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Revenue Ruling 60-138

1960-1 C.B. 500

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Headnote

In determining, for purposes of the manufacturers excise tax, a manufacturer’s constructive sale price of articles which are sold on consignment, there may be excluded an amount equal to the cost of shipping the articles from the consignor (manufacturer) to the consignee (dealer). However, the expenses incurred in shipping the articles from the consignee (dealer) to the consumer are part of the dealer’s cost and may not be deducted.

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ISSUE

Advice has been requested whether, in determining a manufacturer’s constructive sale price of articles which are sold on consignment, for purposes of the manufacturers excise tax, there may be excluded an amount equal to the cost of shipping the articles from the consignor (manufacturer) to a consignee (dealer).

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LAW AND ANALYSIS

Section 4216(b)(1)(B) of the Internal Revenue Code of 1954 (section 4216(b)(2) before its redesignation by the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92) provides that if an article is sold on consignment, the manufacturers excise tax shall be computed on the price for which such articles are sold, in the ordinary course of trade, by manufacturers or producers thereof, as determined by the Secretary of the Treasury or his delegate. Section 316.15(d) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that if a manufacturer delivers articles to a dealer on consignment, retaining ownership in them until disposed of by the dealer, the manufacturer must pay a tax on the basis of the fair market price, which will ordinarily be the net price received from the dealer. If the dealer pays for the transportation of the articles from the manufacturer to the dealer and deducts an equivalent amount before making his remittance to the manufacturer, the actual amount remitted is considered to be “the net price received from the dealer.” On the other hand, if the manufacturer pays the transportation costs, the amount of those costs may be deducted from the actual amount received from the dealer in determining “the net price received from the dealer.”

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HOLDING

Accordingly, it is held that, in determining the manufacturer’s constructive sale price of taxable articles which are sold on consignment, there may be excluded an amount equal to the cost of shipping the articles from the consignor (manufacturer) to the consignee (dealer), regardless of whether such costs are paid directly by the consignor or indirectly by an allowance of a credit (or deduction) to the consignee. However, expenses incurred in shipping the articles from the consignee (dealer) to the consumer are part of the dealer’s expenses and may not be deducted.