1986-1 C.B. 318; 1986 IRB LEXIS 201, *;
1986-19 I.R.B. 7; REV. RUL. 86-68



Rev. Rul. 86-68



Section 4052. -- Definitions and Special Rules



26 CFR 145-4052-1: Special rules and definitions.



(Also Sections 4051; 4216; 145.4051-1, 48.4216(a)-2.)



1986-1 C.B. 318; 1986 IRB LEXIS 201; 1986-19 I.R.B. 7; REV. RUL. 86-68



May 19, 1986

 [*1] 

Taxable sale price; excludability of certain transportation and delivery expenses. The actual transportation and delivery charges for shipping a truck directly from a manufacturer to a retail dealer's customer are includable in the dealer's taxable sale price to the extent that such charges do not exceed the charges that would have been incurred to ship the truck from the manufacturer to the retail dealer through whom the truck was ordered.


 
ISSUE

If a taxable heavy truck is shipped by the manufacturer to a dealer's business location for pickup by the customer, what transportation and delivery expenses are excludable from the price for which the truck is sold by the dealer for purposes of the retailers excise tax imposed on heavy trucks and trailers by &_butType=4&_butStat=0&_butNum=1&_butInline=1&_butinfo=26 USCS 405" target="_blank">section 4051(a)(1) of the Internal Revenue Code? What expenses are excludable by the dealer if the truck is shipped by the manufacturer directly to the customer's location?
 
FACTS

Situation 1. A trucking company orders a taxable truck from a retail truck dealer. The truck is thereafter shipped by the truck manufacturer to the dealer's business location, where it is picked up by the trucking company. The usual business practice [*2]  of the dealer is to have trucks delivered to its business premises for eventual customer pickup.

Situation 2. A trucking company orders a taxable truck from a retail truck dealer. Under the contractual arrangement between that dealer and its customer, the trucking company, the truck is shipped by the truck manufacturer from the manufacturer's factor directly to the customer.
 
LAW AND ANALYSIS

Section 4051(a)(1) of the Code imposes a tax on the first retail sale of certain enumerated articles, including truck chassis and bodies that have a gross vehicle weight of more than 33,000 pounds. The tax is 12 percent of the amount for which the article is sold.

Section 4052(b)(1)(A) of the Code provides that, in determining the price of an article for purposes of the tax on the retail sale of trucks, there shall be included any charge incident to placing the article in condition ready for use.

Section 145.4052-1(d)(1) of the Temporary Excise Tax Regulations provides that the price for which an article is sold includes the total consideration paid for the article, whether the consideration is paid in money, services, or other forms. In addition, there shall be included any charge [*3]  incident to placing the article in condition ready for use.Similar rules to section 4216(a) of the Code and the regulations thereunder, relating to charges to be included in the price and excluded from the price, shall apply. For example, charges for transportation, delivery, insurance, and installation (other than installation charges to which section 4051(b) applies), and other expenses actually incurred in connection with the delivery of an article to a purchaser pursuant to a bona fide sale, shall be excluded from the price in computing the tax.

Under section 4216(a) of the Code (which defines "price" for purposes of the Chapter 32 manufacturers excise taxes) and section 48.4216(a)-2(b) of the Manufacturers and Retailers Excise Tax Regulations, charges for transportation, delivery, and other expenses actually incurred in connection with the delivery of an article to a purchaser pursuant to a bona fide sale shall be excluded from the sale price in computing the tax. Such charges include all items of transportation, delivery, and similar expense incurred after shipment to a customer begins, in response to the customer's order, pursuant to a bona fide sale. However, costs of  [*4]  such nature incurred by a manufacturer in transporting, in the normal course of business and for its benefit and convenience, articles from a factory or port of entry to a warehouse or other facility (regardless of the location of such warehouse or other facility) are not considered as being incurred in connection with the delivery of an article to a purchaser pursuant to a bona fide sale, and charges therefor cannot be excluded from the sale price in computing tax liability.

Section 48.4216(a)-2(b)(3) of the regulations provides that for purposes of computing the taxable sale price of articles, it is immaterial whether the transportation, delivery, or other services of the type to which that section has application are performed by a common carrier or independent agency for, or on behalf of, the manufacturer, producer, or importer, or are performed by the manufacturer, producer, or importer with the use of its own vehicles or other facilities. In determining whether an expense is an excludable transportation or delivery expense, "only those expenses incurred by reason of the fact that the purchaser accepts delivery at some point other than the manufacturer's place of business shall [*5]  be considered excludable transportation or delivery expenses."

The rules under section 4216(a) of the Code, and the regulations thereunder, generally apply to determination of price in connection with a sale subject to a manufacturers excise tax, as opposed to a retailer's excise tax. However, as noted above, section 145.4052-1(d)(1) of the temporary regulations provides that similar rules shall apply to determination of price in connection with a sale subject to the retailers excise tax on heavy trucks and trailers.

Most of the concepts employed under section 4216(a) of the Code are directly applicable to the retailer's tax imposed by section 4051. For instance, the "purchaser" under the manufacturers tax plays the same role as the "purchaser" under the retailers tax. On the other hand, other concepts are applicable only in analogue. Thus the taxpayer retailer's place of business takes the place of the taxpayer manufacturer's place of business.

When a customer places a truck order with a retail dealer and the truck is thereafter shipped from the manufacturer to the dealer, all charges for delivery and transportation to the dealer are includable in the taxable sale price of [*6]  the truck. The exclusion of charges for transportation and delivery under section 145.4052-1(d)(1) of the temporary regulations is not applicable in Situation 1 because the charges are incurred to deliver the truck to the taxpayer retailer's place of business. See section 48.4216(a)-2(b)(3) of the regulations.

Although in Situation 2 the shipment of the truck is directly from the truck manufacturer to the retail dealer's customer, the exclusion for transportation and delivery charges provided in section 145.4052-1(d)(1) of the temporary regulations and section 48.4216(a)-2(b) of the regulations applies only with respect to actual or constructive shipments from the taxpayer (the retailer in the case of section 4051 of the Code, and the manufacturer in the case of section 4216), and not with respect to actual or constructive shipments to the taxpayer.

Therefore, in computing the portion of the transportation and delivery charges in Situation 2 includable in the taxable sale price for purposes of the section 4051(a)(1) retailers excise tax, there is deemed to be an initial constructive shipment of the truck from the manufacturer to the retailer through whom [*7]  the trucking company customer placed the order. If the actual charge for transportation between the manufacturer and the trucking company customer is greater than the charge would have been for transportation between the manufacturer and the retailer, then only a portion of the actual transportation charge is includable in the sale price. The includable amount is the charge that would have been incurred if the truck had been shipped from the manufacturer to the retailer instead of directly from the manufacturer to the customer. The balance of the actual transportation charge is excludable from the taxable sale price because it was "incurred by reason of the fact that the purchaser accepts delivery at some point other than" the retailer's place of business. If the actual charge for transportation between the maufacturer and the trucking company customer is less than the charge would have been if the truck had been shipped from the manufacturer to the retailer through whom the order was placed, then the entire actual transportation charge for the shipment of the truck from the manufacturer to the customer is includable in the taxable sale price.
 
HOLDING

In Situation 1, the [*8]  transportation and delivery charges for shipping the truck from the manufacturer to the retail dealer are includable in the taxable sale price.

In Situation 2, the actual transportation and delivery charges for shipping the truck directly from the manufacturer to the retail dealer's customer are includable in the taxable sale price to the extent that such charges do not exceed the charges that would have been incurred to ship the truck from the manufacturer to the retail dealer through whom the truck was ordered. The balance (if any) of the actual transportation and delivery charges would be excludable from the taxable sale price.