufacturing operation are salvaged from tread rubber, on the sale of which excise tax had previously been paid. See also Rev. Rul. 58-105, 1958-1 C.B. 402, to the effect that no refund shall be allowed under section 6416(b)(2)(M) of the Code (now section 6416(b)(2)(G)) when tax-paid tread rubber is damaged or destroyed during a retreading process, and Rev. Rul. 60-28, 1960-1 C.B. 421, which holds that when a recapper (retaining title) returns tax paid tread rubber to be remilled into another size the recapper rather than the remiller is the manufacturer of the remilled rubber and will be taxable on such new tread rubber; furthermore, no credit will be allowed to the recapper for the tax previously paid on the originally produced tread rubber.