Rev. Rul. 83-64
1983-1 C.B. 289.
Internal Revenue Service
Revenue Ruling
EXPORTED ARTICLES REIMPORTED; ARTICLES DIVERTED FROM EXPORTATION
Published: April 11, 1983
SECTION 4221. - -CERTAIN TAX-FREE SALES, 26 CFR 48.4221-3: Tax-free sale of articles for export, or for resale by the purchaser to a second purchaser for export
(Also Sections 4061; 48.4061(a)-1, 48.4061(b)-1.)
Exported articles reimported; articles diverted from exportation. The taxability of articles sold tax free for export and subsequently imported back into the U.S. or diverted from exportation in four situations is discussed.
ISSUE
Does the manufacturers excise tax imposed by section 4061(a)(1) of the Internal Revenue Code apply when a taxable article is returned to the United States after exportation in the situations described below
FACTS
Situation 1. A taxable heavy duty truck chassis (commonly referred to as a chassis/cab) is sold by a United States manufacturer tax free for export and exported to Canada. The Canadian truck dealer who purchases the unused chassis/cab sells it to an independent truck operator who drives the vehicle directly to the United States and uses it in the business of hauling freight in this country. On some occasions the independent operator may have a fifth wheel installed on the vehicle at the time of purchase or when the vehicle is returned to the United States. In order to drive the vehicle to the United States the operator obtains temporary license registration and title documents required by the Canadian province or territory for a one time trip, but does not permanently title, register, or license the vehicle in Canada.
Situation 2. A taxable truck chassis/cab is sold by the manufacturer tax free for export and in due course is exported to Canada. The purchaser, a truck dealer, subsequently sells the new vehicle to a United States truck broker who has the vehicle driven to the United States where it is sold as a low mileage "used" vehicle to a person who uses it in a trade or business.
Situation 3. A United States customer orders a truck chassis/cab of United States manufacture from a Canadian truck dealer and has the vehicle delivered from the United States manufacturer to a Canadian body manufacturer. After a body is installed the customer takes possession of the completed vehicle, drives it to the United States, and uses it.
Situation 4. A United States customer orders a truck chassis/cab of United States manufacture from a Canadian truck dealer. The dealer purchases a vehicle tax-free from the manufacturer for export to Canada. At the customer's request the dealer has the U.S. manufacturer ship the chassis/cab to a U.S. body manufacturer for installation of a body prior to export. When the body has been installed the customer arranges with the dealer and the body manufacturer to take delivery of the completed vehicle at the body manufacturer's plant instead of in Canada. After taking possession of the vehicle the customer places it in service in the United States.
In none of the situations described above is any modification made to the chassis/cab in Canada that would be considered an act of manufacture for federal excise tax purposes. None of the vehicles is used for its intended purpose prior to the final sale or transfer of possession described above.
LAW AND ANALYSIS
Under Section 4221(a)(2) of the Code, no tax is imposed on articles (except coal) subject to manufacturers excise tax under chapter 32 that are sold by the manufacturer for export or for resale by the purchaser to a second purchaser for export.
Under section 4221(b)(2) of the Code when an article has been sold tax free for export, or for resale by the purchaser to a second purchaser for export, the exemption under section 4221(a)(2) will cease to apply to the sale if within six months of the manufacturer's sale of the article the manufacturer has not received proof that the article has been exported.
Under section 48.4221-3(a)(2) of the Manufacturers and Retailers Excise Tax Regulations, when an article, otherwise taxable under Chapter 32 of the Code, is sold tax free by the manufacturer for export and is returned subsequently to the United States in an unused and undamaged condition, the importer is liable for the tax imposed by chapter 32 on the subsequent sale or use of the article in the United States.
Revenue Ruling 81-97, 1981-1 C.B. 498, determined that on and after December 1, 1980 (the effective date of section 48.4221-3(a)(2) of the regulations) an importer's sale or use of an article previously exported tax free is not taxable only if the article is used prior to being returned to the United States.
In Situations 1, 2, and 3, the vehicles are not placed in service in Canada for their intended purpose. The first time they are used for their intended purpose, that of towing a semitrailer or carrying a load, is after their return to the United States. The movement of the vehicle from one place to another before it is put to its intended use is not considered to be a use for purposes of section 4221(a)(2) of the Code. See Rev. Rul. 69-395, 1969-2 C.B. 212, which deals with the question of what constitutes a use prior to exportation.
In Situation 4 the chassis/cab vehicle is not exported in due course. Thus, the manufacturer can not receive proof of export as required by section 4221(b) of the Code and the exemption provided by section 4221(a)(2) ceases to apply six months from the date of sale.
HOLDING
In Situations 1, 2 & 3 the person who returns the vehicles to the United States is liable for tax on the sale or use of the chassis/cab in this country. In addition, in Situation 3 the person is also liable for tax under section 4218 of the Code on the use of the truck body imported from Canada.
In Situation 4, the manufacturer of the chassis/cab becomes liable for tax on the sale of the chassis/cab on the first day following the end of the six-month period specified in section 4221(b)(2) of the Code.
Rev. Rul. 83-64, 1983-1 C.B. 289.