5. Manufacturers Taxes
The following discussion of manufacturers taxes applies to the tax on:
Sport fishing equipment;
Fishing rods and fishing poles;
Electric outboard motors;
Fishing tackle boxes;
Bows, quivers, broadheads, and points;
Arrow shafts;
Coal;
Taxable tires;
Gas guzzler automobiles; and
Vaccines.
Manufacturer.
The term “manufacturer” includes a producer or importer. A manufacturer is any person who produces a taxable article from new or raw material, or from scrap, salvage, or junk material, by processing or changing the form of an article or by combining or assembling two or more articles. If you furnish the materials and keep title to those materials and to the finished article, you are considered the manufacturer even though another person actually manufactures the taxable article. A manufacturer who sells a taxable article in knockdown (unassembled) condition is liable for the tax. The person who buys these component parts and assembles a taxable article may also be liable for tax as a further manufacturer depending on the labor, material, and overhead required to assemble the completed article if the article is assembled for business use.Importer.
An importer is a person who brings a taxable article into the United States, or withdraws a taxable article from a customs bonded warehouse for sale or use in the United States.Sale.
A sale is the transfer of the title to, or the substantial incidents of ownership in, an article to a buyer for consideration which may consist of money, services, or other things.Use considered sale.
A manufacturer who uses a taxable article is liable for the tax in the same manner as if it were sold.Lease considered sale.
The lease of an article (including any renewal or extension of the lease) by the manufacturer is generally considered a taxable sale. However, for the gas guzzler tax, only the first lease (excluding any renewal or extension) of the automobile by the manufacturer is considered a sale.Manufacturers taxes based on sale price.
The manufacturers taxes imposed on the sale of sport fishing equipment, electric outboard motors, and bows are based on the sale price of the article. The taxes imposed on coal are based either on the sale price or the weight. The price for which an article is sold includes the total consideration paid for the article, whether that consideration is in the form of money, services, or other things. However, you include certain charges made when a taxable article is sold and you exclude others. To figure the price on which you base the tax, use the following rules.Include both the following charges in the price.
Any charge for coverings or containers (regardless of their nature).
Any charge incident to placing the article in a condition packed ready for shipment.
Exclude all the following amounts from the price.
The manufacturers excise tax, whether or not it is stated as a separate charge.
The transportation charges pursuant to the sale. The cost of transportation of goods to a warehouse before their bona fide sale is not excludable.
Delivery, insurance, installation, retail dealer preparation charges, and other charges you incur in placing the article in the hands of the purchaser under a bona fide sale.
Discounts, rebates, and similar allowances actually granted to the purchaser.
Local advertising charges. A charge made separately when the article is sold and that qualifies as a charge for “local advertising” may, within certain limits, be excluded from the sale price.
Charges for warranty paid at the purchaser's option. However, a charge for a warranty of an article that the manufacturer requires the purchaser to pay to obtain the article is included in the sale price on which the tax is figured.
Bonus goods.
Allocate the sale price if you give free nontaxable goods with the purchase of taxable merchandise. Figure the tax only on the sale price attributable to the taxable articles.Example —
A manufacturer sells a quantity of taxable articles and gives the purchaser certain nontaxable articles as a bonus. The sale price of the shipment is $1,500. The normal sale price is $2,000: $1,500 for the taxable articles and $500 for the nontaxable articles. Since the taxable items represent 75% of the normal sale price, the tax is based on 75% of the actual sale price, or $1,125 (75% of $1,500). The remaining $375 is allocated to the nontaxable articles.
Taxable Event
Tax attaches when the title to the article sold passes from the manufacturer to the buyer. When the title passes depends on the intention of the parties as gathered from the contract of sale. In the absence of expressed intention, the legal rules of presumption followed in the jurisdiction where the sale occurs determine when title passes.
If the taxable article is used by the manufacturer, the tax attaches at the time use begins.
The manufacturer is liable for the tax.
Partial payments.
The tax applies to each partial payment received when taxable articles are:Leased,
Sold conditionally,
Sold on installment with chattel mortgage, or
Sold on installment with title to pass in the future.
Exemptions
The following sales by the manufacturer are exempt from the manufacturers tax.
Sale of an article to a state or local government for the exclusive use of the state or local government. This exemption does not apply to the taxes on coal, gas guzzlers, and vaccines. State is defined in Definitions under Fuel Taxes, in chapter 1.
Sale of an article to a nonprofit educational organization for its exclusive use. (This exemption does not apply to the taxes on coal, gas guzzlers, and vaccines.) Nonprofit educational organization is defined under Communications Tax in chapter 4.
Sale of an article to a qualified blood collector organization. This exemption does not apply to gas guzzlers, recreational equipment, and vaccines. Qualified blood collector organizations are defined under Communications Tax in chapter 4.
Sale of an article for use by the purchaser as supplies for vessels. This exemption does not apply to the taxes on coal and vaccines. Supplies for vessels means ships' stores, sea stores, or legitimate equipment on vessels of war of the United States or any foreign nation, vessels employed in the fisheries or whaling business, or vessels actually engaged in foreign trade.
Sale of an article for use by the purchaser for further manufacture, or for resale by the purchaser to a second purchaser for use by the second purchaser for further manufacture. This exemption does not apply to the tax on coal and tires. Use for further manufacture means use in the manufacture or production of an article subject to the manufacturers excise taxes. If you buy articles tax free and resell or use them other than in the manufacture of another article, you are liable for the tax on their resale or use just as if you had manufactured and sold them.
Sale of an article for export or for resale by the purchaser to a second purchaser for export. The article may be exported to a foreign country or to a possession of the United States. A vaccine shipped to a possession of the United States is not considered to be exported. If an article is sold tax free for export and the manufacturer does not receive proof of export, described later, the manufacturer is liable for the tax.
Sales of articles of native Indian handicraft, such as bows and arrow shafts, manufactured by Indians on reservations, in Indian schools, or under U.S. jurisdiction in Alaska.
For tire exemptions, see Internal Revenue Code section 4221(e)(2).
Requirements for Exempt Sales
The following requirements must be met for a sale to be exempt from the manufacturers tax.
Registration requirements.
The manufacturer, first purchaser, and second purchaser in the case of resales must be registered. See the Form 637 instructions for more information.Exceptions to registration requirements.
Registration is not required for:State or local governments,
Foreign purchasers of articles sold or resold for export,
The United States, or
Parties to a sale of supplies for vessels and aircraft.
Certification requirement.
If the purchaser is required to be registered, the purchaser must give the manufacturer its registration number and certify the exempt purpose for which the article will be used. The information must be in writing and may be noted on the purchase order or other document furnished by the purchaser to the seller in connection with the sale. For a sale to a state or local government, an exemption certificate must be signed by an officer or employee authorized by the state or local government. See Regulations section 48.4221-5(c) for the certificate requirements. For sales for use as supplies for vessels and aircraft, if the manufacturer and purchaser are not registered, the owner or agent of the vessel must provide an exemption certificate to the manufacturer before or at the time of sale. See Regulations section 48.4221-4(d) for the certificate requirements.Proof of export requirement.
Within 6 months of the date of sale or shipment by the manufacturer, whichever is earlier, the manufacturer must receive proof of exportation. See Regulations section 48.4221-3(d) for evidence that qualifies as proof of exportation.Proof of resale for further manufacture requirement.
Within 6 months of the date of sale or shipment by the manufacturer, whichever is earlier, the manufacturer must receive proof that the article has been resold for use in further manufacture. See Regulations section 48.4221-2(c) for evidence that qualifies as proof of resale.Information to be furnished to purchaser.
The manufacturer must indicate to the purchaser that the articles normally would be subject to tax and are being sold tax free for an exempt purpose because the purchaser has provided the required certificate.Credits or Refunds
The manufacturer may be eligible to obtain a credit or refund of the manufacturers tax for certain uses, sales, exports, and price readjustments. The claim must set forth in detail the facts upon which the claim is based.
Uses, sales, and exports.
A credit or refund (without interest) of the manufacturers taxes may be allowable if a tax-paid article is, by any person:Exported,
Used or sold for use as supplies for vessels (except for coal and vaccines),
Sold to a state or local government for its exclusive use (except for coal, gas guzzlers, and vaccines),
Sold to a nonprofit educational organization for its exclusive use (except for coal, gas guzzlers, and vaccines),
Sold to a qualified blood collector organization for its exclusive use (except for gas guzzlers, recreational equipment, and vaccines), or
Used for further manufacture of another article subject to the manufacturers taxes (except for coal).
Export.
If a tax-paid article is exported, the exporter or shipper may claim a credit or refund if the manufacturer waives its right to claim the credit or refund. In the case of a tax-paid article used to make another taxable article, the subsequent manufacturer may claim the credit or refund.Price readjustments.
In addition, a credit or refund (without interest) may be allowable for a tax-paid article for which the price is readjusted by reason of return or repossession of the article or a bona fide discount, rebate, or allowance for taxes based on price.Conditions to allowance.
To claim a credit or refund in the case of export, supplies for vessels, or sales to a state or local government or nonprofit educational organization, the person who paid the tax must certify on the claim that one of the following applies and that the claimant has the required supporting information.The claimant sold the article at a tax-excluded price.
The person has repaid, or agreed to repay, the tax to the ultimate vendor of the article.
The person has obtained the written consent of the ultimate vendor to make the claim.
Claim for further manufacture.
To claim a credit or refund for further manufacture, the claimant must include a statement that contains the following.The name and address of the manufacturer and the date of payment.
An identification of the article for which the credit or refund is claimed.
The amount of tax paid on the article and the date on which it was paid.
Information indicating that the article was used as material in the manufacture or production of, or as a component part of, a second article manufactured or produced by the manufacturer, or was sold on or in connection with, or with the sale of a second article manufactured or produced by the manufacturer.
An identification of the second article.
Claim for price readjustment.
To claim a credit or refund for a price readjustment, the person who paid the tax must include with the claim, a statement that contains the following.A description of the circumstances that gave rise to the price readjustment.
An identification of the article whose price was readjusted.
The price at which the article was sold.
The amount of tax paid on the article and the date on which it was paid.
The name and address of the purchaser.
The amount repaid to the purchaser or credited to the purchaser's account.
Sport Fishing Equipment
A tax of 10% of the sale price is imposed on many articles of sport fishing equipment sold by the manufacturer. This includes any parts or accessories sold on or in connection with the sale of those articles.
Pay this tax with Form 720. No tax deposits are required.
Sport fishing equipment includes all the following items.
Fishing rods and poles (and component parts), fishing reels, fly fishing lines, and other fishing lines not over 130 pounds test, fishing spears, spear guns, and spear tips.
Items of terminal tackle, including leaders, artificial lures, artificial baits, artificial flies, fishing hooks, bobbers, sinkers, snaps, drayles, and swivels (but not including natural bait or any item of terminal tackle designed for use and ordinarily used on fishing lines not described in (1)).
The following items of fishing supplies and accessories: fish stringers, creels, bags, baskets, and other containers designed to hold fish, portable bait containers, fishing vests, landing nets, gaff hooks, fishing hook disgorgers, and dressing for fishing lines and artificial flies.
Fishing tip-ups and tilts.
Fishing rod belts, fishing rodholders, fishing harnesses, fish fighting chairs, fishing outriggers, and fishing downriggers.
See Revenue Ruling 88-52 in Cumulative Bulletin 1988-1 for a more complete description of the items of taxable equipment.
Fishing rods and fishing poles.
The tax on fishing rods and fishing poles (and component parts) is 10% of the sales price not to exceed $10 per article. The tax is paid by the manufacturer, producer, or importer.Fishing tackle boxes.
The tax on fishing tackle boxes is 3% of the sales price. The tax is paid by the manufacturer, producer, or importer.Electric outboard boat motors.
A tax of 3% of the sale price is imposed on the sale by the manufacturer of electric outboard motors. This includes any parts or accessories sold on or in connection with the sale of those articles.Certain equipment resale.
The tax on the sale of sport fishing equipment is imposed a second time under the following circumstances. If the manufacturer sells a taxable article to any person, the manufacturer is liable for the tax. If the purchaser or any other person then sells it to a person who is related (discussed next) to the manufacturer, that related person is liable for a second tax on any subsequent sale of the article. The second tax, however, is not imposed if the constructive sale price rules under Internal Revenue Code section 4216(b) apply to the sale by the manufacturer. If the second tax is imposed, a credit for tax previously paid by the manufacturer is available provided the related person can document the tax paid. The documentation requirement is generally satisfied only through submission of copies of actual records of the person that previously paid the tax.Related person.
For the tax on sport fishing equipment, a person is a related person of the manufacturer if that person and the manufacturer have a relationship described in Internal Revenue Code section 465(b)(3)(C).Bows, Quivers, Broadheads, and Points
The tax on bows is 11% (.11) of the sales price. The tax is paid by the manufacturer, producer, or importer. It applies to bows having a peak draw weight of 30 pounds or more. The tax is also imposed on the sale of any part or accessory suitable for inclusion in or attachment to a taxable bow and any quiver, broadhead, or point suitable for use with arrows described below.
Pay this tax with Form 720. No tax deposits are required.
Arrow Shafts
The tax on arrow shafts is $.42 per arrow shaft beginning January 1, 2007. The tax is paid by the manufacturer, producer, or importer of any arrow shaft (whether sold separately or incorporated as part of a finished or unfinished product) of a type used in the manufacture of any arrow which after its assembly meets either of the following conditions.
It measures 18 inches or more in overall length.
It measures less than 18 inches in overall length but is suitable for use with a taxable bow, described earlier.
Pay this tax with Form 720. No tax deposits are required.
Coal
A tax is imposed on the first sale of coal mined in the United States. The producer of the coal is liable for the tax. The producer is the person who has vested ownership of the coal under state law immediately after the coal is severed from the ground. Determine vested ownership without regard to any contractual arrangement for the sale or other disposition of the coal or the payment of any royalties between the producer and third parties. A producer includes any person who extracts coal from coal waste refuse piles (or from the silt waste product that results from the wet washing of coal).
The tax is not imposed on coal extracted from a riverbed by dredging if it can be shown that the coal has been taxed previously.
Tax rates.
The tax on underground-mined coal is the lower of:$1.10 a ton, or
4.4% of the sale price.
55 cents a ton, or
4.4% of the sale price.
Example —
If you sell 21,000 pounds (10.5 tons) of coal from an underground mine for $525, the price per ton is $50. The tax is $1.10 × 10.5 tons ($11.55).
Coal production.
Coal is produced from surface mines if all geological matter (trees, earth, rock) above the coal is removed before the coal is mined. Treat coal removed by auger and coal reclaimed from coal waste refuse piles as produced from a surface mine. Treat coal as produced from an underground mine when the coal is not produced from a surface mine. In some cases, a single mine may yield coal from both surface mining and underground mining. Determine if the coal is from a surface mine or an underground mine for each ton of coal produced and not on a mine-by-mine basis.Determining tonnage or selling price.
The producer pays the tax on coal at the time of sale or use. In figuring the selling price for applying the tax, the point of sale is f.o.b. (free on board) mine or f.o.b. cleaning plant if you clean the coal before selling it. This applies even if you sell the coal for a delivered price. The f.o.b. mine or f.o.b. cleaning plant is the point at which you figure the number of tons sold for applying the applicable tonnage rate, and the point at which you figure the sale price for applying the 4.4% rate. The tax applies to the full amount of coal sold. However, the IRS allows a calculated reduction of the taxable weight of the coal for the weight of the moisture in excess of the coal's inherent moisture content. Include in the sale price any additional charge for a freeze-conditioning additive in figuring the tax. Do not include in the sales price the excise tax imposed on coal.Coal used by the producer.
The tax on coal applies if the coal is used by the producer in other than a mining process. A mining process means the same for this purpose as for percentage depletion. For example, the tax does not apply if, before selling the coal, you break it, clean it, size it, or apply any other process considered mining under the rules for depletion. In this case, the tax applies only when you sell the coal. The tax does not apply to coal used as fuel in the coal drying process since it is considered to be used in a mining process. However, the tax does apply when you use the coal as fuel or as an ingredient in making coke since the coal is not used in a mining process. You must use a constructive sale price to figure the tax under the 4.4% rate if you use the coal in other than a mining process. Base your constructive sale price on sales of a like kind and grade of coal by you or other producers made f.o.b. mine or cleaning plant. Normally, you use the same constructive price used to figure your percentage depletion deduction.Blending.
If you blend surface-mined coal with underground-mined coal during the cleaning process, you must figure the excise tax on the sale of the blended, cleaned coal. Figure the tax separately for each type of coal in the blend. Base the tax on the amount of each type in the blend if you can determine the proportion of each type of coal contained in the final blend. Base the tax on the ratio of each type originally put into the cleaning process if you cannot determine the proportion of each type of coal in the blend. However, the tax is limited to 4.4% of the sale price per ton of the blended coal.Exemption from tax.
The tax does not apply to sales of lignite and imported coal. The only other exemption from the tax on the sale of coal is for coal exported as discussed next.Exported.
The tax does not apply to the sale of coal if the coal is in the stream of export when sold by the producer and the coal is actually exported. Coal is in the stream of export when sold by the producer if the sale is a step in the exportation of the coal to its ultimate destination in a foreign country. For example, coal is in the stream of export when:The coal is loaded on an export vessel and title is transferred from the producer to a foreign purchaser, or
The producer sells the coal to an export broker in the United States under terms of a contract showing that the coal is to be shipped to a foreign country.
A copy of the export bill of lading issued by the delivering carrier.
A certificate signed by the export carrier's agent or representative showing actual exportation of the coal.
A certificate of lading signed by a customs officer of the foreign country to which the coal is exported.
If the foreign country does not have a customs administrator, a statement of the foreign consignee showing receipt of the coal.
Taxable Tires
Taxable tires are divided into three categories for reporting and figuring the tax as described below.A tax is imposed on taxable tires sold by the manufacturer, producer, or importer at the rate of $.0945 ($.04725 in the case of a biasply tire or super single tire) for each 10 pounds of the maximum rated load capacity over 3,500 pounds. The three categories for reporting the tax and the tax rate are listed below.
Taxable tires other than biasply or super single tires at $.0945.
Taxable tires, biasply or super single tires (other than super single tires designed for steering) at $.04725.
Taxable tires, super single tires designed for steering at $.0945.
A taxable tire is any tire of the type used on highway vehicles if wholly or partially made of rubber and if marked according to federal regulations for highway use. A biasply tire is a pneumatic tire on which the ply cords that extend to the beads are laid at alternate angles substantially less than 90 degrees to the centerline of the tread. A super single tire is a tire greater than 13 inches in cross section width designed to replace 2 tires in a dual fitment.
Special rule, manufacturer's retail stores.
The excise tax on taxable tires is imposed at the time the taxable tires are delivered to the manufacturer-owned retail stores, not at the time of sale.Tires on imported articles.
The importer of an article equipped with taxable tires is treated as the manufacturer of the tires and is liable for the taxable tire excise tax when the article is sold (except in the case of an automobile bus chassis or body with tires).Tires exempt from tax.
The tax on taxable tires does not apply to the following items.Recapped or retreaded tires if the tires have been sold previously in the United States and were taxable tires at the time of sale.
Tire carcasses not suitable for commercial use.
Tires for use on qualifying intercity, local, and school buses. For tax-free treatment, the registration requirements discussed earlier under Requirements for Exempt Sales apply.
Tires sold for the exclusive use of the Department of Defense or the Coast Guard.
Tires of a type used exclusively on mobile machinery.
Qualifying intercity or local bus.
This is any bus used mainly (more than 50%) to transport the general public for a fee and that either operates on a schedule along regular routes or seats at least 20 adults (excluding the driver).Qualifying school bus.
This is any bus substantially all the use (85% or more) of which is to transport students and employees of schools.Credit or refund.
A credit or refund (without interest) is allowable on tax-paid tires if the tires have been:Exported;
Sold to a state or local government for its exclusive use;
Sold to a nonprofit educational organization for its exclusive use (as defined under Communications Tax in chapter 4);
Sold to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in connection with a vehicle the organization certifies will be primarily used in the collection, storage, or transportation of blood;
Used or sold for use as supplies for vessels; or
Sold in connection with qualified intercity, local, or school buses.
Gas Guzzler Tax
Tax is imposed on the sale by the manufacturer of automobiles of a model type that has a fuel economy standard as measured by the Environmental Protection Agency (EPA) of less than 22.5 miles per gallon. If you import an automobile for personal use, you may be liable for this tax. Figure the tax on Form 6197, as discussed later. The tax rate is based on fuel economy rating. The tax rates for the gas guzzler tax are shown on Form 6197.
A person that lengthens an existing automobile is the manufacturer of an automobile.
Automobiles.
An automobile (including limousines) means any four-wheeled vehicle that is:Rated at an unloaded gross vehicle weight of 6,000 pounds or less,
Propelled by an engine powered by gasoline or diesel fuel, and
Intended for use mainly on public streets, roads, and highways.
Vehicles not subject to tax.
For the gas guzzler tax, the following vehicles are not considered automobiles.Limousines with a gross unloaded vehicle weight of more than 6,000 pounds.
Vehicles operated exclusively on a rail or rails.
Vehicles sold for use and used primarily:
As ambulances or combination ambulance-hearses,
For police or other law enforcement purposes by federal, state, or local governments, or
For firefighting purposes.
Vehicles treated under 49 USC 32901 (1978) as non-passenger automobiles. This includes limousines manufactured primarily to transport more than 10 persons.
Model type.
Model type is a particular class of automobile as determined by EPA regulations.Fuel economy.
Fuel economy is the average number of miles an automobile travels on a gallon of gasoline (or diesel fuel) rounded to the nearest 0.1 mile as figured by the EPA.Imported automobiles.
The tax also applies to automobiles that do not have a prototype-based fuel economy rating assigned by the EPA. An automobile imported into the United States without a certificate of conformity to United States emission standards and which has no assigned fuel economy rating must be either:Converted by installation of emission controls to conform in all material respects to an automobile already certified for sale in the United States, or
Modified by installation of emission control components and individually tested to demonstrate emission compliance.
Exemptions.
No one is exempt from the gas guzzler tax, including the federal government, state and local governments, qualified blood collector organizations, and nonprofit educational organizations. However, see Vehicles not subject to tax, earlier.Form 6197.
Use Form 6197 to figure your tax liability for each quarter. Attach Form 6197 to your Form 720 for the quarter. See the Form 6197 instructions for more information and the one-time filing rules.Credit or refund.
If the manufacturer paid the tax on a vehicle that is used or resold for an emergency use (see item (3) under Vehicles not subject to tax), the manufacturer can claim a credit or refund. For information about how to file for credits or refunds, see the Instructions for Form 720 or Form 8849.Vaccines
Meningococcal and human papillomavirus vaccines have been added to the list of taxable vaccines. The effective date is for sales or uses after January 31, 2007. For sales on or before February 1, 2007, and delivered after February 1, 2007, the delivery date is considered the sale date.Tax is imposed on certain vaccines sold by the manufacturer in the United States. A taxable vaccine means any of the following vaccines.
Any vaccine containing diphtheria toxoid.
Any vaccine containing tetanus toxoid.
Any vaccine containing pertussis bacteria, extracted or partial cell bacteria, or specific pertussis antigens.
Any vaccine containing polio virus.
Any vaccine against measles.
Any vaccine against mumps.
Any vaccine against rubella.
Any vaccine against hepatitis A.
Any vaccine against hepatitis B.
Any vaccine against chicken pox.
Any vaccine against rotavirus gastroenteritis.
Any HIB vaccine.
Any conjugate vaccine against streptococcus pneumoniae.
Any trivalent vaccine against influenza.
Any meningococcal vaccine.
Any vaccine against the human papillomavirus.
The tax is $.75 per dose of each taxable vaccine. The tax per dose on a vaccine that contains more than one taxable vaccine is $.75 times the number of taxable vaccines.
Taxable use.
Any manufacturer (including a governmental entity) that uses a taxable vaccine before it is sold will be liable for the tax in the same manner as if the vaccine was sold by the manufacturer.Credit or refund.
A credit or refund (without interest) is available if the vaccine is:Returned to the person who paid the tax (other than for resale), or
Destroyed.
