Internal Revenue Service
Revenue Ruling sm

Rev. Rul. 72-590

1972-2 C.B. 571

IRS Headnote

The expenses of handling and loading motor vehicles from the time shipment begins at the final inspection area are excludable from the sale price in computing the manufacturers tax.

Full Text

Rev. Rul. 72-590

Advice has been requested whether, in determining the sale price of motor vehicles for purposes of computing the manufacturers excise tax, certain handling and loading expenses are delivery expenses that may be excluded from such sale price.

A company manufactures and sells motor vehicles subject to the manufacturers excise tax imposed by section 4061(a) of the Internal Revenue Code of 1954. Pursuant to selling agreements, the company ships the vehicles from its manufacturing plant to its customers either by truck trailer or by rail.

With respect to truck trailer shipments, the company contracts with a truck trailer carrier who maintains a marshaling and loading area adjacent to the company's manufacturing plant. The vehicles are turned over to the carrier in the final inspection area of the plant and are driven or hauled to the carrier's premises for grouping into truck loads. The vehicles are then hauled to the company's customers by the carrier. The company pays the carrier freight rates published in tariffs for the above services. With regard to rail shipments, the vehicles are usually turned over to a truck trailer carrier in the final inspection area of the plant to be hauled to the rail facility where they are loaded onto railroad cars by employees of the carrier or by the company's employees. In some instances the company's employees haul the vehicles from the inspection area by the company's truck trailer to the rail facility and load them onto the railroad cars. When these services are performed by the carrier, the company pays the carrier and charges delivery expense. When performed by its employees, it also treats the expenses therefor as delivery expense.

The question presented is whether the amounts paid to public carriers for delivering the vehicle to the company's customers, and all the expenses incurred by the company in moving the vehicles to the public carrier after they have been earmarked for specific sales, are excludable from the sale price (tax base) as charges for delivery, within the meaning of section 4216(a) of the Code.

Section 4216(a) of the Code provides that in determining, for purposes of the manufacturers excise tax, 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 the manufacturers excise tax, whether or not stated as a separate charge. That section further 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 in accordance with the regulations.

Section 316.12(a) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that charges for transportation, delivery, insurance, installation, and other charges actually incurred in connection with the delivery of an article to a purchaser pursuant to a bona fide sale, are to be excluded in computing the manufacturers excise tax.

The term "charges actually incurred in connection with the delivery of an article to a purchaser" as used in the regulations includes all items of expense incurred after shipment to a customer begins, in response to the customer's order, pursuant to a bona fide sale. Rev. Rul. 60-6, C.B. 1960-1, 495. It is immaterial whether the expenses arise from charges made by a public carrier or from the use of the manufacturer's own personnel and equipment. Rev. Rul. 68-509, C.B. 1968-2, 508, 509-510.

The motor vehicles in question are moved from the inspection area of the company's plant in response to customer orders, pursuant to bona fide sales, and not in anticipation of purchase orders from customers. It is the company's normal practice to ship goods from its final inspection area in response to customer orders. Therefore, all transportation expenses incurred by the company from the time shipment begins at the inspection area until the vehicles are delivered to the purchaser are charges for delivery within the meaning of section 4216(a) of the Code. Accordingly, it is held that all such expenses, whether incurred by reason of use of the company's own personnel and equipment or as amounts paid to public carriers, are excludable from the sale price in computing manufacturers excise tax liability.