Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 79-37

1979-1 C.B. 341

IRS Headnote

Fuel tank; used fuel tank extended. A motor freight hauling company that adds an extension to and combines other articles with a used 100-gallon fuel tank to produce a 150-gallon fuel tank, which when attached to the truck tractor adds to its utility, is liable for manufacturers tax on parts or accessories imposed by section 4061(b) of the Code.

Full Text

Rev. Rul. 79-37

Advice has been requested under the circumstances set forth below as to the application of the manufacturers excise tax on automotive parts or accessories imposed by section 4061(b)(1) of the Internal Revenue Code of 1954.

A motor freight hauling company removes the 100-gallon capacity fuel tank from its long haul truck tractor. It perforates one end of the tank at the top and bottom with three one-inch diameter holes to allow fuel to flow into a 50-gallon extension fabricated by the company. The extension is a 50-gallon cylinder formed from rolled aluminum that is welded together. This cylinder is welded to the perforated end of the old tank. A new end plate is welded to the end of the cylinder to complete a 150-gallon tank. The entire operation requires $250 in parts purchased from other manufacturers, $90 for labor to build the tank extension, and $160 for labor to install the 150-gallon tank on the chassis.

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) sold by the manufacturer, producer, or importer. Enumerated in section 4061(a)(1) are automobile truck tractors and truck trailer and semi-trailer bodies.

Under the provisions of section 4218(c) of the Code, if any person manufactures, produces, or imports a part or accessory taxable under section 4061(b), and uses it (otherwise than as material in the manufacture or production of, or as a component part of, any other article to be manufactured or produced by that person), then that person is liable for tax in the same manner as if that person sold the article.

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, replace, 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. The term parts or accessories includes all articles that have reached such a stage of manufacture as to be commonly known as parts or accessories whether or not fitting operations are required in connection with their installation.

Section 48.0-2(a)(4)(i) of the regulations provides that the term "manufacturer" includes any person who produces a taxable article from scrap, salvage, or junk material, or from new or raw material, by processing, manipulating, or changing the form of an article, or by combining or assembling two or more articles. An operation performed on a used part or accessory that changes the form of the article and results in the production of a new and different article is a manufacturing operation for purposes of the manufacturers excise tax.

The company adds the extension and combines other articles with the used 100-gallon tank to produce the 150-gallon tank, a new and different article that when attached to the truck tractor adds to its utility. Accordingly, the company is a manufacturer of an automative part or accessory and is liable for the tax imposed by section 4061(b) of the Code on its use of the 150-gallon fuel tank. The tax applies to the value of the used parts, $250 for new parts, and $90 for labor to build the tank, plus 10 percent of the total. In accordance with section 4216, any portion of the $160 for labor to install the fuel tank on the truck tractor may be excluded from the tax base if separately invoiced or if otherwise substantiated by the company's records.

Compare Rev. Rul. 79-36, page 336, this Bulletin, which holds that the value of new engines installed either by the owner in its old trucks prior to sending them to a service company that fabricates the trucks into new trucks, or sent separately by the owner to the repair company and installed by it in its fabrication, may not be excluded from the computation of the tax.