THE INDIA RUBBER WORLD 



[June 1, 1919. 



by the manufacturer. Hence, this committee is taking immediate steps 

 to effect if possible a return by the Treasury Department to its original 

 ruling, under which the tax returnable on all adjustments, exchanges or 

 replacements, regardless of whether the original sale was made before 

 or after February 25, 1919, shall be based on the exact amount, if any, 

 paid to the manufacturer by the customer for the article given in adjust- 

 ment, replacement or exchante. 



ni. TAXABLE PURCHASES BY TIRE AND TUBE MANUFACTURERS. 



Articles 6 and 7 of Reguulations 47. 



Although as pointed out in paragraph VI hereof, the sale of tires, 

 tubes, and accessories to automotive vehicle manufacturers is tax-exempt, 

 it is not true that this exemption applies to cases where taxable parts or 

 accessories are sold by the manufacturer of such parts or accessories to 

 the manufacturers of tires and tubes, or accessories. 



Thus where the tire or tube manuf-icturer buys articles such as rims, 

 tires, pumps, etc. (i. e., articles which are, at the time of purchase, in 

 such condition as to be usable for the performance of their intended 

 functions), a tax must be originally paid to the Government by the 

 manufacturer of the part or accessory. If in such a case the tire or 

 tube manufacturer both (a) reimburses the part or accessory manufac- 

 turer for this tax, and (b) resells the part or accessory as .a component 

 part of an article which he manufactures, the tire or tube manufacturer 

 may claim credit from the Government for the amount of such tax so 

 reimbursed. The tire or tube manufacturer must, however, return to 

 the Government an amount of tax based on the price for which he sub- 

 sequently sells the taxable article of his manufacture of which said part 

 or accessory has become a component part. 



The taking of credit by the tire or tube manufacturer for the tax 

 for which he reimbursed the manufacturer of the part or accessory will 

 be allowed only if the tire or tube manufacturer keeps such records and 

 evidence as will clearly establish his right to this exemption. 



Special Note: Since under Article 6 of the regulations 47, a pur- 

 chcaser of such parts or accessories cannot make claim to the Government 

 for credit unless he knows the amount of. such tax and unless he actually 

 did pay as a tax the amount claimed, it will therefore be observed that 

 the purchaser should request the manufacturers who furnish him with 

 such parts or accessories to bill the tax as a separate item. Likewise 

 billings covering the sale of cement, gum, etc., to accessory kit assemblers 

 and other customers of like character should show the tax as a separate 

 item. 



ACCESSORY KIT ASSEMBLERS. 



The principle laid down by the Treasury Department thus affecting 

 tire and tube manufacturers likewise applies to those concerns which 

 purchase their gums, cement and fabrics from rubber manufacturers and 

 merely place an assortment of these materials in a kit for sale to the 

 consumer. Thus, it appears that rubber manufacturers when selling 

 cement, fabrics, gums, etc., to a customer who assembles these materials 

 in a kit, should charge the customer a tax. This customer may, as above 

 Indicated, subsequently obtain from the Government a credit for tlie tax 

 so paid to the rubber manufacturer. 



IV. SALES TO THE GOVERNMENT, ETC. 

 .■Article 10 of Regulations 47. 



Articles enumerated in Section 900, Sub-divisions 1, 2 and 3, when sold 

 by the manufacturer thereof to state, city, county, or municipal govern- 

 ments, are exempted from tax. Where such articles are thus sold by any 

 one other than the manufacturer thereof, the sale is taxable. The 

 Treasury Department in Regulations 47 departs from the previous ruling 

 given the committee and holds that sales to the United States Govern- 

 ment arc taxable. 



V. ULTIMATE USE AS AFFECTING TAXABILITY. 

 Articles U, 12, and 13 of Regulations 47. 



The sale of an article by the manufacturer thereof may be taxable 

 even though the article is not eventually used as a part or accessory for 

 »ny of the articles enumerated in Section 900, sub-divisions 1 and 2. 

 For instance the new regulations provide (see Article 16) that where 

 tires are sold for use on trailers such tires are ta.x-exempt. This does 

 not mean, however, where the tires reach the trailer owner through an 

 intermediary, such as a dealer, that the original sale of such tires by the 

 manufacturer is exempt. 



Hence the present ruling is in direct contradiction to the principle 

 recited in the latter part of page two and the first part of page three of 

 the letter of March 11. Where tires are sold to a dealer and the dealer 

 subsequently sells the tires to a trailer owner, the manufacturer cannot 

 employ the new ruling and obtain credit for the tax on such tires should 

 he refund it to the dealer. 



VI. SALES TO MANUFACTURERS. 

 Article 14 of Regulations 47. 



Article 14 makes it perfectly clear that all sales of tires, tubes, parts 

 or accessories to manufacturers are not necessarily exempt from tax. 

 The exemption applies only where the articles sold are for use, and are 

 so used, by the manufacturer in the manufacture or production of new 

 cars or for free replacement by him under contract of guaranty. Sales 

 to the manufacturer for any other use are taxable. It is suggested that 

 the certificate referred to in this article be worded as follows: 



Referring to the Federal Excise Tax Law it is hereby certified that the 

 articles covered by this order or contract of sale are to be used by the 

 undersigned exclusively in the manufacture or production of new cars. 



(Signature of Purchaser.) 

 SUPPLEMENTAL COMMENT ON EXCISE TAXES. 



May 20. 1919. 

 To firm members of The Rubber Assoctation of America: 



In accordance with the intention expressed in our circular letter of 

 May 14, the special committee appointed in the matter of the Federal 

 excise tax secured a hearing before the Commissioner of Internal Revenue 

 and other officials of the Department, on Thursday, May IS. Doubtful 

 questions affecting the rubber industry were presented as formal inquiries 

 to the Commissioner, and as a result of the conference the committee 

 gathered some impressions relative to possible future changes in the 

 regulations which it is deemed advisable to pass on to members of the 

 Association with the full understanding, however, that there is no authori- 

 tative basis for procedure in respect to the tax other than the law itself 

 or the rulings of the Department as set forth in Regulations 47. 



The committee's interpretation of Regulations 47 as set forth in the 

 letter of May 14 seems to be correct, and there is no reason to believe 

 that these interpretations will be modified except as subsequent regulations 

 or Treasury Decisions may furnish a basis for a modification. The com- 

 mittee was led to believe that certain modifications might be made, and 

 these possible modifications are given for the information of members of 

 the Association, referring in each case to the title number under which 

 the subject in question was treated in the letter of May 14. 

 I. BASIS OF TAX. 



The committee presented to the Department the impracticability of basing 

 retail sales upon the average wholesale price of the month immediately 

 preceding. The Department has under consideration changing the regu- 

 lations so as to make the basis of the tax in retail sales the average price 

 at which the manufacturer sold the same article at wholesale during the 

 second month preceding the month during which the retail sale was made. 

 If this modification is made, retail sales in May, for instance, will be 

 based upon the average wholesale price for March. 



II. ADJUSTMENTS, REPLACEMENTS AND EXCHANGES. 



The committee strongly pressed the justice and advisability of a return 

 to the informal ruling on this subject given to the committee in March, 

 1919, and set forth in the letter of March 11, under which the tax in 

 the case of adjustments, replacements and exchanges was to have been 

 based upon the, actual price, if any, paid to the manufacturer for the 

 new tire or inner tube delivered in the transaction of adjustment, re- 

 placement or exchange. It will be noted that such a modification of 

 Article 5 of Regulations 47 would be important as affecting adjustments, 

 replacements, or exchanges of tires and tubes sold prior to February 25, 

 and theieforc, lax-free. The Department took the matter under advisement. 



III. TAXABLE PURCHASES BY TIRE AND TUBE MANUFACTURERS. 



Tile committee was given to understand that a supplemental regulation 

 or Treasury Decision was in contemplation by the Department, modifying 

 the provisions of Articles 6 and 7 of Regulations 47. It seems probable 

 that a supplemental regulation will provide that manufacturers of tires, 

 tubes and accessories may purchase tax free, for use in the manufacture 

 of their products, articles otherwise taxable, and that such purchasers 

 will be required at stated intervals to furnish a report as to the dis- 

 position of articles so purchased. On the basis of this report, the tax 

 will be payable on articles so purchased and not used by the purchaser 

 in the manufacture of his products. Such a ruling would probably place 

 the manufacturer of tires, tubes and accessories in the same position as 

 car manufacturers with reference to tax-exempt purchases and procedure 

 to secure the tax exemption. 



IV. SALES TO THE GOVERNMENT. 



It was not indicated that any change would be made in the regulation* 

 with reference to sales to the Government. 



V. ULTIMATE USE AS AFFECTING TAXABILITY. 



There is no reason to believe that a modification will be made in the 

 regulations affecting the interpretation under this title in the letter of 

 May 14. The committee, however, pressed the point that where sales 

 direct by a manufacturer were non-taxable, the same should be true of 

 sales of the same articles through an intermediary, such as a dealer or 

 jobber. The suggestion was taken under advisement but little hope was 

 given for anticipating a change in the regulations. 



VI. SALES TO MANUFACTURERS. 



The certificate suggested under Title \'I of the letter of May 14 was 

 informally approved by the Department. As indicated under Title III 

 above, a supplemental ruling is probable, providing that where an order 

 or contract of sale is covered by this certificate, the sale shall be tax-free, 

 and further providing for a report by the purchaser at stated intervals 

 relative to his use of the articles purchased tax-free. A taa will be 

 levied upon such articles as are shown by this report to have been used 

 by the purchaser other than in the production of articles of his manu- 

 facture. 



