Rev. Rul. 81-97 1981-1 C.B. 498, 1981-12 I.R.B. 24.

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Revenue Ruling 81-97

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Headnote

Exported articles reimported. Effective December 1, 1980, an importer’s sales of taxable articles that had originally been sold tax free in, and shipped out of, the U.S. will be tax exempt only if the articles are used prior to being returned to the U.S. Rev. Rul. 56-562 modified and superseded.

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FACTS

The Internal Revenue Service has reconsidered Rev. Rul. 56-562, 1956-2 C.B. 798, which concludes that where articles subject to the manufacturers excise tax are sold in the United States and are subsequently shipped out of the United States, they are not subject to the manufacturers excise tax when returned to the United States and sold by the importer, irrespective of whether the original or initial sale in the United States by the manufacturer was made on a tax-free or tax-paid basis. Rev. Rul. 56-562 is based on the case of United States Truck Sales Company v. United States, 229 F.2d 693 (6th Cir. 1956), which dealt with a situation where trucks subject to the manufacturers excise tax were sold in the United States tax free to the United States Government, shipped out of the United States, disposed of by the United States Government in a foreign country, and later returned to the United States and resold. The court held that the manufacturers excise tax did not apply upon the importer’s sale in the United States, since the tax is not imposed on the second sale in the United States of the same article.

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LAW AND ANALYSIS

Under chapter 32 of the Internal Revenue Code, certain articles are subject to federal excise taxes when sold or used by the manufacturer, producer, or importer. Section 4221(a) of the Code provides several enumerated exemptions for taxable articles (other than coal) sold or used by the manufacturer, producer, or importer. Under section 4221(a)(2), no manufacturers excise tax is imposed on the sale of an article for export, or for resale to a second purchaser for export, if such exportation is to occur before any other use. Section 48.4221-3(a)(2) of the Manufacturers and Retailers Excise Tax Regulations, as added by T.D. 7729, 1980-50 I.R.B. 17, provides, effective December 1, 1980, that if an article otherwise taxable under chapter 32 of the Code is sold tax free by the manufacturer pursuant to section 4221(a)(2) of the Code, and is returned subsequently to the United States in an unused and undamaged condition, then the importer is liable for the tax imposed by chapter 32 on the subsequent sale or use of the article in the United States. Although not expressly stated in Rev. Rul. 56-562, the trucks involved in the United States Truck Sales case had been used in the foreign country for several years and were in a worn condition when they were returned to the United States. The importer’s sale of such trucks would not be subject to tax under section 48.4221-3(a)(2) of the regulations, since the trucks were not returned to the United States in an unused and undamaged condition. See illustrative Example (2) in that section. On the other hand, if taxable trucks are sold tax free, exported, and returned to the United States unused and undamaged, sales of such trucks by the importer would be subject to tax in accordance with the regulations. See illustrative Example (1) in section 48.4221-3(a)(2).

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HOLDING

The conclusion in Rev. Rul. 56-562 that the importer’s sale of articles is not taxable applies only where the articles previously exported tax free are used prior to being returned to the United States.

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EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 56-562 is modified and superseded.

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PROSPECTIVE APPLICATION

Under the authority granted by section 7805(b) of the Code, this revenue ruling is effective with respect to sales or uses by importers on and after December 1, 1980, the effective date of section 48.4221-3(a)(2) of the regulations. Rev. Rul. 81-97, 1981-1 C.B. 498, 1981-12 I.R.B. 24.