Internal Revenue Service
Rev. Rul. 68-673
1968-2 C.B. 512
Whether certain transportation and delivery charges are includible in the price for which articles are sold for purposes of determining the manufacturer's sale price; S.T. 513 superseded.
Rev. Rul. 68-673 /1/
The purpose of this Revenue Ruling is to restate under current statute and regulations the conclusions set forth in S.T. 513, C.B. XI-2, 511 (1932). This ruling involves several situations concerning the exclusion of transportation and delivery charges from the manufacturer's sale price of articles subject to the manufacturers excise taxes imposed under chapter 32 of the Internal Revenue Code of 1954.
Section 4216(a) of the Code provides that for purposes of the taxes imposed under chapter 32 of the Code, in determining the price for which an article is sold, there shall be included any charge for coverings and containers of whatever nature, and any charge incident to placing the article in condition packed ready for shipment, but there shall be excluded the amount of tax imposed under chapter 32, whether or not stated as a separate charge. Section 4216(a) also provides that a transportation, delivery, insurance, installation, or other charge (not required by the foregoing sentence to be included) shall be excluded from the price only if the amount thereof is established to the satisfaction of the Secretary of the Treasury or his delegate.
Set forth below are various circumstances under which articles subject to a tax imposed under chapter 32 of the Code are sold by a manufacturer, and in each instance a conclusion as to how tax is to be conputed with respect to the transportation or delivery charge involved.
1. A manufacturer sells taxable articles f.o.b. factory or point of orgin. In this type of case the tax is based on the manufacturer's selling price without reference to any freight charges which may be paid by the purchaser to secure delivery of the goods.
2. (a) A manufacturer prepays the actual transportation charges on taxable articles sold. He charges the purchasers of the goods a uniform amount for transportation, irrespective of the customer's location in the United States, and without reference to the actual amount of transportation cost prepaid by the manufacturer on each delivery.
(b) The circumstances are the same as in (a), except that the manufacturer makes a higher charge for goods delivered to points west of the Mississippi River than he charges for the same goods delivered east of the Mississippi.
In the cases described above under (a) and (b), the price upon which the tax is to be computed is the amount the manufacturer receives for the taxable articles, including any charge for delivery or transportation, less the actual amount of transportation expense paid by him to effect delivery.
3. A manufacturer sells taxable merchandise `freight deductible' or `freight allowed.' At the time of remitting, the purchaser deducts from the amount of the invoice any freight charges he may have paid to secure delivery of the goods.
The price upon which the tax should be computed in this case is the amount the purchaser remits after deducting the transportation costs permitted in accordance with the terms of the sales agreement.
4. A manufacturer located in City A sells taxable articles to a dealer in City B , f.o.b. City A . However, in order to equalize competitive conditions with respect to the nearest competitive manufacturer in City C , the manufacturer credits the dealer, as an allowance against the invoice price, with an amount equivalent to the difference between the transportation cost from City A to City B , and the transportation cost from City C to City B .
In this case tax is to be computed upon the invoice price less the amount of the special allowance for the freight differential. In other words, the net return to the manufacturer is the basic sale price, for purposes of the tax.
5. A manufacturer pays the drayage charges on goods sold.
Where a definite amount is paid by a manufacturer of goods to another person performing a transportation service, in order to secure delivery of goods at a customer's place of business, the amount of such transportation or delivery charges is to be excluded from the price upon which the tax is computed.
However, no transportation or delivery charges may be excluded in computing the sale price of an article for the purpose of determining the basis of the manufacturers excise tax, unless the manufacturer can support such charges by adequate records. The records must be so prepared that an officer of the Internal Revenue Service may readily determine whether the amount of transportation and delivery charges excluded from the sale price has actually been paid.
S.T. 513 is hereby superseded since the conclusions thereof are restated under current law in this Revenue Ruling.
/1/ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.