Internal Revenue Service
Rev. Rul. 72-129
1972-1 C.B. 340
A "holdback" charge included in the manufacturer's invoice price of motor vehicles to dealers is not includible in the taxable sale price for purposes of computing the manufacturers tax.
Rev. Rul. 72-129
A manufacturer of motor vehicle articles subject to the manufacturers excise tax imposed by section 4061(a)(1) of the Internal Revenue Code of 1954 sells its product to franchised dealers. In arriving at the price charged its dealers for the vehicles, the manufacturer states such price as a certain percentage of the retail list price of the particular model sold. For example, if the retail list price of model X vehicle is $10,000, the manufacturer may determine the agreed upon sale price at 20 percent off list, or $8,000. However, although the agreed upon sale price for the vehicle is $8,000, the sales invoice may show an amount billed in excess of $8,000, by reason of a collateral agreement entered into into between the manufacturer and the dealer.
The agreement referred to is called a "holdback" agreement. The agreement provides that dealer purchases will be invoiced at discounts two percent less than the discount agreed upon. The amount represented by the two percent difference is to be held by the manufacturer until the end of the model year, when the amount will be refunded to the dealer. Because of this agreement the dealer will be billed, and will pay, $8,200 for model X, instead of the agreed upon sale price of $8,000. Under the agreement the additional $200 will be retained by the manufacturer and returned to the dealer at the end of the model year. Although payment of the additional $200 is a condition for purchase of the vehicle, there are no conditions attached to the manufacturer's obligation to return the $200 "holdback" to the dealer at the end of the model year.
Held, the additional 2 percent billed purchasers pursuant to the described holdback agreements is not includible in the taxable sale price of vehicles, for purposes of computing the manufacturers excise tax imposed by section 4061(a)(1) of the Code. See Senate Report 91-1444, 91st Congress, 2nd Session, C.B. 1971-1, 574, 586.