Rev. Rul. 81-73

1981-1 C.B. 501, 1981-9 I.R.B. 51.

Internal Revenue Service
Revenue Ruling

CONSTRUCTIVE SALE PRICE FOR RETAIL SALES

Published: March 2, 1981

SECTION 4216.--DEFINITION OF PRICE, 26 CFR 48.4216(b)-2: Constructive sale price; basic rules

(Also Sections 4061, 4161, 4181; 48.4061(b)-1, 48.4161(a)-1, 48.4181-1.)

Constructive sale price for retail sales. In computing the tax on retail sales, a manufacturer may use the highest price for which it sells similar articles to wholesale distributors, provided it has an established bona fide practice of selling the articles in substantial quantities to these distributors. If the manufacturer has not established this practice, a constructive sale price will be determined by the Commissioner.

ISSUE

Where a manufacturer makes retail sales referred to in section 4216(b)(1)(A), when may it use as its constructive sale price the highest price at which it sells to wholesale distributors?

LAW AND ANALYSIS

Section 4216(b)(1)(A) of the Internal Revenue Code provides that if an article is sold at retail, the manufacturers excise tax shall (if based on the price for which the article is sold) be computed on the price for which such articles are sold, in the ordinary course of trade, by manufacturers thereof, as determined by the Secretary. In the case of an article sold at retail (other than an article the sale of which is taxable under section 4061(a)), the computation under the preceding sentence shall be on whichever of the following prices is the lower: (1) the price for which such article is sold, or (2) the highest price for which such articles are sold to wholesale distributors, in the ordinary course of trade, by manufacturers or producers thereof, as determined by the Secretary. Section 4216(b)(1)(A) does not apply if the special rule for retail sales in section 4216(b)(2) applies.

HOLDING

Where a manufacturer sells at retail, and section 4216(b)(1)(A) is applicable, it should compute the tax on the retail sale upon the highest price for which it sells similar articles to wholesale distributors, provided it has an established bona fide practice of selling the articles in substantial quantities to wholesale distributors. Where it is not shown that a manufacturer has an established bona fide practice of selling articles in substantial quantities to wholesale distributors, a constructive sale price will be determined by the Commissioner. If the price as above determined is higher than the actual sale price at retail, the tax will be computed on such actual sale price.

Rev. Rul. 81-73, 1981-1 C.B. 501, 1981-9 I.R.B. 51.