[Title 26 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2011 Edition]
[From the U.S. Government Printing Office]



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          Title 26

Internal Revenue


________________________

Parts 40 to 49

                         Revised as of April 1, 2011

          Containing a codification of documents of general 
          applicability and future effect

          As of April 1, 2011
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 26:
          Chapter I--Internal Revenue Service, Department of 
          the Treasury (Continued)                                   3
  Finding Aids:
      Table of CFR Titles and Chapters........................     285
      Alphabetical List of Agencies Appearing in the CFR......     305
      Table of OMB Control Numbers............................     315
      List of CFR Sections Affected...........................     333

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                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 26 CFR 40.0-1 refers 
                       to title 26, part 40, 
                       section 0-1.

                     ----------------------------

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, April 1, 2011), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
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Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

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Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
April 1, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in eleven separate 
volumes. For the period beginning April 1, 2001, a ``List of CFR 
Sections Affected'' is published at the end of each CFR volume.

``[RESERVED]'' TERMINOLOGY

    The term ``[Reserved]'' is used as a place holder within the Code of 
Federal Regulations. An agency may add regulatory information at a 
``[Reserved]'' location at any time. Occasionally ``[Reserved]'' is used 
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not accidentally dropped due to a printing or computer error.

INCORPORATION BY REFERENCE

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established by statute and allows Federal agencies to meet the 
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This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    What if the material incorporated by reference cannot be found? If 
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CFR INDEXES AND TABULAR GUIDES

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separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Authorities 
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    An index to the text of ``Title 3--The President'' is carried within 
that volume.

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    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
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the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

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    Raymond A. Mosley,
    Director,
    Office of the Federal Register.
    April 1, 2011.







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                               THIS TITLE

    Title 26--Internal Revenue is composed of twenty volumes. The 
contents of these volumes represent all current regulations issued by 
the Internal Revenue Service, Department of the Treasury, as of April 1, 
2011. The first thirteen volumes comprise part 1 (Subchapter A--Income 
Tax) and are arranged by sections as follows: Sec. Sec.  1.0-1.60; 
Sec. Sec.  1.61-1.169; Sec. Sec.  1.170-1.300; Sec. Sec.  1.301-1.400; 
Sec. Sec.  1.401-1.440; Sec. Sec.  1.441-1.500; Sec. Sec.  1.501-1.640; 
Sec. Sec.  1.641-1.850; Sec. Sec.  1.851-1.907; Sec. Sec.  1.908-1.1000; 
Sec. Sec.  1.1001-1.1400; Sec. Sec.  1.1401-1.1550; and Sec.  1.1551 to 
end. The fourteenth volume containing parts 2-29, includes the remainder 
of subchapter A and all of Subchapter B--Estate and Gift Taxes. The last 
six volumes contain parts 30-39 (Subchapter C--Employment Taxes and 
Collection of Income Tax at Source); parts 40-49; parts 50-299 
(Subchapter D--Miscellaneous Excise Taxes); parts 300-499 (Subchapter 
F--Procedure and Administration); parts 500-599 (Subchapter G--
Regulations under Tax Conventions); and part 600 to end (Subchapter H--
Internal Revenue Practice).

    The OMB control numbers for Title 26 appear in Sec.  602.101 of this 
chapter. For the convenience of the user, Sec.  602.101 appears in the 
Finding Aids section of the volumes containing parts 1 to 599.

    For this volume, Robert J. Sheehan, III was Chief Editor. The Code 
of Federal Regulations publication program is under the direction of 
Michael L. White, assisted by Ann Worley.

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                       TITLE 26--INTERNAL REVENUE




                   (This book contains parts 40 to 49)

  --------------------------------------------------------------------
                                                                    Part

chapter i--Internal Revenue Service, Department of the 
  Treasury (Continued)......................................          40

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    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)




  --------------------------------------------------------------------


  Editorial Note: IRS published a document at 45 FR 6088, Jan. 25, 1980, 
deleting statutory sections from their regulations. In Chapter I cross 
references to the deleted material have been changed to the 
corresponding sections of the IRS Code of 1954 or to the appropriate 
regulations sections. When either such change produced a redundancy, the 
cross reference has been deleted. For further explanation, see 45 FR 
20795, March 31, 1980.

                SUBCHAPTER D--MISCELLANEOUS EXCISE TAXES
Part                                                                Page
40              Excise tax procedural regulations...........           5
41              Excise tax on use of certain highway motor 
                    vehicles................................          15
43              Excise tax on transportation by water.......          35
44              Taxes on wagering; effective January 1, 1955          36
46              Excise tax on policies issued by foreign 
                    insurers and obligations not in 
                    registered form.........................          50
48              Manufacturers and retailers excise taxes....          54
49              Facilities and services excise taxes........         243


Supplementary Publications: Internal Revenue Service Looseleaf 
  Regulations System.

  Additional supplementary publications are issued covering Alcohol, 
Tobacco and Firearms Regulations, and Regulations Under Tax Conventions.

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                 SUBCHAPTER D_MISCELLANEOUS EXCISE TAXES


PART 40_EXCISE TAX PROCEDURAL REGULATIONS--Table of Contents



Sec.
40.0-1 Introduction.
40.0-1T Introduction (temporary).
40.6011(a)-1 Returns.
40.6011(a)-2 Final returns.
40.6060-1 Reporting requirements for tax return preparers.
40.6071(a)-1 Time for filing returns.
40.6071(a)-3 Time for an eligible air carrier to file a return for the 
          third calendar quarter of 2001.
40.6091-1 Place for filing returns.
40.6101-1 Period covered by returns.
40.6107-1 Tax return preparer must furnish copy of return to taxpayer 
          and must retain a copy or record.
40.6109-1 Tax return preparers furnishing identifying numbers for 
          returns or claims for refund.
40.6109(a)-1 Identifying numbers.
40.6151(a)-1 Time and place for paying tax shown on return.
40.6302(a)-1 Voluntary payments of excise taxes by electronic funds 
          transfer.
40.6302(c)-1 Deposits.
40.6302(c)-1T Deposits (temporary).
40.6302(c)-2 Special rules for use of Government depositaries under 
          section 4681.
40.6302(c)-3 Deposits under chapter 33.
40.6694-1 Section 6694 penalties applicable to tax return preparer.
40.6694-2 Penalties for understatement due to an unreasonable position.
40.6694-3 Penalty for understatement due to willful, reckless, or 
          intentional conduct.
40.6694-4 Extension of period of collection when tax return preparer 
          pays 15 percent of a penalty for understatement of taxpayer's 
          liability and certain other procedural matters.
40.6695-1 Other assessable penalties with respect to the preparation of 
          tax returns for other persons.
40.6696-1 Claims for credit or refund by tax return preparers.
40.7701-1 Tax return preparer.

    Authority: 26 U.S.C. 7805.
    Section 40.6011(a)-1 also issued under 26 U.S.C. 6011(a).
    Section 40.6011(a)-2 also issued under 26 U.S.C. 6011(a).
    Section 40.6060-1 also issued under 26 U.S.C. 6060(a).
    Section 40.6071(a)-1 also issued under 26 U.S.C. 6071(a).
    Section 40.6071(a)-3 also issued under 26 U.S.C. 6071(a).
    Section 40.6091-1 also issued under 26 U.S.C. 6091.
    Section 40.6101-1 also issued under 26 U.S.C. 6101.
    Section 40.6109-1 also issued under 26 U.S.C. 6109(a).
    Section 40.6109-2 also issued under 26 U.S.C. 6109(a).
    Section 40.6302(a)-1 also issued under 26 U.S.C. 6302 (a) and (h).
    Section 40.6302(c)-1 also issued under 26 U.S.C. 6302(a) and (h).
    Section 40.6302(c)-2 also issued under 26 U.S.C. 6302(a).
    Section 40.6302(c)-3 also issued under 26 U.S.C. 6302(a).
    Section 40.6695-1 also issued under 26 U.S.C. 6695(b).

    Source: T.D. 8442, 57 FR 48177, Oct. 22, 1992, unless otherwise 
noted.



Sec. 40.0-1  Introduction.

    (a) In general. The regulations in this part 40 are designated 
``Excise Tax Procedural Regulations.'' The regulations set forth 
administrative provisions relating to the excise taxes imposed by 
chapters 31, 32, 33, 34, 36, 38, and 39 (except for the chapter 32 tax 
imposed by section 4181 (firearms tax) and the chapter 36 taxes imposed 
by sections 4461 (harbor maintenance tax) and 4481 (heavy vehicle use 
tax)), and to floor stocks taxes imposed on articles subject to any of 
these taxes. Chapter 31 relates to retail excise taxes; chapter 32 to 
manufacturers' excise taxes; chapter 33 to taxes imposed on 
communications services and air transportation; chapter 34 to taxes 
imposed on policies issued by foreign insurers; chapter 36 to taxes 
imposed on transportation by water; chapter 38 to environmental taxes; 
and chapter 39 to taxes imposed on registration-required obligations. 
See parts 43, 46, 48, 49, and 52 of this chapter for regulations 
relating to the imposition of tax.
    (b) References to forms. Any reference to a form in this part is 
also a reference to any other form designated for the same use by the 
Commissioner after October 22, 1992.
    (c) Definition of semimonthly period. The term ``semimonthly 
period'' means the first 15 days of a calendar month (the ``first 
semimonthly period'') or the portion of a calendar month following

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the 15th day of the month (the ``second semimonthly period'').
    (d) [Reserved] For further guidance, see Sec. 40.0-1T(d).
    (e) [Reserved] For further guidance, see Sec. 40.0-1T(e).
    (f) Effective/applicability dates. Except as otherwise provided, 
this part is effective April 1, 1991, for returns that relate to 
calendar quarters beginning after December 31, 1990, and are filed after 
March 31, 1991, and for deposits that relate to calendar quarters 
beginning after March 31, 1991. In the case of taxes for which rules are 
provided in this part, the administrative provisions that apply to such 
taxes before the effective date of this part are contained in 26 CFR 
parts 43, 46, 48, 49 and 52 (each revised as of April 1, 1992).

[T.D. 8442, 57 FR 48177, Oct. 22, 1992; 58 FR 6575, Jan. 29, 1993, as 
amended by T.D. 8887, 65 FR 36326, June 8, 2000; T.D. 8963, 66 FR 41776, 
Aug. 9, 2001; T.D. 9486, 75 FR 33686, June 15, 2010]



Sec. 40.0-1T  Introduction (temporary).

    (a) through (c) [Reserved] For further guidance, see Sec. 40.0-1(a) 
through (c).
    (d) Indoor tanning services. The regulations in this part 40 also 
set forth administrative provisions relating to the excise taxes imposed 
by chapter 49, relating to cosmetic services.
    (e) Effective/applicability date. Paragraph (d) of this section 
applies to returns that relate to calendar quarters beginning after June 
30, 2010.
    (f) [Reserved] For further guidance, see Sec. 40.0-1(f).
    (g) Expiration date. Paragraph (d) of this section expires on or 
before June 11, 2013.

[T.D. 9486, 75 FR 33686, June 15, 2010]



Sec. 40.6011(a)-1  Returns.

    (a) In general--(1) Return required. The return of any tax to which 
this part 40 applies must be made on Form 720, Quarterly Federal Excise 
Tax Return, according to the instructions applicable to the form. The 
requirement for filing a return under this part 40 applies separately to 
each tax listed by IRS Number on Form 720. Except as provided in this 
paragraph (a)(1), an entry must be made on the line for the IRS Number 
in order to file a return of the tax corresponding to that number. The 
entry on an IRS Number line of the word ``none,'' ``zero,'' or 
comparable entry clearly indicating a denial of liability constitutes a 
return of that tax. The entry of the word ``none'' across the return or 
in the summary portion, provided it clearly indicates a denial of 
liability for all taxes, constitutes a return of all taxes listed on 
Form 720.
    (2) Period covered by return--(i) In general. Except as provided in 
paragraph (b) of this section, the return must be made for a period of 
one calendar quarter. A return must be filed for the first calendar 
quarter in which liability for tax is incurred (or in which tax must be 
collected and paid over) and for each subsequent calendar quarter, 
whether or not liability is incurred (or tax must be collected and paid 
over) during that subsequent quarter, until a final return under Sec. 
40.6011(a)-2 is filed. In the case of one-time filings (as defined in 
Sec. 40.6011(a)-2(b)) and returns of floor stocks taxes under Sec. 
40.6011(a)-2(c), a first return is also a final return.
    (ii) First return. A person's return is a first return if the person 
was not required under this part 40 to file a return (other than a final 
return) for the preceding period.
    (iii) Floor stocks tax return. A return reporting liability for a 
floor stocks tax described in Sec. 40.0-1(a) is a return for the 
calendar quarter in which the tax payment is due and not the calendar 
quarter in which the liability for tax is incurred.
    (3) Person required to file the return. Except in the case of a tax 
required to be collected and paid over, the person incurring liability 
for tax must file the return. In the case of a tax required to be 
collected and paid over, the person required to collect the tax (and not 
the person incurring liability) must file the return.
    (b) Monthly and semimonthly returns--(1) In general. If the district 
director determines that any person that is required under this section 
to file returns has failed to comply in a timely manner with the 
requirements of this part 40 relating to returns, payments, and deposits 
of tax, that person will be required, if so notified in writing by the 
district director, to make a return for a monthly or semimonthly period 
(as defined in Sec. 40.0-1(c)). Each person so

[[Page 7]]

notified by the district director must make a return for the calendar 
month or semimonthly period in which the notice is received and for each 
calendar month or semimonthly period thereafter until the person has 
filed a final return or until the person is notified by the district 
director to resume making quarterly returns.
    (2) Certain persons liable for tax on taxable fuel. The district 
director may require a person to make a return of tax for a monthly or 
semimonthly period in the manner prescribed in paragraph (b)(1) of this 
section if the person--
    (i) Is a bonded registrant (as defined in Sec. 48.4101-1(b) of this 
chapter) at any time during the period;
    (ii) Has been registered under section 4101 for less than one year 
at the beginning of the period;
    (iii) Meets the acceptable risk test of Sec. 48.4101-1(f)(3) of 
this chapter by reason of Sec. 48.4101-1(f)(3)(i)(B) of this chapter at 
any time during the period;
    (iv) Has failed to comply with the applicable provisions of Sec. 
48.4101-1(h) of this chapter (relating to the terms and conditions of 
registration);
    (v) Is liable for tax under Sec. 48.4082-4(a) of this chapter 
(relating to the back-up tax on diesel fuel and kerosene) at any time 
during the period; or
    (vi) Is liable for tax under section 4081 (relating to the tax on 
taxable fuel) at any time during the period and is not registered under 
section 4101 at that time.

[T.D. 8442, 57 FR 48177, Oct. 22, 1992, as amended by T.D. 8659, 61 FR 
10452, Mar. 14, 1996; 61 FR 58005, Nov. 12, 1996; T.D 8748, 63 FR 25, 
Jan. 2, 1998; T.D. 8879, 65 FR 17153, Mar. 31, 2000; T.D. 8887, 65 FR 
36326, June 8, 2000; T.D. 8963, 66 FR 41776, Aug. 9, 2001]



Sec. 40.6011(a)-2  Final returns.

    (a) In general--(1) Permanent cessation of operations. Any person 
that is required under Sec. 40.6011(a)-1 to make returns and that 
permanently ceases all operations with respect to which liability for 
tax was incurred (or with respect to which tax had to be collected and 
paid over) must make a final return in accordance with the instructions 
applicable to the form on which the return is made. A person does not 
make a final return if only a temporary or partial cessation of such 
operations occurs and must continue to file returns as required under 
Sec. 40.6011(a)-1.
    (2) Change in law without cessation of operations. Any person that 
is required under Sec. 40.6011(a)-1 to make returns must make a final 
return in accordance with the instructions applicable to the form on 
which the return is made if, by reason of a change in law, that person 
is no longer liable for any tax (or, in the case of a collected tax, is 
no longer responsible for collecting and paying over any tax). For 
example, if the tax on a product is changed from a retail tax to a 
manufacturers tax, a retailer formerly liable for the tax but now buying 
the product tax-paid from its supplier must make a final return 
(assuming that the retailer has no other tax liability reportable on the 
return).
    (b) Special rule for one-time filings--(1) In general. A first 
return is also a final return if it is a one-time filing. A return is a 
one-time filing if the person reporting tax does not engage in any 
activity with respect to which tax is reportable on the return in the 
course of a trade or business.
    (2) Deposits not required. See Sec. 40.6302(c)-1(e)(2) for a rule 
providing that no deposit of taxes reported on a one-time filing is 
required.
    (c) Special rule for floor stocks taxes. A first return reporting 
only floor stocks taxes under this part 40 is also a final return.

[T.D. 8442, 57 FR 48177, Oct. 22, 1992, as amended by T.D. 8685, 61 FR 
58005, Nov. 12, 1996; T.D. 8963, 66 FR 41776, Aug. 9, 2001]



Sec. 40.6060-1  Reporting requirements for tax return preparers.

    (a) In general. A person that employs one or more tax return 
preparers to prepare a return or claim for refund of any tax to which 
this part 40 applies other than for the person, at any time during a 
return period, shall satisfy the recordkeeping and inspection 
requirements in the manner stated in Sec. 1.6060-1 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78454, Dec. 22, 2008; 74 FR 5105, Jan. 29, 2009]

[[Page 8]]



Sec. 40.6071(a)-1  Time for filing returns.

    (a) Quarterly returns. Each quarterly return required under Sec. 
40.6011(a)-1(a)(2) must be filed by the last day of the first calendar 
month following the quarter for which it is made.
    (b) Monthly and semimonthly returns--(1) Monthly returns. Each 
monthly return required under Sec. 40.6011(a)-1(b) must be filed by the 
fifteenth day of the month following the month for which it is made.
    (2) Semimonthly returns. Each semimonthly return required under 
Sec. 40.6011(a)-1(b) must be filed by the last day of the semimonthly 
period (as defined in Sec. 40.0-1(c)) following the semimonthly period 
for which it is made.
    (c) Effective date. This section is applicable with respect to 
returns that relate to calendar quarters beginning on or after October 
1, 2001.

[T.D. 8442, 57 FR 48177, Oct. 22, 1992, as amended by T.D. 8963, 66 FR 
41776, Aug. 9, 2001]



Sec. 40.6071(a)-3  Time for an eligible air carrier to file a return for the third 

calendar quarter of 2001.

    (a) In general. If, in the case of an eligible air carrier, the 
quarterly return required under Sec. 40.6011(a)-1(a) for the third 
calendar quarter of 2001 includes tax imposed by subchapter C of chapter 
33--
    (1) The requirements of Sec. 40.6071(a)-2 as in effect on August 7, 
2001, do not apply to the return; and
    (2) The return must be filed by January 15, 2002.
    (b) Definition of eligible air carrier. Eligible air carrier has the 
same meaning as provided in section 301(a)(2) of the Air Transportation 
Safety and System Stabilization Act; that is, any domestic corporation 
engaged in the trade or business of transporting (for hire) persons by 
air if such transportation is available to the general public.
    (c) Effective date. This section is applicable with respect to 
returns that relate to the third calendar quarter of 2001.

[T.D. 8983, 67 FR 5471, Feb. 6, 2002]



Sec. 40.6091-1  Place for filing returns.

    (a) Quarterly returns. Except as provided in paragraph (b) of this 
section, quarterly returns must be filed in accordance with the 
instructions applicable to the form on which the return is made.
    (b) Hand-carried returns--(1) Persons other than corporations. 
Returns of persons other than corporations that are filed by hand 
carrying must be filed with any person assigned the responsibility to 
receive hand-carried returns in the local Internal Revenue Service 
office that serves the principal place of business or legal residence of 
the person.
    (2) Corporations. Returns of corporations that are filed by hand 
carrying must be filed with any person assigned the responsibility to 
receive hand-carried returns in the local Internal Revenue Service 
office that serves the principal place of business or principal office 
or agency of the corporation.
    (c) Monthly and semimonthly returns. Monthly and semimonthly returns 
required under Sec. 40.6011(a)-1(b) must be filed in accordance with 
the forms and instructions, or other published guidance.

[T.D. 8442, 57 FR 48177, Oct. 22, 1992, as amended by T.D. 8968, 66 FR 
41776, Aug. 9, 2001; T.D. 9158, 69 FR 55744, Sept. 16, 2004]



Sec. 40.6101-1  Period covered by returns.

    See Sec. 40.6011(a)-1(a)(2) for the rules relating to the period 
covered by the return.

[T.D. 8963, 66 FR 41776, Aug. 9, 2001]



Sec. 40.6107-1  Tax return preparer must furnish copy of return to taxpayer

and must retain a copy or record.

    (a) In general. A person who is a signing tax return preparer of any 
return or claim for refund of any tax to which this part 40 applies 
shall furnish a completed copy of the return or claim for refund to the 
taxpayer and retain a completed copy or record in the manner stated in 
Sec. 1.6107-1 of this chapter.
    (b) Effective/applicability date. This section is applicable for 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78454, Dec. 22, 2008; 74 FR 5105, Jan. 29, 2009]

[[Page 9]]



Sec. 40.6109-1  Tax return preparers furnishing identifying numbers for returns 

or claims for refund.

    (a) In general. Each return or claim for refund of any tax to which 
this part 40 applies prepared by one or more signing tax return 
preparers must include the identifying number of the preparer required 
by Sec. 1.6695-1(b) of this chapter to sign the return or claim for 
refund in the manner stated in Sec. 1.6109-2 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78454, Dec. 22, 2008; 74 FR 5105, Jan. 29, 2009]



Sec. 40.6151(a)-1  Time and place for paying tax shown on return.

    Except as provided by statute, the tax must be paid at the time 
prescribed in Sec. 40.6071(a)-1 for filing the return, and at the place 
prescribed in Sec. 40.6091-1 for filing the return.

[T.D. 8968, 66 FR 41776, Aug. 9, 2001]



Sec. 40.6302(a)-1  Voluntary payments of excise taxes by electronic funds transfer.

    Any person may voluntarily remit by electronic funds transfer any 
payment of tax to which this part 40 applies. Such payment must be made 
in accordance with procedures prescribed by the Commissioner.

[T.D. 8828, 64 FR 37677, July 13, 1999]



Sec. 40.6302(c)-1  Deposits.

    (a) In general--(1) Semimonthly deposits required. Except as 
provided by statute, by Sec. 40.6302(c)-1T(g), or by paragraph (e) of 
this section, each person required under Sec. 40.6011(a)-1(a)(2) to 
file a quarterly return must make a deposit of tax for each semimonthly 
period (as defined in Sec. 40.0-1(c)) in which tax liability is 
incurred.
    (2) Treatment of taxes imposed by chapter 33. For purposes of this 
part 40, tax imposed by chapter 33 (relating to communications and air 
transportation) is treated as a tax liability incurred during the 
semimonthly period--
    (i) In which that tax is collected; or
    (ii) In the case of the alternative method, in which that tax is 
considered as collected.
    (3) Definition of net tax liability. Net tax liability means the tax 
liability for the specified period plus or minus any adjustments 
allowable in accordance with the instructions applicable to the form on 
which the return is made.
    (4) Computation of net tax liability for a semimonthly period. The 
net tax liability for a semimonthly period may be computed by--
    (i) Determining the net tax liability incurred during the 
semimonthly period; or
    (ii) Dividing by two the net tax liability incurred during the 
calendar month that includes that semimonthly period, provided that this 
method of computation is used for all semimonthly periods in the 
calendar quarter.
    (b) Amount of deposit--(1) In general. The deposit of tax for each 
semimonthly period must be not less than 95 percent of the amount of net 
tax liability incurred during the semimonthly period.
    (2) Safe harbor rules--(i) Applicability. The safe harbor rules of 
this paragraph (b)(2) are applied separately to taxes deposited under 
the alternative method provided in Sec. 40.6302(c)-3 (alternative 
method taxes) and to the other taxes for which deposits are required 
under this section (regular method taxes).
    (ii) Regular method taxes. Any person that made a return of tax 
reporting regular method taxes for the second preceding calendar quarter 
(the look-back quarter) is considered to have complied with the 
requirement of this part 40 for deposit of regular method taxes for the 
current calendar quarter if--
    (A) The deposit of regular method taxes for each semimonthly period 
in the current calendar quarter is not less than 1/6 of the net tax 
liability for regular method taxes reported for the look-back quarter;
    (B) Each deposit is made on time;
    (C) The amount of any underpayment of regular method taxes is paid 
by the due date of the return; and
    (D) The person's liability does not include any regular method tax 
that was not imposed at all times during the

[[Page 10]]

look-back quarter or a tax on a chemical not subject to tax at all times 
during the look-back quarter.
    (iii) Alternative method taxes. Any person that made a return of tax 
reporting alternative method taxes for the look-back quarter is 
considered to have complied with the requirement of this part 40 for 
deposit of alternative method taxes for the current calendar quarter 
if--
    (A) The deposit of alternative method taxes for each semimonthly 
period in the current calendar quarter is not less than 1/6 of the net 
tax liability for alternative method taxes reported for the look-back 
quarter;
    (B) Each deposit is made on time;
    (C) The amount of any underpayment of alternative method taxes is 
paid by the due date of the return; and
    (D) The person's liability does not include any alternative method 
tax that was not imposed at all times during the look-back quarter and 
the month preceding the look-back quarter.
    (iv) Modification for tax rate increase. The safe harbor rules of 
this paragraph (b)(2) do not apply to regular method taxes or 
alternative method taxes for the first and second calendar quarters 
beginning on or after the effective date of an increase in the rate of 
any tax to which this part 40 applies unless the deposit of those taxes 
for each semimonthly period in the calendar quarter is not less than 1/6 
of the tax liability the person would have had with respect to those 
taxes for the look-back quarter if the increased rate of tax had been in 
effect for the look-back quarter.
    (v) Failure to comply with deposit requirements. If a person fails 
to make deposits as required under this part 40, the IRS may withdraw 
the person's right to use the safe harbor rules of this paragraph 
(b)(2).
    (c) Time to deposit--(1) In general. The deposit of tax for any 
semimonthly period must be made by the 14th day of the following 
semimonthly period unless such day is a Saturday, Sunday, or legal 
holiday in the District of Columbia in which case the immediately 
preceding day which is not a Saturday, Sunday, or legal holiday in the 
District of Columbia is treated as the 14th day. Thus, generally, the 
deposit of tax for the first semimonthly period in a month is due by the 
29th day of that month and the deposit of tax for the second semimonthly 
period in a month is due by the 14th day of the following month.
    (2) Exceptions. See Sec. 40.6302(c)-2 for the special rules for 
September. See Sec. 40.6302(c)-3 for the special rules for deposits 
under the alternative method.
    (d) Deposits required by electronic funds transfer. All deposits 
required by this part must be made by electronic funds transfer, as that 
term is defined in Sec. 31.6302-1(h)(4) of this chapter.
    (e) Exceptions--(1) Taxes excluded. No deposit is required in the 
case of the taxes imposed by--
    (i) Section 4042 (relating to fuel used on inland waterways);
    (ii) Section 4161 (relating to sport fishing equipment and bows and 
arrow components);
    (iii) Section 4682(h) (relating to floor stocks tax on ozone-
depleting chemicals); and
    (iv) Section 48.4081-3(b)(1)(iii) of this chapter (relating to 
certain removals of gasohol from refineries).
    (2) One-time filings. No deposit is required in the case of any 
taxes reportable on a one-time filing (as defined in Sec. 40.6011(a)-
2(b)).
    (3) De minimis exception. For any calendar quarter, no deposit is 
required if the net tax liability for the quarter does not exceed 
$2,500.
    (f) Effective/applicability date. This section applies to deposits 
and payments made after December 31, 2010.
    (g) [Reserved] For further guidance, see Sec. 40.6302(c)-1T(g).

[T.D. 8963, 66 FR 41776, Aug. 9, 2001, as amended by T.D. 9486, 75 FR 
33686, June 15, 2010; T.D. 9507, 75 FR 75903, Dec. 7, 2010]



Sec. 40.6302(c)-1T  Deposits (temporary).

    (a) through (f) [Reserved] For further guidance, see Sec. 
40.6302(c)-1(a) through (f).
    (g) Exception for indoor tanning services. No deposit is required 
for the taxes imposed by section 5000B (relating to indoor tanning 
services) for any calendar quarter beginning after June 30, 2010.
    (h) Expiration date. This section expires on or before June 11, 
2013.

[T.D. 9486, 75 FR 33686, June 15, 2010]

[[Page 11]]



Sec. 40.6302(c)-2  Special rules for September.

    (a) In general--(1) Separate deposits required for the second 
semimonthly period. In the case of deposits of taxes not deposited under 
the alternative method (regular method taxes) for the second semimonthly 
period in September, separate deposits are required for the period 
September 16th through 26th and for the period September 27th through 
30th.
    (2) Amount of deposit--(i) In general. The deposits of regular 
method taxes for the period September 16th through 26th and the period 
September 27th through 30th must be not less than 95 percent of the net 
tax liability for regular method taxes incurred during the respective 
periods. The net tax liability for regular method taxes incurred during 
these periods may be computed by--
    (A) Determining the amount of net tax liability for regular method 
taxes reasonably expected to be incurred during the second semimonthly 
period in September;
    (B) Treating \11/15\ of the amount determined under paragraph 
(a)(2)(i)(A) of this section as the net tax liability for regular method 
taxes incurred during the period September 16th through 26th; and
    (C) Treating the remainder of the amount determined under paragraph 
(a)(2)(i)(A) of this section (adjusted to reflect the amount of net tax 
liability for regular method taxes actually incurred through the end of 
September) as the net tax liability for regular method taxes incurred 
during the period September 27th through 30th.
    (ii) Safe harbor rules. The safe harbor rules in Sec. 40.6302(c)-
1(b)(2) do not apply for the third calendar quarter unless--
    (A) The deposit of taxes for the period September 16th through 26th 
is not less than \11/90\ of the net tax liability for regular method 
taxes reported for the look-back quarter; and
    (B) The total deposit of taxes for the second semimonthly period in 
September is not less than \1/6\ of the net tax liability for regular 
method taxes reported for the look-back quarter.
    (3) Time to deposit. (i) The deposit required for the period 
beginning September 16th must be made by September 29th unless--
    (A) September 29th is a Saturday, in which case the deposit must be 
made by September 28th; or
    (B) September 29th is a Sunday, in which case the deposit must be 
made by September 30th.
    (ii) The deposit required for the period ending September 30th must 
be made at the time prescribed in Sec. 40.6302(c)-1(c).
    (b) Persons not required to use electronic funds transfer. The rules 
of this section are applied with the following modifications in the case 
of a person not required to deposit taxes by electronic funds transfer.
    (1) Periods. The deposit periods for the separate deposits required 
under paragraph (a) of this section are September 16th through 25th and 
September 26th through 30th.
    (2) Amount of deposit. In computing the amount of deposit required 
under paragraph (a)(2)(i)(B) of this section, the applicable fraction is 
\10/15\. In computing the amount of deposit required under paragraph 
(a)(2)(ii)(A) of this section, the applicable fraction is \10/90\.
    (3) Time to deposit. In the case of the deposit required under 
paragraph (a) of this section for the period beginning September 16th, 
the deposit must be made by September 28th unless--
    (i) September 28th is a Saturday, in which case the deposit must be 
made by September 27th; or
    (ii) September 28th is a Sunday, in which case the deposit must be 
made by September 29th.
    (c) Effective date. This section is applicable with respect to 
deposits that relate to calendar quarters beginning on or after October 
1, 2001, except that paragraph (b) of this section does not apply after 
December 31, 2010.

[T.D. 8963, 66 FR 41777, Aug. 9, 2001, as amended by T.D. 9507, 75 FR 
75904, Dec. 7, 2010]



Sec. 40.6302(c)-3  Deposits under chapter 33.

    (a) Overview. This section sets forth an alternative method for 
computing the amount of deposits of taxes imposed by chapter 33, and 
provides rules relating to the time for making a deposit and the amount 
of tax to be reported on the return of tax for each

[[Page 12]]

quarter by persons using the alternative method. The safe harbor rules 
for computing deposits of tax using the alternative method and the 
general rules relating to deposits are set forth in Sec. 40.6302(c)-1 
and apply unless inconsistent with the rules set forth below.
    (b) Alternative method for computing deposits--(1) In general--(i) 
Alternative method. Any person required to collect and pay over any tax 
imposed by chapter 33 may compute the amount of that tax to be deposited 
on the basis of amounts considered as collected (the ``alternative 
method'') instead of on the basis of actual collections of tax.
    (ii) Using more than one method to compute deposits. A person may 
compute deposits of tax imposed by one or more sections of chapter 33 
using the alternative method provided by this section and compute 
deposits of taxes imposed by other sections of chapter 33 on the basis 
of amounts actually collected using the rule of Sec. 40.6302(c)-
1(c)(1). For purposes of this paragraph (b)(1)(ii), the taxes imposed by 
section 4261(a) and (b) are treated as taxes imposed by the same 
section.
    (2) Applicability--(i) In general. A person may use the alternative 
method with respect to a tax only if the person--
    (A) Separately accounts for the tax in accordance with paragraph 
(b)(2)(ii) of this section; and
    (B) Makes a return of the tax on the basis of the amount of the tax 
that is considered as collected.
    (ii) Separate account. The account required under paragraph 
(b)(2)(i)(A) of this section (the separate account)--
    (A) Must reflect for each month all items of tax that are included 
in amounts billed or tickets sold to customers during the month;
    (B) May not reflect an item of adjustment for any month during a 
quarter if the adjustment results from a refusal to pay or inability to 
collect the tax and the uncollected tax has not been reported under 
Sec. 49.4291-1 of this chapter on or before the due date of the return 
for that quarter; and
    (C) Must reflect for each month items of adjustment (including bad 
debts and errors) relating to the tax for prior months within the period 
of limitations on credits or refunds.
    (iii) Change of method. The method of computing deposits of tax 
imposed by a section of chapter 33 (as described in paragraph (b)(1)(ii) 
of this section) may be changed only at the beginning of a calendar 
quarter. Before a person changes the method used to compute the amount 
of tax to be deposited and reported for a calendar quarter, the person 
must notify the Commissioner so that proper adjustments may be made in 
order to properly reflect that person's collections of excise tax.
    (3) Period during which tax is considered as collected. For purposes 
of this section, the tax included in amounts billed or tickets sold 
during a semimonthly period (as defined in Sec. 40.0-1(c)) is 
considered as collected during the first seven days of the second 
following semimonthly period. Thus, the tax included in amounts billed 
or tickets sold during the first semimonthly period of a calendar month 
is considered as collected during the period of the 1st day through the 
7th day of the following month; the tax included in amounts billed or 
tickets sold during the second semimonthly period of a calendar month is 
considered as collected during the period of the 16th day through the 
22nd day of the following month.
    (4) When amounts are billed. For purposes of this section, an amount 
is billed on the earlier of the date the amount is received or the date 
a bill for the amount is rendered.
    (c) Time to deposit. Under the alternative method, the deposit of 
tax for any semimonthly period must be made by the third business day 
after the seventh day of that semimonthly period. For purposes of this 
paragraph (c), a ``business day'' is any calendar day other than a 
Saturday, Sunday, or legal holiday. The term legal holiday means a legal 
holiday in the District of Columbia as defined in section 7503. Thus, 
for example, the deposit for the semimonthly period beginning on January 
1, 2011 (relating to amounts billed between December 1st and December 
15, 2010) is due by January 12, 2011, three business days after January 
7, the seventh day of the semimonthly period. The deposit for the 
semimonthly

[[Page 13]]

period beginning on October 1, 2011 (relating to amounts billed between 
September 1st and September 15, 2011), is due by October 13, 2011, due 
to the October 10, 2011, Columbus Day holiday.
    (d) Computation of net amount of tax that is considered as collected 
during a semimonthly period. The net amount of tax that is considered as 
collected during the semimonthly period must be either the net amount of 
tax reflected in the separate account for the corresponding semimonthly 
period of the preceding month or one-half the net amount of tax 
reflected in the separate account for the preceding month.
    (e) Reporting of tax. If a tax is deposited under the alternative 
method for a calendar quarter, the return of tax for the quarter must 
report the net amount of the tax that is considered as collected during 
the quarter and not the amount of the tax that is actually collected 
during the quarter. The amount to be reported for each month is the net 
amount of tax reflected in the separate account for the preceding month. 
For example, amounts billed in December, January, and February are 
considered as collected during January, February, and March, and are 
reported as the collections of tax for January, February, and March (the 
first calendar quarter). Thus, the net amount of tax reflected in the 
separate accounts for December, January, and February is the amount 
reported as collections for the first quarter.
    (f) Special rules for September--(1) Deposits required. In the case 
of alternative method taxes charged (that is, included in amounts billed 
or tickets sold) during the first semimonthly period in September, 
separate deposits are required for the taxes charged during the period 
September 1st-11th and the period September 12th-15th.
    (2) Time to deposit--(i) In general. The deposit required for 
alternative method taxes charged during the period beginning September 
1st must be made by September 29. The deposit required for alternative 
method taxes charged during the period ending September 15th must be 
made at the time prescribed in paragraph (c) of this section for making 
deposits for the first semimonthly period in October.
    (ii) Due date on Saturday or Sunday. A deposit that would otherwise 
be due on September 29 must be made by September 28 if September 29 is a 
Saturday and by September 30 if September 29 is a Sunday.
    (3) Amount of deposit. The deposits of alternative method taxes 
required for the period September 1st-11th and the period September 
12th-15th must be not less than the amount of alternative method taxes 
charged during the respective periods. The amount of alternative method 
taxes charged during these periods may be computed by--
    (i) Determining the net amount of alternative method taxes reflected 
in the separate account for the first semimonthly period in September 
(or one-half of the net amount of alternative method taxes reasonably 
expected to be reflected in the separate account for the month of 
September);
    (ii) Treating \11/15\ of that amount as the amount of taxes charged 
during the period September 1st-11th; and
    (iii) Treating the remainder of the amount determined under 
paragraph (f)(3)(i) of this section (adjusted, if that amount is based 
on reasonable expectations, to reflect actual taxes charged through the 
end of September) as the amount charged during the period September 
12th-15th.
    (4) Safe harbor rule based on look-back quarter liability. The safe 
harbor rule of Sec. 40.6302(c)-1(b)(2) does not apply for the fourth 
calendar quarter unless--
    (i) The deposit for alternative method taxes charged during the 
period September 1st-11th is not less than \11/90\ of the net tax 
liability reported for alternative method taxes for the look-back 
quarter; and
    (ii) The total deposit for alternative method taxes charged during 
the first semimonthly period in September is not less than \1/6\ of the 
net tax liability reported for alternative method taxes for the look-
back quarter.
    (5) Persons not required to use electronic funds transfer. In the 
case of a person that is not required to deposit excise taxes by 
electronic funds transfer (a non-EFT depositor), the rules of this 
paragraph (f) apply with the following modifications:
    (i) The taxes for which separate deposits must be made are the taxes

[[Page 14]]

charged during the periods September 1st-10th and September 11th-15th.
    (ii) The deposit required for taxes charged during the period 
beginning September 1st must be made by September 28. A deposit that 
would otherwise be due on September 28 must be made by September 27 if 
September 28 is a Saturday and by September 29 if September 28 is a 
Sunday.
    (iii) The generally applicable fractions and percentage are modified 
to reflect the different deposit periods in accordance with the 
following table:

------------------------------------------------------------------------
   Generally applicable fractions and       Modifications for non-EFT
               percentage                           depositors
------------------------------------------------------------------------
11/15..................................  10/15.
11/90..................................  10/90.
69.67 percent..........................  63.33 percent.
------------------------------------------------------------------------

    (g) Effective date. This section is applicable with respect to 
deposits and returns that relate to taxes that are considered as 
collected in calendar quarters beginning on or after October 1, 2001, 
except that paragraph (b)(2)(ii)(B) of this section is applicable 
October 1, 2004, and except that paragraph (f)(5) of this section does 
not apply after December 31, 2010.

[T.D. 8442, 57 FR 48177, Oct. 22, 1992, as amended by T.D. 8685, 61 FR 
58006, Nov. 12, 1996; 63 FR 15292, Mar. 31, 1998; T.D. 8963, 66 FR 
41778, Aug. 9, 2001; T.D. 9051, 68 FR 15941, Apr. 2, 2003; T.D. 9149, 69 
FR 48394, Aug. 10, 2004; T.D. 9221, 70 FR 49869, Aug. 25, 2005; T.D. 
9507, 75 FR 75904, Dec. 7, 2010; 76 FR 709, Jan. 6, 2011]



Sec. 40.6694-1  Section 6694 penalties applicable to tax return preparer.

    (a) In general. For general definitions regarding section 6694 
penalties applicable to preparers of returns or claims for refund of any 
tax to which this part 40 applies, see Sec. 1.6694-1 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78454, Dec. 22, 2008; 74 FR 5106, Jan. 29, 2009]



Sec. 40.6694-2  Penalties for understatement due to an unreasonable position.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of any tax to which this part 40 applies shall be 
subject to penalties under section 6694(a) in the manner stated in Sec. 
1.6694-2 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78455, Dec. 22, 2008; 74 FR 5106, Jan. 29, 2009]



Sec. 40.6694-3  Penalty for understatement due to willful, reckless, or intentional conduct.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of any tax to which this part 40 applies shall be 
subject to penalties under section 6694(b) in the manner stated in Sec. 
1.6694-3 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78455, Dec. 22, 2008; 74 FR 5106, Jan. 29, 2009]



Sec. 40.6694-4  Extension of period of collection when tax return preparer

pays 15 percent of a penalty for understatement of taxpayer's liability and certain 
          other procedural matters.

    (a) In general. For rules relating to the extension of period of 
collection when a tax return preparer who prepared return or claim for 
refund of excise tax of any tax to which this part 40 applies pays 15 
percent of a penalty for understatement of taxpayer's liability and 
procedural matters relating to the investigation, assessment and 
collection of the penalties under section 6694(a) and (b), the rules 
under Sec. 1.6694-4 of this chapter will apply.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78455, Dec. 22, 2008]



Sec. 40.6695-1  Other assessable penalties with respect to the preparation 

of tax returns for other persons.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of any tax to which this part 40 applies shall be 
subject to penalties

[[Page 15]]

for failure to furnish a copy to the taxpayer under section 6695(a) of 
the Internal Revenue Code (Code), failure to sign the return under 
section 6695(b) of the Code, failure to furnish an identification number 
under section 6695(c) of the Code, failure to retain a copy or list 
under section 6695(d) of the Code, failure to file a correct information 
return under section 6695(e) of the Code, and negotiation of a check 
under section 6695(f) of the Code, in the manner stated in Sec. 6695-1 
of this chapter.
    (b) Effective/applicability date. This section is applicable for 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78455, Dec. 22, 2008; 74 FR 5106, Jan. 29, 2009]



Sec. 40.6696-1  Claims for credit or refund by tax return preparers.

    (a) In general. The rules under Sec. 1.6696-1 of this chapter will 
apply for claims for credit or refund by a tax return preparer who 
prepared a return or claim for refund of any tax to which this part 40 
applies.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78455, Dec. 22, 2008; 74 FR 5106, Jan. 29, 2009]



Sec. 40.7701-1  Tax return preparer.

    (a) In general. For the definition of a tax return preparer, see 
Sec. 301.7701-15 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78455, Dec. 22, 2008]



PART 41_EXCISE TAX ON USE OF CERTAIN HIGHWAY MOTOR VEHICLES--Table of Contents



                         Subpart A_Introduction

Sec.
41.0-1 Introduction.

         Subpart B_Tax on Use of Certain Highway Motor Vehicles

41.4481-1 Imposition of tax.
41.4481-2 Persons liable for tax.
41.4481-3 Registration.
41.4482(a)-1 Definition of highway motor vehicle.
41.4482(b)-1 Definition of taxable gross weight.
41.4482(c)-1 Definition of State, taxable period, use, and customarily 
          used.
41.4483-1 State exemption.
41.4483-2 Exemption for certain transit-type buses.
41.4483-3 Exemption for trucks used for 5,000 or fewer miles and 
          agricultural vehicles used for 7,500 or fewer miles on public 
          highways.
41.4483-4 Application of exemptions.
41.4483-6 Reduction in tax for trucks used in logging.
41.4483-7 Reduction in tax for vehicles registered in a contiguous 
          foreign country.

Subpart C_Administrative Provisions of Special Application to Tax on Use 
                    of Certain Highway Motor Vehicles

41.6001-1 Records.
41.6001-2 Proof of payment for State registration purposes.
41.6001-3 Proof of payment for entry into the United States.
41.6011(a)-1 Returns.
41.6060-1 Reporting requirements for tax return preparers.
41.6071(a)-1 Time for filing returns.
41.6091-1 Place for filing returns.
41.6101-1 Period covered by returns.
41.6107-1 Tax return preparer must furnish copy of return to taxpayer 
          and must retain a copy or record.
41.6109-1 Identifying numbers.
41.6109-2 Tax return preparers furnishing identifying numbers for 
          returns or claims for refund filed after December 31, 2008.
41.6151(a)-1 Time and place for paying tax.
41.6156-1 Installment payments of tax on use of highway motor vehicle.
41.6694-1 Section 6694 penalties applicable to tax return preparer.
41.6694-2 Penalties for understatement due to an unreasonable position.
41.6694-3 Penalty for understatement due to willful, reckless, or 
          intentional conduct.
41.6694-4 Extension of period of collection when preparer pays 15 
          percent of a penalty for understatement of taxpayer's 
          liability and certain other procedural matters.
41.6695-1 Other assessable penalties with respect to the preparation of 
          tax returns for other persons.
41.6696-1 Claims for credit or refund by tax return preparers.
41.7701-1 Tax return preparer.

    Authority: 26 U.S.C. 7805;
    Section 41.4482(b)-1 also issued under 26 U.S.C.4482(b);

[[Page 16]]

    Section 41.4483-3 also issued under 26 U.S.C. 4483(d);
    Section 41.6001-3 also issued under 101 Stat. 260;
    Section 41.6060-1 also issued under 26 U.S.C. 6060(a);
    Section 41.6109-2 also issued under 26 U.S.C. 6109(a);
    Section 41.6695-1 also issued under 26 U.S.C. 6695(b);

    Source: T.D. 6216, 21 FR 9645, Dec. 6, 1956; 25 FR 14021, Dec. 31, 
1960, unless otherwise noted.



                         Subpart A_Introduction



Sec. 41.0-1  Introduction.

    The regulations in this part are designated ``Highway Use Tax 
Regulations.'' The regulations in this part relate to the tax on the use 
of certain highway vehicles imposed by section 4481 and to certain 
associated administrative provisions.

[T.D. 8879, 65 FR 17153, Mar. 31, 2000]



         Subpart B_Tax on Use of Certain Highway Motor Vehicles



Sec. 41.4481-1  Imposition of tax.

    (a) In general. Tax is imposed on the use during a taxable period of 
any registered highway motor vehicle that (together with the 
semitrailers and trailers customarily used in connection with highway 
motor vehicles of the same type as such highway motor vehicle) has a 
taxable gross weight of at least 55,000 pounds.
    (b) Rate of tax. For the rate of tax generally, see section 4481(a). 
For the rate of tax for certain vehicles used in logging, see section 
4483(e). For the rate of tax for certain vehicles base-plated in Canada 
or Mexico, see section 4483(f). For a special rule for the taxable 
period in which the tax terminates, see section 4482(d).
    (c) Computation of tax. (1) Except as provided in paragraph (c)(2) 
of this section, the tax on the use of a particular highway motor 
vehicle for a taxable period is computed as follows:
    (i) For vehicles with a taxable gross weight of at least 55,000 
pounds, but not over 75,000 pounds, add to $100 an amount equal to $22 
for each 1,000 pounds (or fraction thereof) in excess of 55,000 pounds; 
and
    (ii) For vehicles with a taxable gross weight over 75,000 pounds, 
the tax is $550.
    (2) If the first taxable use of a particular highway motor vehicle 
is made after the first month of the taxable period, the tax on the use 
of such vehicle for such taxable period is computed by multiplying the 
amount of tax that would be due for a full taxable period as computed 
under paragraph (c)(1) of this section, by a fraction. Such fraction 
shall have as its numerator the number of months in the taxable period 
beginning with the month of first taxable use and as its denominator the 
number of months in the entire taxable period. For purposes of 
determining the fraction, any part of a month is counted as a full 
month. (See example (2) of paragraph (e) of this section.)
    (3) If the taxable gross weight of a vehicle increases during the 
month in which the vehicle is first used in a taxable period, the tax 
for the vehicle for the taxable period is computed on the basis of the 
increased weight. If the taxable gross weight of a vehicle increases 
after the month in which the vehicle was first used in a taxable period, 
the additional tax liability, if any, that results from the increased 
weight is calculated according to the following formula:
[GRAPHIC] [TIFF OMITTED] TC14NO91.110

where:

T1 = Tax imposed for a full taxable period (or partial 
taxable period as determined under paragraph (c)(2) of this section) at 
the vehicle's previously reported taxable gross weight.
T2 = Tax imposed for the same taxable period as used in 
T1 at the vehicle's increased taxable gross weight.
P = The number of months in the taxable period during which the 
vehicle's taxable gross weight was as previously reported for such 
taxable period. This number does not include the month in which the 
vehicle's taxable gross weight increased.
R = The number of months remaining in the taxable period including the 
month in which the vehicle's taxable gross weight was increased.


If tax was imposed for a partial taxable period as determined under 
paragraph (c)(2) of this section, the additional tax

[[Page 17]]

is determined by substituting the number of months in such partial 
taxable period for ``12'' in the above formula.

    (4) If in any taxable period the taxable gross weight of a highway 
motor vehicle is decreased, the computation of tax is not affected and 
no right to credit or refund of any tax paid under section 4481 arises.
    (5) If in any taxable period a highway motor vehicle is destroyed or 
stolen before the first day of the last month in the taxable period, and 
is not subsequently used during such taxable period, the tax shall be 
calculated proportionately from the first day of the month in the period 
in which the first taxable use of the highway motor vehicle occurs to 
and including the last day of the month in which the highway motor 
vehicle was destroyed or stolen. Any tax paid under section 4481(a) on 
such a highway motor vehicle in excess of the tax calculated in the 
preceding sentence, shall be an overpayment for which a credit or refund 
of tax may be claimed. For purposes of this paragraph (c)(5), a highway 
motor vehicle is destroyed if the vehicle is damaged due to an accident 
or other casualty to such an extent that it is not economical to 
rebuild.
    (6) If the use of a highway motor vehicle during the taxable period 
is discontinued (for reasons other than destruction or theft as 
described in paragraph (c)(5) of this section) or is converted to a use 
which is exempt from the tax imposed by section 4481(a), the computation 
of the tax is not affected and no right to a credit or refund of any tax 
paid under section 4481 arises.
    (d) Credit or refund of tax under section 4481(a). (1) Any claim for 
refund of an overpayment of tax under section 4481(a) due to destruction 
or theft of the vehicle shall be made in accordance with the applicable 
provisions of this section and Sec. 301.6402-2 (Regulations on 
Procedure and Administration) and shall be filed by the person in whose 
name the vehicle is registered or required to be registered when the 
vehicle is destroyed or stolen. A claim for refund of the tax imposed by 
section 4481(a) is to be filed on Form 8849 (or such other form as the 
Commissioner may designate).
    (2) Any person entitled to claim a refund of tax under paragraph 
(d)(1) of this section may, in lieu of claiming a refund of such tax, 
claim a credit for such tax on the next Form 2290 required to be filed.
    (e) Examples. The application of section 4481 and this section may 
be illustrated by the following examples:

    Example (1). In the taxable period beginning July 1, 1984, the first 
taxable use of a particular highway motor vehicle, a bus, having a 
taxable gross weight of 56,000 pounds, occurs on July 10, 1984, at which 
time the vehicle is registered in the name of X. A tax of $122 
($100+$22) is imposed on X for the use of such vehicle for such taxable 
period.
    Example (2). On July 1, 1984, X has registered in his name a highway 
motor vehicle having a taxable gross weight of 60,000 pounds. The 
vehicle is in ``dead storage'' until August 10, 1984, at which time X 
starts using the vehicle on the public highways in carrying on his 
trucking business. On August 10, 1984, the vehicle is still registered 
in X's name. Since the first taxable use of this highway motor vehicle 
during the taxable period occurred on August 10, 1984, X is required to 
pay a tax of $192.50 ([$100+(5x$22)]x11/12) for such taxable period.
    Example (3). On April 15, 1985, a vehicle with a taxable gross 
weight of 70,000 pounds and registered in the name of Y is completely 
destroyed. Y had purchased the vehicle from X who had paid the tax for 
the taxable period beginning July 1, 1984. Y is entitled to a refund of 
tax for those full months after destruction in the taxable period ending 
June 30, 1985. Thus, Y may file a claim for a refund of $71.67-2/12 of 
the total tax of $430 ($100+(15x$22)).


[T.D. 8027, 50 FR 21246, May 23, 1985, as amended by T.D. 8159, 52 FR 
33584, Sept. 4, 1987; T.D. 8177, 53 FR 6626, Mar. 2, 1988; T.D. 8879, 65 
FR 17153, Mar. 31, 2000]



Sec. 41.4481-2  Persons liable for tax.

    (a) In general. (1)(i) A person is liable for the tax imposed by 
section 4481 with respect to the use of a highway motor vehicle in a 
taxable period if the vehicle is registered in the person's name--
    (A) At the time of the first use of the vehicle in the taxable 
period;
    (B) In the case of a vehicle under a suspension of tax described in 
Sec. 41.4483-3(a), at the time the use on the public highways during 
the taxable period exceeds 5,000 miles (7,500 miles for agricultural 
vehicles);

[[Page 18]]

    (C) At the time that an increase in the taxable gross weight of the 
vehicle results in an additional tax liability (as computed under Sec. 
41.4481-1(c)(3)) if the increase occurs after the month in which the 
vehicle was first used in the taxable period; or
    (D) At the time of any use during the taxable period that is after 
the first use during the period, but only to the extent that the tax or 
any installment payment of the tax has not previously been paid.
    (ii) In any case in which more than one person is liable for the tax 
for a taxable period, the liability of all persons is satisfied to the 
extent that the tax is paid by any person liable for the tax.
    (2) The application of paragraph (a)(1) of this section may be 
illustrated by the following example:

    Example. In the taxable period beginning July 1, 1985, the first 
taxable use of a particular highway motor vehicle having a taxable gross 
weight of 60,000 pounds occurs on July 10, 1985, at which time the 
vehicle is registered in the name of Y. On September 1, 1985, Y sells 
the vehicle to X who registers and uses the vehicle before the end of 
such taxable period. Since the vehicle was registered in the name of Y 
at the time of its first taxable use, Y is liable for the total tax of 
$210 ($100+(5x$22)) imposed on the use of the vehicle for the taxable 
period. X is also liable for $210 tax or any part thereof, but only to 
the extent that Y does not pay it. To the extent that either X or Y pays 
the tax the other party is relieved of such liability.
    (b) Evidence of prior use of second-hand vehicle. Every person who, 
at any time in the taxable period, acquires and has registered in his 
name a secondhand highway motor vehicle shall obtain and keep as a part 
of his records evidence, which he believes to be true, showing whether 
there was or was not a taxable use of such vehicle at any time in such 
taxable period prior to the time when the vehicle was registered in his 
name. Such person shall also obtain and keep as evidence a statement 
from the transferor as to whether there was in effect, at the time the 
vehicle was acquired, a suspension under Sec. 41.4483-3(a) of the tax 
imposed by section 4481(a). The evidence may take the form of a written 
statement, signed and dated by the person from whom the vehicle was 
acquired, showing whether there was or was not a prior taxable use of 
the vehicle and whether there was a suspension of tax in the taxable 
period. If the vehicle is acquired from a dealer in highway motor 
vehicles, the statement may be obtained from such dealer or from the 
person from whom the dealer acquired such vehicle. If evidence is not 
obtained showing whether there was or was not a prior taxable use of 
such vehicle and whether there was a suspension of tax in the taxable 
period, such person shall keep as a part of his records a written 
statement of the reason why he was unable to obtain such evidence.
    (c) Cross references. (1) For provisions relating to interest on 
underpayments of tax, see Sec. 301.6601-1 of this chapter (Regulations 
on Procedure and Administration).
    (2) For records required to be kept, see Sec. 41.6001-1.
    (3) For rules applicable to installment payment of tax for highway 
use tax liability, see Sec. 41.6156-1.
    (4) For rules applicable to time of filing returns, see Sec. 
41.6071(a)-1.

[T.D. 6743, 29 FR 7930, June 23, 1964, as amended by T.D. 8027, 50 FR 
21247, May 23, 1985; T.D. 8879, 65 FR 17153, Mar. 31, 2000]



Sec. 41.4481-3  Registration.

    (a) For purposes of the regulations in this part, the term 
``registered'' when used in reference to a highway motor vehicle means--
    (1) Registered under the law of any State or Territory of the United 
States, the District of Columbia, or contiguous foreign country, or
    (2) Required to be registered under the law of any State or 
Territory of the United States or contiguous foreign country in which 
such highway motor vehicle is operated or situated or, in case the 
vehicle is operated or situated in the District of Columbia, under the 
law of the District of Columbia.

Any highway motor vehicle which is operated under a dealer's tag, 
license, or permit is considered to be registered in the name of such 
dealer. A highway motor vehicle is not considered to be registered 
solely by reason of the fact that there has been issued a special permit 
for operation of the vehicle at particular times and under specified 
conditions.

[[Page 19]]

    (b) Any highway motor vehicle which, at any time in the taxable 
period, is registered both in the name of the owner of the vehicle and 
in the name of any other person, is considered, for purposes of the 
regulations in this part, to be registered, at such time, solely in the 
name of the owner of the vehicle.

[T.D. 6216, 21 FR 9645, Dec. 6, 1956, as amended by T.D. 6743, 29 FR 
7931, June 23, 1964; T.D. 8159, 52 FR 33584, Sept. 4, 1987]



Sec. 41.4482(a)-1  Definition of highway motor vehicle.

    (a) Highway motor vehicle. The term ``highway motor vehicle'' means 
any vehicle that is both:
    (1) A vehicle propelled by means of its own motor, whether such 
motor is powered by gasoline, diesel fuel, special motor fuels, 
electricity, or otherwise, and
    (2) A ``highway vehicle'' as defined in Sec. 48.4061(a)-1(d) of 
this chapter.
    (b) Treatment of certain excluded vehicles. Although trailers and 
semitrailers used in combination with highway trucks or truck-tractors 
are not vehicles the use of which is subject to the tax imposed by 
section 4481(a), trailers and semitrailers customarily used in 
combination with highway trucks or truck-tractors are taken into account 
in determining the taxable gross weight of the highway motor vehicle 
under Sec. 41.4482(b)-1, which is the base of the tax.

[T.D. 7461, 42 FR 2671, Jan. 13, 1977, as amended by T.D. 8879, 65 FR 
17153, Mar. 31, 2000]



Sec. 41.4482(b)-1  Definition of taxable gross weight.

    (a) Actual unloaded weight--(1) In general. Actual unloaded weight 
means the empty (or tare) weight of the truck, truck-tractor, or bus, 
fully equipped for service.
    (2) Trucks and truck-tractors. A truck or truck-tractor fully 
equipped for service includes the body (whether or not designed and 
adapted primarily for transporting cargo, as for example, concrete 
mixers); all accessories; all equipment attached to or carried on such 
truck or truck-tractor for use in connection with the movement of the 
vehicle by means of its own motor or for use in the maintenance of the 
vehicle; and a full complement of lubricants, fuel, and water. It does 
not include the driver, any equipment (not including the body) attached 
to or carried on the vehicle for use in handling, protecting, or 
preserving cargo, or any special equipment (such as an air compressor, 
crane, specialized oilfield machinery, etc.) mounted on the vehicle for 
use on construction jobs, in oilfield operations, etc.
    (3) Buses. A bus fully equipped for service includes the body; all 
accessories; all equipment attached to or carried on such bus for use in 
connection with the movement of the vehicle by means of its own motor, 
for use in the maintenance of the vehicle, or for the accommodation of 
passengers or others (such as air conditioning equipment and sanitation 
facilities, etc.); and a full complement of lubricants, fuel, and water. 
It does not include the driver.
    (b) Determination of taxable gross weight--(1) In general. The 
taxable gross weight of a highway motor vehicle is the sum of the actual 
unloaded weight of the vehicle fully equipped for service, the actual 
unloaded weight of any semitrailers or trailers fully equipped for 
service customarily used in combination with the vehicle, and the weight 
of the maximum load customarily carried on the vehicle and on any 
semitrailers or trailers customarily used in combination with the 
vehicle. In the case of a highway motor vehicle that is registered in at 
least one State that requires a declaration of gross weight to be stated 
as a specific amount for any purpose (including proportional or prorate 
registration or the payment of any other fees or taxes), the taxable 
gross weight of such vehicle must be no less than the highest gross 
weight declaration (or combined gross weight declaration in the case of 
a tractor-trailer or truck-trailer combination) made by the registrant 
in any State with respect to such vehicle. If a highway motor vehicle is 
registered in at least one State that requires vehicles to register on 
the basis of gross weight and such vehicle is not registered in any 
State that requires a declaration of gross weight to be stated as a 
specific amount by the registrant,

[[Page 20]]

the taxable gross weight of such vehicle must fall within the highest 
gross weight category of such State for which such vehicle is registered 
during the taxable period. Declarations of weight made in order to 
obtain special temporary travel permits which allow a vehicle to, (i) 
operate in a State in which the vehicle is not registered or prorated, 
(ii) operate at more than a State's maximum statutory weight limit, or 
(iii) operate at more than the weight that the vehicle is registered in 
a State, shall not be considered in determining the taxable gross weight 
of a vehicle.
    (2) Buses. For purposes of the tax imposed by section 4481(a), the 
taxable gross weight of a bus shall be the sum of the weights referred 
to in paragraph (b)(1) of this section except that ``the weight of the 
maximum load customarily carried'' on a bus shall be equal to 150 pounds 
times the number of units of seating capacity provided for passengers 
and driver.
    (c) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example (1). A is the owner of a truck-tractor. On January 1, 1985, 
A registers the truck-tractor in three states--X, Y, and Z. For purposes 
of registering the vehicle in State X, A declares the gross operating 
weight of his truck-tractor to be 60,000 pounds. The declaration of the 
gross weight of the vehicle at 50,000 pounds places A's truck-tractor in 
the State X registration category of 55,000 to 62,000 pounds gross 
weight. Thus, the registered weight of A's vehicle in State X is 62,000 
pounds. At the same time as A registers the vehicle in State X, A also 
proportionally registers the vehicle under the IRP in State Y. A uses 
the same declared gross weight of 60,000 pounds for purposes of the 
State Y proportional registration. Registration in State Y at this 
declared gross weight places A's truck-tractor in the State Y gross 
weight registration category of 58,000 to 68,000 pounds. Finally, A 
registers the truck-tractor in State Z. Registration of vehicles in 
State Z is based on the unladen weight of the vehicle. During the 
taxable period beginning on July 1, 1985, A's truck-tractor is not 
registered in any other state. For the taxable period beginning on July 
1, 1985, A must declare a taxable gross weight of no less than 60,000 
pounds for purposes of the tax imposed by section 4481(a) because that 
is the highest declared gross weight for state registration or other 
purposes. Should A declare to any State agency a higher gross operating 
weight with respect to the truck-tractor during the same taxable period 
(except for a special temporary permit), A would then be liable for 
additional tax as determined under paragraph (c)(3) of Sec. 41.4481-1.
    Example (2). Assume the same facts as in example (1), except that on 
one occasion during the taxable period, A was issued a special 2-day 
permit to use his truck-tractor in State Y to haul a load which would 
give A's unit a total gross weight of 80,000 pounds. A may still declare 
the taxable gross weight of his unit to be no less than 60,000 pounds 
because special permits to haul heavier loads on a temporary basis are 
not considered in determining the taxable gross weight of a vehicle.
    Example (3). C owns and has registered in his name 2 trucks which 
are identical in all respects and which are used to carry the same type 
of load. The first vehicle is registered only in State X at a registered 
weight of 73,000 pounds based on a declared gross weight of 70,000 
pounds. The second vehicle is registered only in State Y at a registered 
weight of 68,000 pounds based on a declared gross weight of 65,000 
pounds. No other declarations of gross weight are made with respect to 
either vehicle. For purposes of the Federal heavy vehicle use tax, the 
taxable gross weight of the vehicle registered in State X may be 
declared at no less than 70,000 pounds and the taxable gross weight of 
the vehicle registered in State Y may be declared at no less than 65,000 
pounds even though the vehicles are identical.


[T.D. 6216, 21 FR 9645, Dec. 6, 1956, as amended by T.D. 6743, 29 FR 
7931, June 23, 1964; T.D. 7011, 34 FR 7448, May 8, 1969; T.D. 8027, 50 
FR 21247, May 23, 1985; T.D. 8879, 65 FR 17153, Mar. 31, 2000]



Sec. 41.4482(c)-1  Definition of State, taxable period, use, and customarily used.

    (a) State. State includes any State, any political subdivision of a 
State, the District of Columbia, and, to the extent provided by section 
7871, any Indian tribal government.
    (b) Taxable period. For the definition of taxable period, see 
section 4482(c).
    (c) Use. The term ``use'', as used in the regulations in this part 
with reference to a highway motor vehicle, means the use of the highway 
motor vehicle on the public highways in the United States, that is, 
operation of the vehicle, by means of its own motor, on any roadway 
(whether a Federal highway, State highway, city street, or otherwise) in 
the United States which is

[[Page 21]]

not a private roadway. Thus, for purposes of the tax, there is no use of 
a highway motor vehicle while the vehicle is in ``dead storage''. The 
term ``use'' does not include operation of a new highway motor vehicle 
on a public highway in the United States if such operation is merely for 
the purpose of transporting the vehicle from the point of manufacture or 
assembly to the consumer, whether direct or with intermediate deliveries 
to such points as are involved in the distribution process. For example, 
operation of a new vehicle for the purpose of delivering it from the 
factory to a branch establishment of the manufacturer, or from the 
factory or branch establishment to a dealer, distributor, or consumer, 
does not constitute use of the vehicle within the meaning of the 
regulations in this part; likewise, the further operation of the vehicle 
by a dealer or distributor for the purpose of delivering the vehicle to 
a consumer does not constitute use of the vehicle. Similarly, the 
operation of a secondhand highway motor vehicle by a dealer or 
distributor for the purpose of delivering the vehicle to a purchaser 
does not constitute use of the vehicle within the meaning of the 
regulations in this part. Furthermore, the term ``use'' does not include 
operation of a new or secondhand highway motor vehicle, if such 
operation is exclusively for the purpose of demonstration of the vehicle 
by a dealer in, or distributor of, new or secondhand highway motor 
vehicles. Operation of a highway motor vehicle on a private roadway, or 
other private property, does not constitute use of the vehicle within 
the meaning of the regulations in this part.
    (d) Customarily used. A semitrailer or trailer is treated as 
customarily used in connection with a highway motor vehicle if the 
vehicle is equipped to tow the semitrailer or trailer.

[T.D. 7409, 41 FR 9877, Mar. 8, 1976, as amended by T.D. 7505, 42 FR 
42856, Aug. 25, 1977; T.D. 8027, 50 FR 21248, May 23, 1985; T.D. 8159, 
52 FR 33584, Sept. 4, 1987; T.D. 8879, 65 FR 17154, Mar. 31, 2000]



Sec. 41.4483-1  State exemption.

    Use of a highway motor vehicle by a State is exempt from the tax 
imposed by section 4481. For this purpose, the term use by a State means 
the operation by a State on the public highways in the United States of 
any highway motor vehicle, whether or not such highway motor vehicle is 
owned by the State.

[T.D. 8879, 65 FR 17154, Mar. 31, 2000]



Sec. 41.4483-2  Exemption for certain transit-type buses.

    (a) In general. Use in any taxable period, or part thereof, of any 
bus of the transit type by any person who is engaged in the operation of 
a transit system is exempt from the tax, if such person meets the 60-
percent passenger fare revenue test provided for in paragraph (e) of 
this section, for the applicable period prescribed in paragraph (c) of 
this section as the test period for such person for such system for such 
taxable period, or part thereof.
    (b) Buses of the transit type. The term ``transit type'', when used 
in the regulations in this part with reference to a bus, means the type 
of bus which is designed for the mass transportation of persons within 
an urban area, as distinguished from the intercity-type bus. A transit-
type bus is ordinarily distinguishable from an intercity-type bus by 
comparison of seats, doors, and baggage facilities. The transit-type bus 
usually has straight-back seats of the bench type, while the intercity-
type bus generally has seats which either can be reclined or are in fact 
permanently fixed in a reclining position. The transit-type bus is more 
likely to have an accordion or folding-type door at the front of the 
bus, and often has a second door in the middle or at the rear for 
passengers to leave the bus, as opposed to the emergency-type rear door 
which may or may not be included in the intercity-type bus. The typical 
transit-type bus does not have facilities for storing baggage whereas 
the typical intercity-type bus has facilities for storing baggage in a 
compartment underneath the floor of the bus or in overhead racks, or 
both. Other characteristics which may be taken into account in 
distinguishing a transit-type bus from an intercity-type bus include 
gear ratios, acceleration and maximum speed, and aisle space for 
standees. The transit-type bus ordinarily has a lower gear ratio to 
provide for quick starts and because, in general, buses of this

[[Page 22]]

type are operated at low speeds. The intercity-type bus ordinarily has a 
higher gear ratio and can be operated at much higher speeds. The 
transit-type bus usually has wider aisles, with overhead straps or bars 
to accommodate standees.
    (c) Test period. (1) In the case of any person who is engaged in the 
operation of a transit system at any time in the calendar quarter 
immediately preceding July 1 of any taxable period, the test period for 
such system for such taxable period shall be such calendar quarter. 
However, if passenger fare revenue from scheduled service described in 
paragraph (e) of this section was derived on less than 30 days during 
such calendar quarter from operation of such system, the test period for 
such system for such taxable period shall be the last preceding test 
period for such system. If such system has no preceding test period, 
then the test period for such system for such taxable period shall be 
the calendar quarter beginning with July 1 of such taxable period.
    (2) Except as otherwise provided in subparagraph (3) of this 
paragraph, in the case of any person who commences operation of a 
transit system at any time on or after July 1 of any taxable period the 
test period for such system for that part of such taxable period 
beginning with the first day on which such operation was commenced shall 
be the calendar quarter in which falls such first day. However, if 
passenger fare revenue from scheduled service described in paragraph (e) 
of this section was derived on less than 30 days during such calendar 
quarter from operation of such system, the test period for such system 
for such taxable period shall be the following calendar quarter.
    (3) In the case of any person who commences operation of a transit 
system at any time in the last calendar quarter to which the tax imposed 
by section 4481 applies, such last calendar quarter shall be the test 
period for such transit system regardless of the number of days in which 
passenger fare revenue is derived in such calendar quarter.
    (d) Transit system. The term ``transit system'', as used in the 
regulations in this part, means any system for furnishing scheduled 
common carrier public passenger land transportation service along 
regular routes.
    (e) 60-percent passenger fare revenue test. For purposes of this 
section, a person engaged in the operation of a transit system meets the 
60-percent passenger fare revenue test, for the applicable test period 
prescribed in this section, if:
    (1) During such test period such person derived passenger fare 
revenue from the operation of such system, and
    (2) At least 60 percent of the total of such passenger fare revenue 
derived by such person during such test period was attributable to (i) 
amounts paid for transportation which do not exceed 60 cents, (ii) 
amounts paid for commutation or season tickets for single trips of less 
than 30 miles, or (iii) amounts paid for commutation tickets for one 
month or less. In determining the total of such passenger fare revenue, 
revenue from sources such as charter fees, rentals of property, 
advertising receipts, etc., is not taken into account.
    (f) Examples. Application of this section may be illustrated by the 
following examples:

    Example (1). The X Transit Company is engaged in the operation of a 
transit system in the city of A and surrounding area throughout April, 
May, and June of 1984 and the taxable period beginning July 1, 1984. It 
derives passenger fare revenue from the operation of such system for 15 
days in April and for the entire months of May and June of 1984. On July 
1, 1984, the Company is using 60 buses of the transit type and 40 buses 
of the intercity type. Each of 20 of the transit-type buses and each of 
10 of the intercity-type buses has a taxable gross weight of less than 
55,000 pounds. (No tax is imposed on the use of either a transit-type 
bus or an intercity-type bus having a taxable gross weight of less than 
55,000 pounds. See Sec. 41.4481-1.) Use of the 10 intercity-type buses 
is subject to the tax for the taxable period beginning with July 1, 
1984, since the exemption, if any, applies only to transit-type buses. 
Use of the 20 transit-type buses is not subject to the tax for such 
taxable period if at least 60 percent of the total passenger fare 
revenue derived by the X Transit Company during April, May, and June of 
1984 (the test period prescribed in paragraph (c) (1) of this section) 
from operation of such system was from fares attributable to (i) amounts 
paid for transportation which do not exceed 60 cents, (ii) amounts paid 
for commutation or season tickets for single trips of less than 30 
miles, or (iii)

[[Page 23]]

amounts paid for commutation tickets for one month or less. If the X 
Transit Company does not meet the 60-percent passenger fare revenue test 
for April, May, and June of 1984, the tax attaches for the taxable 
period beginning with July 1, 1984, with respect to the use of each of 
the 20 transit-type buses having a taxable gross weight of more than 
less than 55,000 pounds.
    Example (2). Assume the same facts as those stated in Example (1), 
except that the X Transit Company commences operation of the transit 
system on July 15, 1984, and derives passenger fare revenue from 
operation of the system throughout the following August and September. 
In such case, the test period is July, August, and September of 1984, 
and if the test is met for this period, no tax is imposed on the use by 
the Company of any bus of the transit type in the period July 15, 1984, 
through June 30, 1985.
    Example (3). Assume the same facts as those stated in Example (1), 
except that the X Transit Company commences operation of the transit 
system on April 15, 1985, and derives passenger fare revenue from 
operation of the system throughout the following May and June. In such 
case the test period is April, May, and June of 1985, and if the test is 
met for this period, no tax is imposed on the use by the Company of any 
bus of the transit type in the period April 15 through June of 1985, or 
in the taxable period beginning on July 1, 1985.


[T.D. 6216, 21 FR 9645, Dec. 6, 1956, as amended by T.D. 6743, 29 FR 
7931, June 23, 1964; T.D. 8027, 50 FR 21248, May 23, 1985; T.D. 8879, 65 
FR 17154, Mar. 31, 2000]



Sec. 41.4483-3  Exemption for trucks used for 5,000 or fewer miles and 

agricultural vehicles used for 7,500 or fewer miles on public highways.

    (a) Suspension of tax--(1) In general. Liability for the tax imposed 
by section 4481(a) is suspended during a taxable period if it is 
reasonable to expect that the vehicle will be used for 5,000 or fewer 
miles on public highways during such taxable period and the owner 
furnishes in the time and manner required the information required under 
paragraph (a)(2) of this section. See paragraph (g) of this section 
regarding special rules for agricultural vehicles. See Sec. 41.4482(c)-
1(c) for the meaning of ``use'' on the public highways.
    (2) Information to be supplied in support of suspension of tax. The 
owner of a highway motor vehicle who reasonably expects that the vehicle 
will be used for 5,000 or fewer miles on public highways during a 
taxable period shall furnish on the first Form 2290 filed during the 
taxable period for such motor vehicle, such information as is required 
by the Form in order to support the suspension of tax under paragraph 
(a) of this section.
    (b) Cessation of suspension from tax. If a highway motor vehicle on 
which the tax under section 4481(a) is suspended for a particular 
taxable period under paragraph (a)(1) of this section is used for more 
than 5,000 miles on public highways during such taxable period, the 
owner of the vehicle is liable for the tax for the entire taxable period 
in accordance with section 4481(a).
    (c) Exemption. If at the end of any taxable period during which the 
tax under section 4481(a) on a highway motor vehicle was suspended under 
paragraph (a)(1) of this section the vehicle has not been used for more 
than 5,000 miles on public highways, the vehicle shall be exempt from 
the tax for that taxable period. The owner of the vehicle shall verify 
that the vehicle was used for less than 5,000 miles in such ended 
taxable period on the first Form 2290 filed for the next taxable period.
    (d) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example (1). A is the owner of 6 highway motor vehicles, each of 
which has a taxable gross weight in excess of 55,000 pounds. None of 
these 6 vehicles are agricultural vehicles. The vehicles are placed in 
use during July 1984. Because of the nature of his business, A reports 
on the first Form 2290 filed after June 30, 1984, that he reasonably 
expects that none of the vehicles will be used for more than 5,000 miles 
on public highways. Accordingly, the tax imposed by section 4481(a) is 
suspended for A's 6 vehicles for the taxable priod July 1, 1984, through 
June 30, 1985.
    Example (2). Assume the same facts as in example (1) except that 
during the month of February 1985, the use of one of A's vehicles 
exceeds 5,000 miles on public highways. A is liable for the full tax for 
the taxable period July 1, 1984, through June 30, 1985, for that vehicle 
at the rate set forth in Sec. 41.4481-1(b), and must so report on a 
Form 2290 filed on or before March 31, 1985, the last day of the month 
following the month in which the use exceeds 5,000 miles.

    (e) Credit or refund of tax for highway motor vehicle used 5,000 or 
fewer miles. (1) If a highway motor vehicle on which the tax imposed by 
section 4481(a) has

[[Page 24]]

been paid for a given taxable period is used for 5,000 or fewer miles on 
public highways during such taxable period, the person who paid the tax 
may file a claim for refund of an overpayment of the tax at the end of 
the taxable period. Claims for refunds of tax made under this paragraph 
(e) shall be filed in the same manner as claims for refunds filed under 
Sec. 41.4481-1(d). Refunds of tax made under this paragraph (e) shall 
be without interest.
    (2) Any person entitled to claim a refund of tax under paragraph 
(e)(1) of this section may, in lieu of claiming a refund of such tax, 
claim credit for such tax on the first Form 2290 filed for the next 
taxable period.
    (f) Relief from liability for tax under certain circumstances. If 
the tax imposed by section 4481(a) on a highway motor vehicle is 
suspended for any taxable period under paragraph (a) of this section and 
the vehicle is transferred while the suspension is in effect, the 
transferor will not be liable for any tax on such vehicle for such 
taxable period if such transferor furnishes a statement to the 
transferee on which is included the transferor's name, address and 
taxpayer identification number, the vehicle identification number, the 
date of transfer of the vehicle, the number of miles the vehicle has 
been used on the public highways during the taxable period, the odometer 
reading at the time of the transfer, and the name, address and taxpayer 
identification number of the transferee. The suspension from tax under 
paragraph (a) continues until the vehicle is used on the public highways 
for more than 5,000 miles during the taxable period (including use by 
the transferor for the portion of the taxable period prior to the 
transfer). If the transferor has furnished the statement required in 
this paragraph (f), the transferee and not the transferor is liable for 
the entire tax under section 4481(a) for the taxable period in which the 
transfer was made. If the transferor has not furnished such statement to 
the transferee, then the transferor is also liable for the tax on the 
use of such vehicle for such taxable period to the extent that the tax 
or an installment payment of the tax has not been previously paid. See 
paragraph (b) of this section relating to cessation of suspension from 
tax and Sec. 41.6011(a)-1(a)(3) for a requirement that certain 
transferees described in this paragraph (f) must file a return.
    (g) Special rule for agricultural vehicles--(1) In general. In 
applying the provisions of this section to an agricultural vehicle, 
``7,500'' shall be substituted for ``5,000'' each place it appears in 
paragraphs (a) through (f) of this section.
    (2) Meaning of terms--(i) Agriculture vehicle. An agricultural 
vehicle is any highway motor vehicle--
    (A) Used (or expected to be used) primarily for farming purposes, 
and
    (B) Registered (under the laws of the State or States in which such 
vehicle is required to be registered) as a highway motor vehicle used 
for farming purposes.

A highway motor vehicle is used primarily for farming purposes if more 
than one-half of such vehicle's use (determined on the basis of mileage) 
during the taxable period is for farming purposes. Further, the highway 
motor vehicle must be registered (under the laws of the State or States 
where such vehicle is required to be registered) as a highway motor 
vehicle used for farming purposes for the entire taxable period in order 
to qualify as an agricultural vehicle. See Sec. 41.4482(a)-(1) for the 
definition of ``highway motor vehicle''. A vehicle will be considered to 
be registered under the laws of the State as a highway motor vehicle 
used for farming purposes if such vehicle is so registered under a State 
statute or legally valid regulations. In addition, no special tag or 
license plate identifying a vehicle as being used for farming purposes 
is required.
    (ii) Farming purposes. For purposes of this section, ``farming 
purposes'' means the transporting of any farm commodity to or from a 
farm, or the use directly in agricultural production.
    (iii) Farm commodity. A ``farm commodity'' is any agricultural or 
horticultural commodity, feed, seed, fertilizer, livestock, bees, 
poultry, fur-bearing animals, or wildlife. A farm commodity does not 
include a commodity which has been changed by a processing operation 
from its raw or natural state. For example, juice which

[[Page 25]]

has been extracted from fruits or vegetables is not a farm commodity for 
purposes of this paragraph (g).
    (iv) Farm. The term ``farm'' includes stock (including feed yards 
for fattening cattle), dairy, poultry, fruit, fur-bearing animal, and 
truck farms, plantations, ranches, nurseries, ranges, orchards, and such 
greenhouses and other similar structures as are used primarily for the 
raising of any agricultural or horticultural commodity. Greenhouses and 
other similar structures used primarily for purposes other than the 
raising of agricultural or horticultural commodities (for example, 
display, storage, or fabrication of wreaths, corsages, and bouquets) do 
not constitute ``farms''.
    (v) Agricultural production--(A) In general. A highway motor vehicle 
is considered to be used directly in agricultural production only if it 
is used as indicated in the following paragraphs.
    (B) Use of a highway motor vehicle in connection with cultivating, 
raising, and harvesting. A highway motor vehicle is considered to be 
used directly in agricultural production if such vehicle is used in 
connection with cultivating the soil, or raising or harvesting any 
agricultural or horticultural commodity, including the raising, 
shearing, feeding, caring for, training and management of livestock, 
bees, poultry, and fur-bearing animals and wildlife. A highway motor 
vehicle which is used in connection with operations such as canning, 
freezing, packaging, or other processing operations will not be 
considered to be used directly in agricultural production.
    (C) Use of a highway motor vehicle in connection with planting, 
cultivation, caring for, cutting, etc., of trees. A highway motor 
vehicle is used directly for agricultural production if it is used in 
connection with planting, cultivating, caring for, or cutting of trees, 
or in connection with the preparation (other than milling) of trees for 
market; but only if such operations are incidental to farming 
operations. These farming operations include felling trees and cutting 
them into logs or firewood, but do not include sawing logs into lumber, 
chipping, or other milling operations. The operations specified in this 
paragraph (g)(2)(v)(C) will be considered ``incidental to farming 
operations'' only if they are of a minor nature in comparison with the 
total farming operations involved. Therefore, a treefarmer or 
timbergrower may not claim that a highway motor vehicle used in that 
trade or business is used directly in agricultural production.
    (D) Use of a highway motor vehicle in connection with the operation, 
management, conservation, improvement, or maintenance of a farm. A 
highway motor vehicle is used directly for agricultural production if it 
is used in connection with the operation, management, conservation, 
improvement, or maintenance of a farm and its tools and equipment. 
Examples of these operations include clearing land, repairing fences and 
farm buildings, building terraces or irrigation ditches, cleaning tools 
or farm machinery, painting, and other activities which contribute in 
any way to the conduct of a farm as such, as distinguished from any 
other enterprise in which the owner of the highway motor vehicle may be 
engaged.
    (3) Mileage on farm not counted toward 7,500 mile limit. For 
purposes of this section, the number of miles which a highway motor 
vehicle is driven on a farm and not on the public highways shall not be 
taken into account when determining whether the vehicle's mileage is in 
excess of 7,500 miles. Accurate records should be kept by taxpayers of 
the number of miles that a highway motor vehicle is operated on a farm.
    (h) Owner. For purposes of this section the term ``owner'' means, 
with respect to any highway motor vehicle, the person described in 
section 4481(b).

[T.D. 8027, 50 FR 21248, May 23, 1985, as amended by T.D. 8879, 65 FR 
17154, Mar. 31, 2000]



Sec. 41.4483-4  Application of exemptions.

    Any exemption from the tax on the use of a highway motor vehicle has 
application only with respect to the use of such highway motor vehicle 
and not with respect to the highway motor vehicle as such. Furthermore, 
such exemption is subject to those provisions of paragraph (c) of Sec. 
41.4481-1 relating to proration of the tax and to the effect of an 
exempt use of a highway motor vehicle after a taxable use has been

[[Page 26]]

made. Thus, if a taxable use is made of a highway motor vehicle at any 
time in a taxable period, the tax is imposed on the use of such vehicle 
for such taxable period, computed from the first day of the month in 
which such taxable use occurred, even though at some time in the same 
taxable period, before or after such taxable use occurred, the use of 
the vehicle may have been, or may be, exempt. For example, if a highway 
motor vehicle is operated exclusively by a State in the period July 1 
through September 10 of a taxable period, use of such vehicle in such 
period is exempt from the tax. However, if a taxable use of the vehicle 
is made on September 11 of such taxable period, the tax imposed on the 
use of such vehicle for such taxable period is computed from September 
1. On the other hand, if a taxable use of the vehicle is made at any 
time in July of the taxable period, the tax imposed on the use of such 
vehicle for such taxable period is computed from July 1, even though the 
vehicle may be operated exclusively by a State in every other month of 
such period.

[T.D. 6743, 29 FR 7931, June 23, 1964. Redesignated by T.D. 8027, 50 FR 
21248, May 23, 1985]



Sec. 41.4483-6  Reduction in tax for trucks used in logging.

    (a) In general. The tax imposed by section 4481 shall be reduced by 
25 percent in the case of a truck used in logging.
    (b) Truck used in logging. The term ``truck used in logging'' means 
any highway motor vehicle which--
    (1) Is used exclusively during the taxable period for the 
transportation, to and from a point located on a forested site, of 
products harvested from such forested site, and
    (2) Is registered (under the laws of the State or States in which 
such vehicle is required to be registered) as a highway motor vehicle 
used exclusively in the transportation of harvested forest products.

Products harvested from the forested site may include timber which has 
been processed for commercial use by sawing into lumber, chipping or 
other milling operations if such processing occurs prior to 
transportation from the forested site. A vehicle will be considered to 
be registered under the laws of a state as a highway motor vehicle used 
exclusively in the transportation of harvested forest products if such 
vehicle is so registered under a state statute or legally valid 
regulations. In addition, no special tag or license plate identifying a 
vehicle as being used in the transportation of harvested forest products 
is required.

[T.D. 8027, 50 FR 21250, May 23, 1985]



Sec. 41.4483-7  Reduction in tax for vehicles registered in a contiguous foreign country.

    (a) In general. In the case of a highway motor vehicle that, for any 
taxable period, has a base for registration purposes in a contiguous 
foreign country, the tax imposed by section 4481 for such taxable period 
shall be 75 percent of the tax that would be imposed but for this 
section. A highway motor vehicle has a base for registration purposes in 
a contiguous foreign country in any taxable period in which such vehicle 
is registered under the laws of a contiguous foreign country and such 
vehicle is not registered under the laws of any of the United States 
other than proportionately registered under a proration agreement (such 
as the International Registration Plan). A highway motor vehicle is not 
considered to have a base for registration purposes in a contiguous 
foreign country in any taxable period in which such vehicle is 
registered under the laws of any of the United States and such State is 
required under Sec. 41.6001-2(b) to receive proof of payment of the tax 
imposed by section 4481(a) with respect to such highway motor vehicle. 
For purposes of this paragraph (a), a highway motor vehicle that is 
allowed to operate in a State under a reciprocity agreement is not 
considered to be registered under the laws of that State.
    (b) Contiguous foreign country. The term ``contiguous foreign 
country'' means Canada or Mexico.

[T.D. 8159, 52 FR 33584, Sept. 4, 1987, as amended by T.D. 8177, 53 FR 
6626, Mar. 2, 1988]

[[Page 27]]



Subpart C_Administrative Provisions of Special Application to Tax On Use 
                    of Certain Highway Motor Vehicles



Sec. 41.6001-1  Records.

    (a) Records to be kept. Every person in whose name a highway motor 
vehicle having a taxable gross weight of at least 55,000 pounds is 
registered or required to be registered at any time during the taxable 
period shall keep records sufficient to enable the district director to 
determine whether such person is liable for the tax and, if so, the 
amount thereof. See Sec. 41.4482(b)-1 for the definition of taxable 
gross weight. Such records shall show with respect to each such vehicle:
    (1) A description of the vehicle (including serial number or 
manufacturer's number) in sufficient detail to permit positive 
identification of the vehicle.
    (2) The weight of the loads carried by the vehicle in such form as 
is required under the laws of any State in which the vehicle is 
registered or required to be registered, in order to permit verification 
of such vehicle's taxable gross weight.
    (3) In the case of any such vehicle acquired after June 30, 1956, 
the date on which such person acquired such vehicle and the name and 
address of the person from whom the vehicle was acquired.
    (4) The first month of each taxable period in which occurred a 
taxable use of each such vehicle while the vehicle was registered in the 
name of such person; information showing whether such vehicle was 
operated, while registered in the name of such person, in any prior 
month in such taxable period; and if such vehicle was so operated, 
evidence establishing that such operation was not a taxable use.
    (5) The date of sale or other transfer to another of any such 
vehicle, together with the name and address of the person to whom 
transferred.
    (6) In the case of any such vehicle disposed of otherwise than by 
sale or other transfer (including disposition by theft or destruction), 
the date and method of disposition of the vehicle.
    (7) In the case of a secondhand highway motor vehicle acquired at 
any time in the taxable period, evidence showing whether there was a 
prior taxable use in such taxable period of the highway motor vehicle 
(see paragraph (b) of Sec. 41.4481-2) or whether there was a suspension 
of tax in effect (see Sec. 41.4483-3).
    (8) A copy of each return, schedule, statement, or other document 
filed, pursuant to the regulations in this part or in accordance with 
the instructions applicable to any form prescribed thereunder, by the 
person required to keep such records.
    (b) Transit systems. Every person engaged in the operation of a 
transit system who claims exemption from tax with respect to a transit-
type bus shall keep records sufficient to show, with respect to each 
taxable period, whether it meets the 60-percent passenger fare revenue 
test (see paragraph (e) of Sec. 41.4483-2) for the period prescribed as 
the test period (see paragraph (c) of Sec. 41.4483-2) for such system 
for such taxable period.
    (c) Exemption for vehicles used 5,000 miles or less. The owner of a 
highway motor vehicle who reasonably expects the vehicle to be exempt 
from the tax under section 4481(a) by reason of Sec. 41.4483-3(c) for a 
given taxable period shall keep records which indicate the reason that 
the use of the vehicle is not expected to exceed 5,000 miles on public 
highways.
    (d) Records of claimants. Any person claiming refund, credit, or 
abatement of the tax, interest, additional amount, addition to the tax, 
or assessable penalty, shall keep a complete and detailed record with 
respect to the claim.
    (e) Place and period for keeping records. (1) All records required 
by the regulations in this part shall be kept, by the person required to 
keep them, at a convenient and safe location within the United States 
which is accessible to internal revenue officers. Such records shall at 
all times be available for inspection by such officers. If such person 
has a principal place of business in the United States, the records 
shall be kept at such place of business.
    (2) Records required by paragraph (a) of this section shall be 
maintained for a period of at least 3 years after the date the tax 
becomes due or the date the tax is paid, whichever is the later.

[[Page 28]]

Records required by paragraphs (b) and (c) of this section shall be 
maintained for a period of at least 3 years after the end of the taxable 
period for which such exemption applies. Records required by paragraph 
(d) of this section (including any record required by paragraphs (a), 
(b), or (c) of this section which relates to a claim) shall be 
maintained for a period of at least 3 years after the date the claim is 
filed.

[T.D. 6216, 21 FR 9645, Dec. 6, 1956, as amended by T.D. 6743, 29 FR 
7932, June 23, 1964; T.D. 8027, 50 FR 21250, May 23, 1985; T.D. 8879, 65 
FR 17154, Mar. 31, 2000]



Sec. 41.6001-2  Proof of payment for State registration purposes.

    (a) In general. This section sets forth the circumstances under 
which a State must require proof of payment of the tax imposed by 
section 4481(a), and the required manner in which such proof of payment 
is to be received by the State as a condition of issuing a registration 
for a highway motor vehicle. A State must either comply with the 
provisions of this section or, in the alternative, comply with such 
other rules regarding the satisfaction of this proof of payment 
requirement as may be prescribed by the Commissioner (by Revenue 
Procedure or otherwise), in order to avoid a reduction of Federal-aid 
highway funds apportioned under 23 U.S.C. 104(b)(4). The rules of this 
section apply to highway motor vehicles for which applications for 
registration are received by a State on or after October 1, 1985. For 
purposes of this section, an application for registration which is 
mailed will be considered to be received by a State on the date on which 
it is postmarked.
    (b) Proof of payment required--(1) In general. A State to which an 
application is made to register a highway motor vehicle must receive 
from the registrant proof of payment of the tax imposed by section 
4481(a) (or proof of suspension of such tax under Sec. 41.4483-3) 
unless otherwise provided in this paragraph (b)(1), or paragraph (b)(2) 
or (5) of this section. See paragraph (c) of this section for the 
meaning of ``proof of payment''. Such proof of payment must be received 
by the State before the State issues a registration for such vehicle 
unless the State is using a system of registration provided in paragraph 
(b)(3) of this section. The term ``proof of payment'', when used in this 
section, shall be considered to refer in appropriate cases to proof of 
suspension of the tax imposed by section 4481(a). Except as provided in 
paragraph (b)(4) of this section, any proof of payment presented to a 
State must relate to tax paid (or suspended under Sec. 41.4483-3) for 
the taxable period which includes the date that the State receives the 
application for registration. A ``base state'' must be presented proof 
of payment when issuing an ``apportioned plate'' under the International 
Registration Plan (IRP) (or similar agreement) for a highway motor 
vehicle, but no proof of payment of the tax imposed by section 4481(a) 
is required to be presented to the other states for which the vehicle is 
proportionally registered and which are listed on the IRP cab card 
issued by the base state. Further, a State is not required to receive 
proof of payment in order to issue special temporary travel permits 
which allow a vehicle to, (i) operate in a State in which the vehicle is 
not registered (including proportional or prorate registration), (ii) 
operate at more than the State's maximum statutory weight limit, or 
(iii) operate at more than the weight that the vehicle is registered in 
a State. Further, a State may register a highway motor vehicle without 
proof of payment if the person registering the vehicle presents the 
original or a photocopy of a bill of sale (or other document evidencing 
transfer) indicating that the vehicle was purchased by the owner either 
as a new or used vehicle during the preceding 60 days before the date 
that the State receives the application for registration of such 
vehicle.
    (2) States required to receive proof of payment with respect to 
vehicles subject to tax--(i) Registration in States that register 
vehicles on the basis of gross weight. A State that registers vehicles 
on the basis of gross weight must require proof of payment with respect 
to any highway motor vehicle that has a declared gross weight in that 
State of 55,000 pounds or more. If no declaration of a specific gross 
weight is made with respect to a highway motor vehicle registered on the 
basis of gross weight, then the State must require proof of

[[Page 29]]

payment with respect to such vehicle if the minimum weight of the 
registered weight category for such vehicle is 55,000 pounds or more. No 
such proof of payment is required for any vehicle that does not have a 
declared gross weight in that State of 55,000 pounds or more.
    (ii) Registration in States that register vehicles other than on the 
basis of gross weight. A State that registers vehicles other than on the 
basis of gross weight must require proof of payment in order to register 
a highway motor vehicle unless the State receives a written statement 
stating that during the taxable period which includes the date on which 
the State receives the application for registration, such vehicle had a 
taxable gross weight of less than 55,000 pounds. The written statement 
must state the number of vehicles being registered that have a taxable 
gross weight of less than 55,000 pounds and must be signed by the person 
registering the vehicles. A State may register a highway motor vehicle 
without receiving either proof of payment or a written statement as 
described above if such vehicle has an unladen weight of 8,000 pounds or 
less. However, the State must require proof of payment when issuing a 
``base plate'' registration for a vehicle if a gross weight declaration 
of 55,000 pounds or more is made to the State with respect to such 
vehicle in order to proportionally register the vehicle in another State 
under the IRP.
    (iii) State may require additional proof. Nothing contained in this 
section shall prohibit a State from refusing to register a highway motor 
vehicle without additional proof that the vehicle is not subject to tax 
under section 4481(a) even though the person registering the vehicle 
submits a written statement declaring that the taxable gross weight of 
such vehicle is less than 55,000 pounds.
    (3) Suspension registration system. A State may issue a registration 
with respect to any or all highway motor vehicles subject to tax under 
section 4481(a) without receiving proof of payment if such vehicles are 
registered under a ``suspension'' registration system. Registration of a 
vehicle subject to tax under a suspension system must be on the 
condition that, (i) the State receive proof of payment with respect to 
such vehicle no later than 4 months (or any lesser time to be determined 
by the State) after the beginning of the vehicle's registration period, 
and (ii) the State's system provides for the automatic suspension (e.g. 
through the use of computer-generated notices) of such vehicle's 
registration if no proof of payment is received within the required 
time. Following such a suspension of registration, the State must not 
allow the vehicle to be registered until valid proof of payment is 
received. A State may either register all vehicles subject to tax under 
section 4481(a) in the manner described in this paragraph (b)(3) or 
adopt this manner of registration only in situations which the State 
deems appropriate. A State that registers vehicles other than on the 
basis of gross weight may also register vehicles not subject to tax 
under a suspension registration system for purposes of receiving the 
written statement described in paragraph (b)(2)(ii).
    (4) Registration during certain months. In the case of a highway 
motor vehicle subject to tax under section 4481(a) for which a State 
receives an application for registration during the months of July, 
August or September, proof of payment for the immediately preceding 
taxable period may be used to verify payment of the tax imposed by 
section 4481(a).
    (5) Registration in a State several times during the taxable period. 
A State is required to receive proof of payment with respect to a 
highway motor vehicle subject to tax under section 4481(a) only once 
during a taxable period. Thus, in the case of a State that allows a 
highway motor vehicle to be registered on a quarterly basis, rather than 
annually, proof of payment will be required to be presented to the State 
only once during the taxable period. The State may designate any one of 
the four quarterly registration periods as the time for submitting proof 
of payment.
    (6) Proof of payment records. See 23 CFR part 669 for a description 
of the supporting documentation and records that will be required by the 
Federal Highway Administration (FHWA) in order to allow the FHWA to 
verify that

[[Page 30]]

the State is in compliance with the rules of this section.
    (c) Proof of payment--(1) In general. (i) The proof of payment 
required in paragraph (b) of this section shall consist of a receipted 
Schedule 1 (Form 2290) that is returned by the Internal Revenue Service 
to a taxpayer who files a return of tax under section 4481(a) and pays 
the amount of tax (or installment thereof) due with such return. A 
photocopy of such receipted Schedule 1 shall also serve as proof of 
payment. Such Schedule 1 shall serve as proof of suspension of such tax 
under Sec. 41.4483-3 for the number of vehicles entered in that part of 
the Schedule 1 designated for vehicles for which tax has been suspended. 
Except as provided in paragraph (c)(1)(ii) of this section, the vehicle 
identification number of the vehicle being registered must appear on the 
Schedule 1 (or an attached page) in order for the Schedule 1 to be a 
valid proof of payment for such vehicle.
    (ii) With respect to taxable periods beginning before July 1, 2000, 
if a receipted Schedule 1 is submitted as proof of payment for the 
registration of one or more highway motor vehicles and--
    (A)(1) The total of the number of vehicles on such Schedule 1 for 
which tax has not been suspended under Sec. 41.4483-3 exceeds 21, or
    (2) The total of the number of vehicles on such Schedule 1 for which 
tax has been suspended under Sec. 41.4483-3 exceeds 9, and
    (B) The name of the taxpayer appearing on such Schedule 1 is one of 
the names in which such vehicles are sought to be registered,

such Schedule 1 shall be accepted as proof of payment in support of the 
registration of a number of vehicles equal to or less than such total 
and a list of the vehicles (or their vehicle identification numbers) is 
not required as part of such proof of payment.
    (iii) With respect to taxable periods beginning before July 1, 2000, 
if a Schedule 1 which does not include a list of vehicle identification 
numbers is submitted as proof of payment for the registration of one or 
more highway motor vehicles and the name of the taxpayer appearing on 
such Schedule 1 is not one of the names in which such vehicles are 
sought to be registered then such Schedule 1 shall be accepted as proof 
of payment in support of the registration of a number of vehicles equal 
to or less than the total number of vehicles on such Schedule 1 provided 
the Schedule 1 is accompanied by a written statement executed by the 
taxpayer. Such written statement shall contain the vehicle 
identification numbers of the vehicles sought to be registered and a 
statement that the tax under section 4481(a) has been paid with respect 
to such vehicles for the taxable period. The statement must be signed by 
the taxpayer whose name appears on the Schedule 1.
    (2) Acceptable substitute for receipted Schedule 1. For purposes of 
this section, a State shall accept as proof of payment a photocopy of 
the Form 2290 (with the Schedule 1 attached) which was filed with the 
Internal Revenue Service for the vehicle being registered with 
sufficient documentation of payment of tax due at the time the Form 2290 
was filed (such as a photocopy of both sides of a cancelled check). This 
substitute proof of payment may be used to register a vehicle when, for 
example, the receipted Schedule 1 has been lost, or when at the time 
required for registration of a vehicle, a receipted Schedule 1 has not 
been received by a taxpayer who has filed a Form 2290 with respect to 
such vehicle. The rules of paragraph (c)(1)(ii) of this section 
regarding the circumstances in which a list of vehicle identification 
numbers is not required as part of a valid proof of payment, apply to a 
non-receipted Schedule 1 received by a State with a Form 2290 as a 
substitute proof of payment under this paragraph (c)(2).
    (d) Examples. The application of this section may be illustrated by 
the following examples:

    Example (1). A applies to register a 3-axle single unit truck in 
State R, a member of the International Registration Plan, on November 1, 
1985. State R registers vehicles based on unladen weight. At the same 
time, A applies for a proportional registration under the IRP to use the 
truck in State S. State S does not register vehicles on the basis of 
unladen weight. For purposes of the proportional registration in State 
S, A declares the gross weight of his truck at 50,000 pounds. A does not 
register the truck in any

[[Page 31]]

other states. A's truck has a taxable gross weight, as determined under 
Sec. 41.4482(b)-1, of less than 55,000 pounds and therefore is not 
subject to tax under section 4481(a). A submits a written statement 
along with his application for registration in State R. The written 
statement states that A's vehicle has a taxable gross weight of less 
than 55,000 pounds and is signed by A. State R may register A's truck 
and issue a proportional registration for A to use his truck in State S 
without receiving proof of payment.
    Example (2). Assume the same facts as in example (1) except that A 
applies for proportional registration under the IRP in State S and 
declares the truck to have a gross weight of 60,000 pounds. The taxable 
gross weight of A's truck, as determined under Sec. 41.4482(b)-1 is 
60,000 pounds. State R may not register A's truck unless it receives 
proof of payment within the meaning of paragraph (c) of this section.
    Example (3). On October 10, 1985, C applies to register 9 vehicles 
in State U and declares the gross weight of each vehicle to be 70,000 
pounds. C has not applied for registration in any other states. At the 
time of applying for registration, C presents a photocopy of a receipted 
Schedule 1 (Form 2290) that shows a total of 9 vehicles which are 
subject to tax under section 4481(a) and for which tax is not suspended 
under Sec. 41.4483-3(a). The vehicle identification numbers of the 
vehicles that C is seeking to register must be listed on the Schedule 1 
in order for State U to register the vehicles.


[T.D. 8027, 50 FR 21251, May 23, 1985, as amended by T.D. 8879, 65 FR 
17154, Mar. 31, 2000]



Sec. 41.6001-3  Proof of payment for entry into the United States.

    (a) In general. (1) Except as otherwise provided in paragraph (a)(2) 
of this section, proof of payment of the tax imposed by section 4481(a) 
must be presented to United States Customs officials with respect to any 
highway motor vehicle subject to the tax imposed by section 4481(a) that 
has a base for registration purposes in a contiguous foreign country 
upon entry of such vehicle into the United States during any taxable 
period to which this section applies. Such proof of payment must relate 
to tax paid (or suspended under Sec. 41.4483-3) for the taxable period 
that includes the date of entry into the United States. See paragraph 
(c) of this section for the definition of the term ``proof of payment.''
    (2) No proof of payment is required upon entry of a highway motor 
vehicle described in paragraph (a)(1) of this section into the United 
States if, as of the date of such entry, the period of time for filing a 
return of the tax imposed on such vehicle by section 4481(a) for the 
taxable period that includes the date of such entry has not expired and 
a written declaration is presented to United States Customs officials. 
Such declaration must state that, as of the date of such entry, the 
period of time for filing a return of the tax imposed on such vehicle by 
section 4481(a) for the taxable period that includes the date of such 
entry has not expired. The written declaration must include (i) the 
name, address, and taxpayer identification number of the person liable 
under Sec. 41.4481-2 for the tax imposed on such vehicle; (ii) the 
vehicle identification number of such vehicle; (iii) the date on which 
such vehicle was first used on the public highways in the United States 
during the taxable period (or a statement that the current entry is the 
first use on the public highways in the United States during the taxable 
period); (iv) an acknowledgment by the person liable for the tax imposed 
on such vehicle that the willful use of the declaration to evade or 
defeat the tax otherwise applicable under section 4481(a) will subject 
such person to a fine or imprisonment or both; and (v) the signature of 
the person liable for the tax imposed on such vehicle. A copy of the 
written declaration shall be retained in the records of the person 
liable for the tax imposed on such vehicle under the rules of Sec. 
41.6001-1. See Sec. 41.6071(a)-1 for rules regarding the time for 
filing a return of the tax imposed by section 4481(a).
    (b) Failure to provide proof of payment. If, upon attempting to 
enter the United States, the operator of a highway motor vehicle 
described in paragraph (a) of this section is unable to present proof of 
payment of the tax imposed by section 4481(a), or documentation 
described in paragraph (a)(2) of this section, with respect to such 
vehicle, then such vehicle may be denied entry into the United States.
    (c) Proof of payment--(1) In general. For purposes of this section, 
the proof of payment required in paragraph (a) of this section shall 
consist of a receipted Schedule 1 (Form 2290) that is returned

[[Page 32]]

by the Internal Revenue Service to a taxpayer that files a return of tax 
under section 4481(a) and pays the amount of tax (or installment 
thereof) due with such return. A photocopy of such receipted Schedule 1 
shall also serve as proof of payment. Such proof of payment shall also 
serve as proof or suspension of the tax under Sec. 41.4483-3 for the 
number of vehicles entered in that part of the Schedule 1 designated for 
vehicles for which tax has been suspended. The vehicle identification 
number of any vehicle for which a return is being filed, whether tax is 
being paid with respect to such vehicle or tax is suspended on such 
vehicle, must appear on the Schedule 1 (or an attached page) in order 
for the Schedule 1 to be a valid proof of payment for such vehicle.
    (2) Acceptable substitute for receipted Schedule 1. For purposes of 
this section, a photocopy of the Form 2290 (with the Schedule 1 
attached) that is filed with the Internal Revenue Service for a vehicle 
being entered into the United States with sufficient documentation of 
payment of tax due at the time the Form 2290 is filed (such as a 
photocopy of both sides of a cancelled check) shall be accepted as proof 
of payment. No documentation of payment of tax is required with the 
substitute proof of payment if at the time the Form 2290 is filed the 
tax imposed by section 4481(a) is suspended under Sec. 41.4483-3 with 
respect to the vehicle entering the United States. This substitute proof 
of payment may be used to enter a vehicle into the United States when, 
for example, the receipted Schedule 1 has been lost, or if the taxpayer 
that filed a Form 2290 with respect to such vehicle has not received a 
receipted Schedule 1 at the time such vehicle enters the United States.
    (d) Taxable periods to which this section applies. This section 
shall apply to any taxable period beginning on or after July 1, 1987.

[T.D. 8159, 52 FR 33585, Sept. 4, 1987, as amended by T.D. 8177, 53 FR 
6626, Mar. 2, 1988]



Sec. 41.6011(a)-1  Returns.

    (a) In general. (1) A person that is liable for tax under Sec. 
41.4481-2(a)(1)(i)(A), (B), or (C) must file a return for the taxable 
period with respect to the tax imposed by section 4481.
    (2) A person that is liable for tax under Sec. 41.4481-
2(a)(1)(i)(D) must file a return for a taxable period with respect to 
the tax imposed by section 4481 if the Commissioner notifies the person 
that the tax for the taxable period has not been paid in full.
    (3) A transferee of a vehicle that receives a statement described in 
the first sentence of Sec. 41.4483-3(f) must file a return with the 
statement attached.
    (b) Form 2290. The return required under paragraph (a) of this 
section is Form 2290, ``Heavy Highway Vehicle Use Tax Return,'' or such 
other return as the Commissioner may prescribe. The return is made in 
accordance with the instructions applicable to the form.

[T.D. 8879, 65 FR 17154, Mar. 31, 2000]



Sec. 41.6060-1  Reporting requirements for tax return preparers.

    (a) In general. A person that employs one or more tax return 
preparers to prepare a return or claim for refund of excise tax under 
section 4481, other than for the person, at any time during a return 
period, shall satisfy the record keeping and inspection requirements in 
the manner stated in Sec. 1.6060-1 of this chapter.
    (b) Effective/applicability date. This section is applicable for 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78455, Dec. 22, 2008]



Sec. 41.6071(a)-1  Time for filing returns.

    (a) In general. Except as provided in paragraph (b) of this section, 
a return described in Sec. 41.6011(a)-1 must be filed by the last day 
of the month following the month in which--
    (1) A person becomes liable for tax under Sec. 41.4481-
2(a)(1)(i)(A), (B), or (C);
    (2) A person that is liable for tax under Sec. 41.4481-
2(a)(1)(i)(D) is notified by the Commissioner that the tax has not been 
paid in full; or
    (3) A transferee described in Sec. 41.4483-3(f) acquires the 
vehicle.
    (b) Certain transit-type buses. In the case of any bus of the 
transit type, the first taxable use of which in any taxable period 
occurs prior to the close of the test period (see paragraph (c) of

[[Page 33]]

Sec. 41.4483-2) with reference to which liability for the tax on the 
use of such transit-type bus for such taxable period is determined, the 
person in whose name the bus is registered at the time of such use 
shall, after such test period and on or before the last day of the 
following month make a return of such tax for such taxable period on the 
use of such transit-type bus.

[T.D. 6216, 21 FR 9645, Dec. 6, 1956, as amended by T.D. 6743, 29 FR 
7932, June 23, 1964; T.D. 8879, 65 FR 17155, Mar. 31, 2000]



Sec. 41.6091-1  Place for filing returns.

    (a) In general. Except as provided in paragraph (b) of this section, 
returns must be filed in accordance with the instructions applicable to 
the form on which the return is made.
    (b) Hand-carried returns--(1) Persons other than corporations. 
Returns of persons other than corporations that are filed by hand 
carrying must be filed with any person assigned the responsibility to 
receive hand-carried returns in the local Internal Revenue Service 
office that serves the principal place of business or legal residence of 
the person.
    (2) Corporations. Returns of corporations that are filed by hand 
carrying must be filed with any person assigned the responsibility to 
receive hand-carried returns in the local Internal Revenue Service 
office that servesthe principal place of business or principal office or 
agency of the corporation.

[T.D. 8879, 65 FR 17155, Mar. 31, 2000, as amended by T.D. 9156, 69 FR 
55746, Sept. 16, 2004]



Sec. 41.6101-1  Period covered by returns.

    Each return is for a taxable period as defined in section 4482.

[T.D. 8879, 65 FR 17155, Mar. 31, 2000]



Sec. 41.6107-1  Tax return preparer must furnish copy of return to taxpayer

and must retain a copy or record.

    (a) In general. A person who is a signing tax return preparer of any 
return or claim for refund of excise tax under section 4481 shall 
furnish a completed copy of the return or claim for refund to the 
taxpayer and retain a completed copy or record in the manner stated in 
Sec. 1.6107-1 of this chapter.
    (b) Effective/applicability date. This section is applicable for 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78455, Dec. 22, 2008]



Sec. 41.6109-1  Identifying numbers.

    Every person required under Sec. 41.6011(a)-1 to make a return must 
provide the identifying number required by the instructions to the form 
on which the return is made.

[T.D. 8879, 65 FR 17155, Mar. 31, 2000]



Sec. 41.6109-2  Tax return preparers furnishing identifying numbers 

for returns or claims for refund filed after December 31, 2008.

    (a) In general. Each excise tax return or claim for refund under 
section 4481 prepared by one or more signing tax return preparers must 
include the identifying number of the preparer required by Sec. 1.6695-
1(b) of this chapter to sign the return or claim for refund in the 
manner stated in Sec. 1.6109-2 of this chapter.
    (b) Effective/applicability date. This section is applicable for 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78455, Dec. 22, 2008]



Sec. 41.6151(a)-1  Time and place for paying tax.

    The tax must be paid at the time prescribed in Sec. 41.6071(a)-1 
for filing the return and at the place prescribed in Sec. 41.6091-1 for 
filing the return.

[T.D. 8879, 65 FR 17155, Mar. 31, 2000]



Sec. 41.6156-1  Installment payments of tax on use of highway motor vehicle.

    (a) Privilege to pay tax in installments. Except as provided in 
paragraph (f) of this section, the liability shown on each return on 
Form 2290 may be paid in equal installments, rather than by a single 
payment if the return is timely filed and the person filing the return 
elects in the return, in accordance with the instructions contained 
therein, to pay the tax in installments. For the tax liabilities of the 
parties to a transfer, where a vehicle has been transferred during the 
taxable period and

[[Page 34]]

there has been an election to pay tax in installments, see Sec. 
41.4481-2.
    (b) Dates for paying installments. In the case of any tax payable in 
installments by reason of the election described in paragraph (a) of 
this section, the installments must be paid in accordance with the 
following table:

----------------------------------------------------------------------------------------------------------------
                                   1st install-ment                                            4th install-ment
  If the liability was incurred      is due on or     2d install-ment is  3d install-ment is     is due on or
              in--                  before the last    due on or before    due on or before     before the last
                                       day of--        the last day of--   the last day of--       day of--
----------------------------------------------------------------------------------------------------------------
July............................  Aug...............  Dec...............  Mar...............  June
Aug.............................  Sept..............  ......do..........  ......do..........  Do.
Sept............................  Oct...............  ......do..........  ......do..........  Do.
Oct.............................  Nov...............  Mar...............  June..............
Nov.............................  Dec...............  ......do..........  ......do..........
Dec.............................  Jan...............  ......do..........  ......do..........
Jan.............................  Feb...............  June..............
Feb.............................  Mar...............  ......do..........
Mar.............................  Apr...............  ......do..........
----------------------------------------------------------------------------------------------------------------

    (c) Proration of additional tax to installments. If an election has 
been made under paragraph (a) of this section to pay the tax imposed by 
section 4481 in installments, and additional tax is assessed on a return 
for such tax before the date prescribed for payment of the last 
installment, the additional tax shall be prorated equally to all the 
installments, whether paid or unpaid. That part of the additional tax so 
prorated to any installment which is not yet due shall be collected at 
the same time and as part of such installment. The part of the 
additional tax so prorated to any installment, the date for payment of 
which has arrived, shall be paid upon notice and demand from the 
district director.
    (d) Acceleration of payment. If any person elects under the 
provisions of this section to pay the tax in installments, any 
installment may be paid prior to the date prescribed for its payment. If 
an installment is not paid in full on or before the date fixed for its 
payment, the whole amount of the unpaid tax shall be paid upon notice 
and demand from the district director.
    (e) Interest in respect of installment payments. Interest on an 
underpayment of an installment accrues from the due date for the 
installment. Where the installment privilege has been terminated and the 
time for payment of remaining installments has been accelerated by the 
issuance of a notice and demand, interest on these installments accrues 
from the date of such notice and demand. Interest on additional tax 
prorated as described in paragraph (c) of this section accrues from the 
date prescribed for the payment of the first installment. For provisions 
generally applicable to interest on delinquent taxes and installment 
payments, see section 6601 and Sec. 301.6601-1 of this chapter 
(Regulations on Procedure and Administration).
    (f) Liabilities to which election does not apply. The privilege to 
pay tax in installments provided by section 6156, shall not apply to any 
liability for tax incurred in
    (1) Any taxable period ending prior to July 1, 1961, and
    (2) April, May, or June of any taxable period one year in length, or
    (3) July, August, or September of a taxable period less than one 
year in length.
    (g) Cross references. For provisions relating to overpayment of 
installments, see Sec. 301.6403-1 of this chapter (Regulations on 
Procedure and Administration).

[T.D. 7409, 41 FR 9877, Mar. 8, 1976, as amended by T.D. 7505, 42 FR 
42856, Aug. 25, 1977]



Sec. 41.6694-1  Section 6694 penalties applicable to tax return preparer.

    (a) In general. For general definitions regarding section 6694 
penalties applicable to preparers of tax returns or claims for refund, 
see Sec. 1.6694-1 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78455, Dec. 22, 2008]



Sec. 41.6694-2  Penalties for understatement due to an unreasonable position.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of excise tax under section 4481 shall be subject to 
penalties under section 6694(a) in the manner stated in Sec. 1.6694-2 
of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78456, Dec. 22, 2008]

[[Page 35]]



Sec. 41.6694-3  Penalty for understatement due to willful, reckless, or intentional conduct.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of excise tax under section 4481 shall be subject to 
penalties under section 6694(b) in the manner stated in Sec. 1.6694-3 
of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78456, Dec. 22, 2008]



Sec. 41.6694-4  Extension of period of collection when preparer pays 15 

percent of a penalty for understatement of taxpayer's liability and certain other 
          procedural matters.

    (a) In general. For rules relating to the extension of period of 
collection when a tax return preparer who prepared a return or claim for 
refund for excise tax under section 4481 pays 15 percent of a penalty 
for understatement of taxpayer's liability, and procedural matters 
relating to the investigation, assessment and collection of the 
penalties under section 6694(a) and (b), the rules under Sec. 1.6694-4 
of this chapter will apply.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78456, Dec. 22, 2008]



Sec. 41.6695-1  Other assessable penalties with respect to the preparation 

of tax returns for other persons.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of excise tax under section 4481 of the Internal 
Revenue Code (Code) shall be subject to penalties for failure to furnish 
a copy to the taxpayer under section 6695(a) of the Code, failure to 
sign a return under section 6695(b) of the Code, failure to furnish an 
identification number under section 6695(c) of the Code, failure to 
retain a copy or list under section 6695(d) of the Code, failure to file 
a correct information return under section 6695(e) of the Code, and 
negotiation of a check under section 6695(f) of the Code, in the manner 
stated in Sec. 6695-1 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78456, Dec. 22, 2008; 74 FR 5106, Jan. 29, 2009]



Sec. 41.6696-1  Claims for credit or refund by tax return preparers.

    (a) In general. For rules for claims for credit or refund by a tax 
return preparer who prepared a return or claim for refund for excise tax 
under section 4481, the rules under Sec. 1.6696-1 of this chapter will 
apply.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78456, Dec. 22, 2008]



Sec. 41.7701-1  Tax return preparer.

    (a) In general. For the definition of a tax return preparer, see 
Sec. 301.7701-15 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78456, Dec. 22, 2008]



PART 43_EXCISE TAX ON TRANSPORTATION BY WATER--Table of Contents



Sec.
43.0-1 Introduction.
43.4471-1 Imposition of tax.
43.4472-1 Definitions.

    Authority: 26 U.S.C. 7805.

    Source: T.D. 8314, 55 FR 41520, Oct. 12, 1990, unless otherwise 
noted.



Sec. 43.0-1  Introduction.

    The regulations in this part 43 are designated ``Excise Tax on 
Transportation by Water.'' The regulations relate to the taxes on 
transportation by water imposed by section 4471 of the Internal Revenue 
Code. See part 40 of this chapter for regulations relating to returns, 
payments, and deposits of taxes imposed by section 4471.

[T.D. 8442, 57 FR 48185, Oct. 22, 1992]

[[Page 36]]



Sec. 43.4471-1  Imposition of tax.

    (a) In general. Section 4471 imposes a tax of $3 per passenger on a 
covered voyage as is defined in section 4472.
    (b) By whom paid. The tax is imposed on the person providing the 
covered voyage (the operator of the vessel).

[T.D. 8314, 55 FR 41520, Oct. 12, 1990. Redesignated by T.D. 8422, 57 FR 
33636, July 30, 1992]



Sec. 43.4472-1  Definitions.

    (a) In general. For definitions of the terms ``covered voyage'' and 
``passenger vessel,'' see sections 4472 (1) and (2).
    (b) Voyage. For purposes of this section, ``voyage'' means a journey 
of a vessel that includes the outward and homeward trips or passages. 
The voyage commences when the vessel begins to load passengers and 
continues during the entire ensuing period until the vessel has made one 
outward and one homeward passage (including intermediate passages, if 
made). A voyage may be a covered voyage with respect to a passenger even 
if the passenger does not make both an outward and homeward passage or 
if the point of first embarkation or disembarkation by the passenger in 
the United States is an intermediate stop of the vessel.
    (c) Over 1 or more nights. A voyage is considered to extend over 1 
or more nights if it extends for more than 24 hours.
    (d) Engaged in gambling. A passenger is engaged in gambling aboard a 
vessel if that person is participating as a player in any policy game or 
other lottery, or any other game of chance, for money or other thing of 
value, provided that the policy game, other lottery, or game of chance 
is conducted, sponsored, or operated by the owner or operator of the 
vessel, as either principal or agent, or by an employee, agent, or 
franchisee of the owner or operator of the vessel. A passenger is not 
engaged in gambling aboard a vessel if the passenger participates with 
other passengers in a casual, ``friendly'' game of chance that is not 
conducted, sponsored, or operated by the owner or operator of the vessel 
or by an employee, agent, or franchisee of the owner or operator.
    (e) Territorial waters. For purposes of sections 4471 and 4472, the 
territorial waters of the United States are those waters within the 
international boundary line between the United States and any contiguous 
foreign country or within 3 nautical miles (3.45 statute miles) from low 
tide on the coastline. No inference is intended as to the extent of the 
territorial limits for other tax purposes.
    (f) Passenger. For purposes of sections 4471 and 4472, ``passenger'' 
means an individual carried on the vessel except--
    (1) The Master; or
    (2) A crew member or other individual engaged in the business of the 
vessel or its owners. A person is engaged in the business of the vessel 
or its owners if the person is an employee of the vessel or her owners 
or has a duty, contractual or otherwise, to perform on the vessel on 
behalf of the vessel or its owners. For example, a person engaged as an 
entertainer, instructor, or lecturer for the benefit of the passengers 
is not a passenger, but a person on a promotional trip such as a travel 
agent or contest winner is a passenger even though the vessel or its 
owners may derive some future benefit from the promotion.

[T.D. 8422, 57 FR 33636, July 30, 1992; 57 FR 45713, Oct. 5, 1992]



PART 44_TAXES ON WAGERING; EFFECTIVE JANUARY 1, 1955--Table of Contents



                         Subpart A_Introduction

Sec.
44.0-1 Introduction.
44.0-2 General definitions and use of terms.
44.0-3 Scope of regulations.
44.0-4 Extent to which the regulations in this part supersede prior 
          regulations.

                         Subpart B_Tax on Wagers

44.4401-1 Imposition of tax.
44.4401-2 Person liable for tax.
44.4401-3 When tax attaches.
44.4402-1 Exemptions.
44.4403-1 Daily record.
44.4404-1 Territorial extent.

                       Subpart C_Occupational Tax

44.4411-1 Imposition of tax.
44.4412-1 Registration.

[[Page 37]]

44.4413-1 Certain provisions made applicable.

 Subpart D_Miscellaneous and General Provisions Applicable to Taxes on 
                                Wagering

                        Miscellaneous Provisions

44.4421-1 Definitions.
44.4422-1 Doing business in violation of Federal or State law.

            General Provisions Relating to Occupational Taxes

44.4901-1 Payment of special tax.
44.4902-1 Partnership liability.
44.4905-1 Change of ownership.
44.4905-2 Change of address.
44.4905-3 Liability for failure to register change or removal.
44.4906-1 Cross reference.

Subpart E_Administrative Provisions of Special Application to the Taxes 
                               on Wagering

44.6001-1 Record requirements.
44.6011(a)-1 Returns.
44.6060-1 Reporting requirements for tax return preparers.
44.6071-1 Time for filing return.
44.6091-1 Place for filing returns.
44.6107-1 Tax return preparer must furnish copy of return to taxpayer 
          and must retain a copy or record.
44.6109-1 Tax return preparers furnishing identifying numbers for 
          returns or claims for refund.
44.6151-1 Time and place for paying taxes.
44.6419-1 Credit or refund generally.
44.6419-2 Credit or refund on wagers laid off by taxpayer.
44.6694-1 Section 6694 penalties applicable to tax return preparer.
44.6694-2 Penalties for understatement due to an unreasonable position.
44.6694-3 Penalty for understatement due to willful, reckless, or 
          intentional conduct.
44.6694-4 Extension of period of collection when preparer pays 15 
          percent of a penalty for understatement of taxpayer's 
          liability and certain other procedural matters.
44.6695-1 Other assessable penalties with respect to the preparation of 
          tax returns for other persons.
44.6696-1 Claims for credit or refund by tax return preparers.
44.7262-1 Failure to pay special tax.
44.7701-1 Tax return preparer.

    Authority: 26 U.S.C. 7805.
    Section 44.6060-1 also issued under 26 U.S.C. 6060(a);
    Section 44.6109-1 also issued under 26 U.S.C. 6109(a).
    Section 44.6109-2 also issued under 26 U.S.C. 6109(a);
    Section 44.6695-2 also issued under 26 U.S.C. 6695(g).

    Source: T.D. 6370, 24 FR 2614, Apr. 4, 1959, unless otherwise noted.



                         Subpart A_Introduction



Sec. 44.0-1  Introduction.

    (a) In general. The regulations in this part are designated 
``Wagering Tax Regulations.'' The regulations relate to the taxes 
imposed by Chapter 35 of the Internal Revenue Code of 1954, as amended, 
to certain general provisions of Chapter 40 of such Code, and to certain 
related administrative provisions of Subtitle F of such Code. Chapter 35 
imposes an excise tax on wagers and a special tax to be paid by each 
person liable for the tax imposed on wagers and by each person engaged 
in receiving wagers for or on behalf of any person liable for the tax 
imposed on wagers. References in these regulations to the ``Internal 
Revenue Code'' or the ``Code'' are references to the Internal Revenue 
Code of 1954, as amended, unless otherwise indicated. References to a 
section or other provision of law are references to a section or other 
provision of the Internal Revenue Code, as amended, unless otherwise 
indicated.
    (b) Division of regulations. The regulations in this part are 
divided into five subparts. Subpart A contains provisions relating to 
the arrangement and numbering of the sections of the regulations in this 
part, general definitions and use of terms, scope of the regulations, 
and the extent to which the regulations in this part supersede prior 
regulations relating to the taxes imposed by Chapter 35 of the Internal 
Revenue Code. Subpart B relates to the tax on wagers. Subpart C relates 
to the special tax. Subpart D relates to certain miscellaneous and 
general provisions having application to taxes imposed by Chapter 35. 
Subpart E relates to selected provisions of subtitle F of the Code 
(Procedure and Administration) which have special application to the 
taxes imposed by Chapter 35 of the Code.
    (c) Arrangement and numbering. Each section of the regulations in 
this

[[Page 38]]

part (other than Subpart A) is designated by a number composed of the 
part number followed by a decimal point (44.); the section of the 
Internal Revenue Code which it interprets; a hyphen (-); and a number 
identifying the section. By use of these designations one can ascertain 
the sections of the regulations relating to a provision of the Code. For 
example, the regulations pertaining to section 4401 of the Code are 
designated Sec. Sec. 41.4401-1, 41.4401-2, and 41.4401-3.

[T.D. 6370, 24 FR 2614, Apr. 4, 1959, as amended by T.D. 7665, 45 FR 
6090, Jan. 25, 1980]



Sec. 44.0-2  General definitions and use of terms.

    As used in the regulations in this part, unless otherwise expressly 
indicated:
    (a) The terms defined in the provisions of law contained in the 
regulations in this part shall have the meanings so assigned to them.
    (b) The Internal Revenue Code of 1954 means the Act approved August 
16, 1954 (68A Stat.), entitled ``An Act To revise the internal revenue 
laws of the United States'', as amended.
    (c) District director means district director of internal revenue.
    (d) The cross references in the regulations in this part to other 
portions of the regulations, when the word ``see'' is used, are made 
only for convenience and shall be given no legal effect.



Sec. 44.0-3  Scope of regulations.

    The regulations in this part apply to wagering activity on and after 
January 1, 1955.



Sec. 44.0-4  Extent to which the regulations in this part supersede prior regulations.

    The regulations in this part, with respect to the subject matter 
within the scope thereof, supersede Regulations 132, 26 CFR (1939) Part 
325.



                         Subpart B_Tax on Wagers



Sec. 44.4401-1  Imposition of tax.

    (a) In general. Section 4401 imposes a tax on all wagers, as defined 
in section 4421. See section 4421 and Sec. 44.4421-1 for definition of 
the term ``wager.''
    (b) Rate of tax; amount of wager--(1) Rate of tax. The tax is 
imposed at the rate of 10 percent of the amount of any taxable wager.
    (2) Amount of wager. (i) The amount of the wager is the amount 
risked by the bettor, including any charge or fee incident to the 
placing of the wager as provided in subdivision (iv) of this 
subparagraph, rather than the amount which he stands to win. Thus, if a 
bettor bets $5 against a bookmaker's $7 with respect to the outcome of a 
prize fight, the amount of the wager subject to tax is $5.
    (ii) In the case of a ``parlay'' wager (i.e., a single wager made by 
a bettor on the outcome of a series of events, usually horse races), the 
amount of the taxable wager is the amount initially wagered by the 
bettor irrespective of whether the parlay is successful. In the case of 
an ``if'' wager, the amount of the taxable wager is the total of all 
amounts wagered on each selection of the bettor. For example, A makes a 
$10 wager on horse R with the understanding that if horse R wins, $5 is 
to be wagered on horse S and $5 on horse T. If horse R wins, the taxable 
wager is $20. If horse R loses, the taxable wager is $10. In determining 
the amount of a taxable wager involving the features of, or a 
combination of, ``parlay'' and ``if'' bets, such as wagers sometimes 
referred to as a ``whipsaw'' or an ``if and reverse'' bet, the rules set 
forth above relating to ``parlay'' and ``if'' bets are to be followed. 
For example, assume B wagers $10 on horse R with the understanding that 
if horse R wins, $5 is to be placed as a parlay wager on horses S and T. 
In such a case, if horse R loses, the taxable wager is $10; if horse R 
wins, there are two taxable wagers amounting in the aggregate to $15.
    (iii) In the case of punchboards with prizes of merchandise, cash, 
or free plays listed thereon, the amount of the taxable wager is the 
amount risked by the bettor for all chances taken by him, including the 
chances taken by the bettor in lieu of the acceptance of an equivalent 
amount in cash or merchandise.
    (iv) In determining the amount of any wager subject to tax there 
shall be included any charge or fee incident to the placing of the 
wager. For example,

[[Page 39]]

in the case of a wager with respect to a horse race, any amount paid to 
a bookmaker for the purpose of guaranteeing the bettor a pay-off based 
on actual track odds is to be included as a part of the wager. 
Similarly, in the case of a lottery, any amount paid to the operator 
thereof by the bettor for the privilege of making a contribution to the 
pool or bank is also to be included in the amount of the wager. However, 
the amount of the wager subject to tax shall not include the amount of 
the tax where it is established by actual records of the taxpayer that 
such amount of tax was collected from the bettor as a separate charge.



Sec. 44.4401-2  Person liable for tax.

    (a) In general. (1) Every person engaged in the business of 
accepting wagers with respect to a sports event or a contest is liable 
for the tax on any such wager accepted by him. Every person who operates 
a wagering pool or lottery conducted for profit is liable for the tax 
with respect to any wager or contribution placed in such pool or 
lottery. To be liable for the tax, it is not necessary that the person 
engaged in the business of accepting wagers or operating a wagering pool 
or lottery physically receive the wager or contribution. Any wager or 
contribution received by an agent or employee on behalf of such person 
shall be considered to have been accepted by and placed with such 
person.
    (2) Any person required to register under section 4412 by reason of 
having received wagers for or on behalf of another person, but who fails 
to register the name and place of residence of such other person 
(hereinafter in this subparagraph referred to as principal), shall be 
liable for the tax on all wagers received by him during the period in 
which he has failed to so register the name and place of residence of 
such principal. Subsequent compliance with section 4412 by the person 
receiving wagers for another does not relieve him of his liability and 
duty to pay such tax, nor will the fact that such person incurs 
liability with respect to the tax on such wagers, relieve his principal 
of liability for the tax imposed under section 4401 with respect to such 
wagers. Accordingly, both the person receiving the wagers and his 
principal shall be liable for the tax on such wagers until the tax is 
paid. Payment of the tax on such wagers shall not relieve the person 
receiving wagers of any penalty for failure to register as required by 
section 4412. This subparagraph has application only to wagers received 
after September 2, 1958.
    (b) In business of accepting wagers. A person is engaged in the 
business of accepting wagers if he makes it a practice to accept wagers 
with respect to which he assumes the risk of profit or loss depending 
upon the outcome of the event or the contest with respect to which the 
wager is accepted. It is not intended that to be engaged in the business 
of accepting wagers a person must be either so engaged to the exclusion 
of all other activities or even primarily so engaged. Thus, for example, 
an individual may be primarily engaged in business as a salesman, and 
also for the purpose of the tax be engaged in the business of accepting 
wagers.
    (c) Lay-offs. If a person engaged in the business of accepting 
wagers or conducting a lottery or betting pool for profits lays off all 
or part of the wagers placed with him with another person engaged in the 
business of accepting wagers or conducting a betting pool or lottery for 
profit, he shall, notwithstanding such lay-off, be liable for the tax on 
the wagers or contributions initially accepted by him. See Sec. 
44.6419-2 for credit and refund provisions applicable with respect to 
laid-off wagers.



Sec. 44.4401-3  When tax attaches.

    The tax attaches when (a) a person engaged in the business of 
accepting wagers with respect to a sports event or a contest, or (b) a 
person who operates a wagering pool or lottery for profit, accepts a 
wager or contribution from a bettor. In the case of a wager on credit, 
the tax attaches whether or not the amount of the wager is actually 
collected from the bettor. However, if an amount equivalent to the 
amount of the wager is paid to the bettor prior to the close of the 
calendar month in which such wager was accepted, either because of the 
cancellation of the event upon which the wager was

[[Page 40]]

placed, or because the wager was cancelled or rescinded by mutual 
agreement, the wager need not be reported on the taxpayer's return for 
such month. Where such cancellation or rescission takes place in a month 
subsequent to the month in which the wager was accepted, credit or 
refund of the tax paid with respect to such wager may be made subject to 
the provisions of Sec. 44.6419-1.



Sec. 44.4402-1  Exemptions.

    (a) Parimutuel wagering enterprises. Section 4402 provides that no 
tax shall be imposed by section 4401 on any wager placed with, or on any 
wager placed in a wagering pool conducted by, a parimutuel wagering 
enterprise licensed under State law.
    (b) Wagering machines--(1) In general. Section 4402 provides that no 
tax shall be imposed by section 4401 on any wager placed in a coin-
operated device (as defined in section 4462 as in effect for years 
beginning before July 1, 1980), or on any amount paid, in lieu of 
inserting a coin, token, or similar object, to operate a device 
described in section 4462(a)(2) (as so in effect). These devices 
include:
    (i) So-called ``slot'' machines that operate by means of the 
insertion of a coin, token, or similar object and that, by application 
of the element of chance, may deliver, or entitle the person playing or 
operating the machine to receive cash, premiums, merchandise, or tokens; 
and
    (ii) Machines that are similar to machines described in paragraph 
(b)(1)(i) of this section and are operated without the insertion of a 
coin, token, or similar object.
    (2) Examples. The following devices and machines are examples of the 
devices referred to in paragraph (b)(1) of this section:
    (i) A machine that is operated by means of the insertion of a coin, 
token, or similar object and that, even though it does not dispense cash 
or tokens, has the features and characteristics of a gaming device 
whether or not evidence exists as to actual payoffs.
    (ii) A so-called crane machine, claw, digger, or rotary 
merchandising type device that is operated by the insertion of a coin 
and adjustment of a control lever for the purpose or removing from the 
machine, by gripping, pushing, or other manipulation articles such as 
figurines, lighters, etc., in the machine.
    (iii) A pinball machine equipped with a pushbutton for releasing 
free plays and a meter for recording the plays so released, or equipped 
with provisions for multiple coin insertion for increasing the odds.
    (iv) Pinball machines in connection with which free plays are 
redeemed in cash, tokens, or merchandise, or prizes are offered to any 
person for the attainment of designated scores.
    (v) A coin-operated machine that displays a poker hand or delivers a 
ticket with a poker hand symbolized on it that entitles the player to a 
prize if the poker hand displayed by the machine or symbolized on the 
ticket constitutes a winning hand.

[T.D. 8328, 56 FR 188, Jan. 3, 1991; Redesignated and amended by T.D. 
8442, 57 FR 48186, Oct. 22, 1992]



Sec. 44.4403-1  Daily record.

    Every person liable for tax under section 4401 shall keep such 
records as will clearly show as to each day's operations:
    (a) The gross amount of all wagers accepted;
    (b) The gross amount of each class or type of wager accepted on each 
separate event, contest, or other wagering medium. For example, in the 
case of wagers accepted on a horse race, the daily record shall show 
separately the gross amount of each class or type of wagers (straight 
bets, parlays, ``if'' bets, etc.) accepted on each horse in the race. 
Similarly, in the case of the numbers game, the daily record shall show 
the gross amount of each class or type of wager accepted on each number.

For additional provisions relating to records, see section 6001 and 
Sec. 44.6001-1.



Sec. 44.4404-1  Territorial extent.

    (a) In general. The tax imposed by section 4401 applies to wagers 
(1) accepted in the United States, or (2) placed by a person who is in 
the United States (i) with a person who is a citizen or resident of the 
United States, or (ii) in a wagering pool or lottery conducted

[[Page 41]]

by a person who is a citizen or resident of the United States. All 
wagers made within the United States are taxable irrespective of the 
citizenship or place of residence of the parties to the wager. Thus, the 
tax applies to wagers placed within the United States, even though the 
person for whom or on whose behalf the wagers are received is located in 
a foreign country and is not a citizen or resident of the United States. 
Likewise, a wager accepted outside the United States by a citizen or 
resident of the United States is taxable if the person making such wager 
is within the United States at the time the wager is made.
    (b) Examples. The following examples illustrate the application of 
paragraph (a) of this section:

    Example 1. A syndicate which maintains its headquarters in a foreign 
country has representatives in the United States who receive wagers in 
the United States for or on behalf of such syndicate. For the purposes 
of section 4404, such wagers are considered as accepted within the 
United States, the syndicate is considered to be in the business of 
accepting wagers within the United States, and such wagers are subject 
to the tax. This is true regardless of the nationality or residence of 
the members of the syndicate.
    Example 2. A Canadian citizen employed in Detroit, Michigan, 
telephones a horse race bet to a bookmaker who is a United States 
citizen with his place of business located in Windsor, Canada. The wager 
is taxable since it is made by a person within the United States with a 
person who is a United States citizen.
    Example 3. A United States citizen while visiting Tijuana, Mexico, 
makes a wager on the outcome of a horse race with a bookmaker who is 
also a United States citizen located and doing business in Tijuana. The 
wager is not taxable since both parties to the wager, though United 
States citizens, were outside the United States at the time the wager 
was made.



                       Subpart C_Occupational Tax



Sec. 44.4411-1  Imposition of tax.

    (a) In general. A special tax of $50 per year is required to be paid 
by each person:
    (1) Who is liable for the tax imposed by section 4401, or
    (2) Who is engaged in receiving wagers for or on behalf of any 
person who is liable for the tax imposed by section 4401.
    (b) Examples. The application of paragraph (a) of this section may 
be illustrated by the following examples:

    Example 1. A, who is engaged in the business of accepting horse race 
bets, employs ten persons to receive on his behalf wagers which are 
transmitted by telephone. A also employs a secretary and a bookkeeper. A 
and each of the ten persons who receives wagers by telephone on behalf 
of A are liable for the special tax. The secretary and bookkeeper are 
not liable for the special tax unless they also receive wagers for A.
    Example 2. B operates a numbers game and has an arrangement with ten 
persons, who are employed in various capacities, such as bootblacks, 
elevator operators, news dealers, etc., to receive wagers from the 
public on his behalf. B also employs C to collect from the ten persons 
referred to, the wagers received by them on B's behalf and to deliver 
such wagers to B. C performs no other services for B. B and the ten 
persons who receive wagers on his behalf are liable for the special tax. 
C is not liable for the special tax since he is not engaged in receiving 
wagers for B.

    (c) Cross references. For provisions relating to the payment of the 
special tax (computation, manner of payment, etc.), see Subpart D of 
this part.



Sec. 44.4412-1  Registration.

    (a) In general. Every person required to pay the special tax imposed 
by section 4411 shall register and file a return on Form 11-C. For 
provisions relating to the general requirement for filing a return, see 
Sec. 44.6011(a)-1.
    (b) Information to be reported on Form 11-C. (1) Every person 
required to make a return on Form 11-C shall report thereon his full 
name and place of residence. A person doing business under an alias, 
style, or trade name shall give his true name, followed by his alias, 
style, or trade name. In the case of a partnership, association, firm, 
or company, other than a corporation, the style or trade name shall be 
given, also the true name of each member and his place of residence. In 
the case of a corporation, the true name and title of each officer and 
his place of residence shall be shown.
    (2) Each person engaged in the business of accepting wagers on his 
own account shall report on Form 11-C the name and address of each place 
where such business will be conducted and the name, address, and number 
appearing on the special (occupational) stamp of

[[Page 42]]

each agent or employee who may receive wagers on his behalf. Thereafter, 
a return shall be filed on Form 11-C, marked ``Supplemental'', each time 
an additional employee or agent is engaged to receive wagers. Such 
supplemental return shall be filed not later than 10 days after the date 
such additional employee or agent is engaged to receive wagers and shall 
show the name, address, and number appearing on the special 
(occupational) stamp of each such agent or employee. As to a change of 
address, see Sec. 44.4905-2.
    (3) Each agent or employee who receives wagers for or on behalf of a 
person engaged in the business of accepting wagers on his own account 
shall report on Form 11-C the name and residence address of each person 
(i.e., individual, partnership, corporation, etc.) on whose behalf 
wagers are to be received. Thereafter, the agent or employee shall file 
a return on Form 11-C, marked ``Supplemental'', each time he is engaged 
or employed to receive wagers for a person or persons other than the 
person or persons previously reported on Form 11-C. Such supplemental 
return shall be filed not later than 10 days after the date he is 
engaged to receive wagers and shall show the name, business address, or, 
if none, the residence address of the person or persons by whom he is 
engaged to receive wagers. As to a change of address, see Sec. 44.4905-
2.
    (c) Time and place for filing Form 11-C. For provisions relating to 
the time for filing Form 11-C (other than Form 11-C marked 
``Supplemental''), see section 6071 and Sec. 44.6071-1. For provisions 
relating to the place for filing Form 11-C, see section 6091 and Sec. 
44.6091-1.



Sec. 44.4413-1  Certain provisions made applicable.

    For regulations under sections 4901, 4902, 4904, 4905, and 4906, as 
extended and made applicable to the special tax imposed by section 4411 
and to the persons upon whom such tax is imposed, see Subpart D of this 
part.



 Subpart D_Miscellaneous and General Provisions Applicable to Taxes on 
                                Wagering

                        Miscellaneous Provisions



Sec. 44.4421-1  Definitions.

    (a) Wager. The term ``wager'' means:
    (1) Any wager placed with a person engaged in the business of 
accepting wagers upon the outcome of a sports event or a contest;
    (2) Any wager placed in a wagering pool with respect to a sports 
event or a contest, if such pool is conducted for profit; and
    (3) Any wager placed in a lottery conducted for profit.
    (b) Lottery--(1) In general. The term ``lottery'' includes the 
numbers game, policy, and similar types of wagering. In general, a 
lottery conducted for profit includes any scheme or method for the 
distribution of prizes among persons who have paid or promised a 
consideration for a chance to win such prizes, usually as determined by 
the numbers or symbols on tickets as drawn from a lottery wheel or other 
receptacle, or by the outcome of an event: Provided, Such lottery is 
conducted for profit. The term also includes enterprises commonly known 
as ``policy'' or ``numbers'' and similar types of wagering where the 
player selects a number, or a combination of numbers, and pays or agrees 
to pay a certain amount in consideration of which the operator of the 
lottery, policy, or numbers game agrees to pay a prize or fixed sum of 
money if the selected number or combination of numbers appear or are 
published in a manner understood by the parties. For example, the 
winning number or combination of numbers may appear or be published as a 
series of numbers in the payoff prices of a series of horse races at a 
certain race track, or in the United States Treasury balance reports, or 
the reports of a stock or commodity exchange. This description is not 
intended to be restrictive; hence, the substitution of letters or other 
symbols for numbers or a different arrangement for determining the 
winning number or combination of numbers, does not alter the fundamental 
nature of a game which otherwise would be

[[Page 43]]

considered a lottery. The operation of a punch board or a similar gaming 
device for profit is also considered to be the operation of a lottery.
    (2) Certain games excluded--(i) Cards, dice, etc. Section 4421 
specifically excludes from the term ``lottery'' any game of a type in 
which usually (a) the wagers are placed, (b) the winners are determined, 
and (c) the distribution of prizes or other property is made, in the 
presence of all persons placing wagers in such game. Thus, for example, 
no tax would be payable with respect to wagers made in a bingo or keno 
game since such a game is usually conducted under circumstances in which 
the wagers are placed, the winners are determined, and the distribution 
of prizes is made in the presence of all persons participating in the 
game. For the same reason, no tax would apply in the case of card games, 
dice games, or games involving wheels of chance, such as roulette wheels 
and gambling wheels of a type used at carnivals and public fairs.
    (ii) Drawings conducted by an organization exempt from tax under 
section 501 or 521. Section 4421 specifically excludes from the term 
``lottery'' any drawing conducted by an organization exempt from tax 
under section 501 or 521 if no part of the net proceeds derived from 
such drawing inures to the benefit of any private shareholder or 
individual. For provisions relating to exemption from income tax under 
section 501 or 521, see the Income Tax Regulations (Part 1 of this 
chapter).
    (c) Other terms used--(1) Wagering pool. A wagering pool conducted 
for profit includes any scheme or method for the distribution of prizes 
to one or more winning bettors based upon the outcome of a sports event 
or a contest, or a combination or series of such events or contests, 
provided such wagering pool is managed and conducted for the purpose of 
making a profit.
    (2) Sports event. A sports event includes every type of sports 
event, whether amateur, scholastic, or professional, such as horse 
racing, auto racing, dog racing, boxing and wrestling matches and 
exhibitions, baseball, football, and basketball games, tennis and golf 
matches, track meets, etc.
    (3) Contest. A contest includes any type of contest involving speed, 
skill, endurance, popularity, politics, strength, appearances, etc., 
such as a general or primary election, the outcome of a nominating 
convention, a dance marathon, a log-rolling, wood-chopping, weight-
lifting, corn-husking, beauty contest, etc.
    (4) Conducted for profit. A wagering pool or lottery may be 
conducted for profit even though a direct profit will not inure from the 
operation thereof. A wagering pool or lottery operated with the 
expectancy of a profit in the form of increased sales, increased 
attendance, or other indirect benefits is conducted for profit for 
purposes of the wagering tax.



Sec. 44.4422-1  Doing business in violation of Federal or State law.

    Payment of any special tax within the scope of the regulations in 
this part in nowise authorizes the carrying on of any business in 
violation of a law of the United States or the law of any State. The 
special tax stamp is not a license or permit and affords no protection 
from prosecution for violation of any Federal or State law. See also 
section 4906.

            General Provisions Relating to Occupational Taxes



Sec. 44.4901-1  Payment of special tax.

    (a) Condition precedent to carrying on business. No persons shall 
engage in the business of accepting wagers subject to the tax imposed by 
section 4401 until he has filed a return on Form 11-C and paid the 
special tax imposed by section 4411. Likewise, no person shall engage in 
receiving wagers for or on behalf of any person engaged in the business 
of accepting wagers until he has filed a return on Form 11-C and paid 
the special tax imposed by section 4411. For provisions relating to the 
tax imposed by section 4401 and the special tax imposed by section 4411, 
see Subparts B and C of this part, respectively.
    (b) Computation of special tax. (1) Section 4411 imposes a special 
tax of $50 per year which is required to be paid by each person who is 
liable for the tax imposed by section 4401 (tax on wagers) or who is 
engaged in receiving wagers for or on behalf of any person who is liable 
for the tax imposed by section

[[Page 44]]

4401. A person engaged both in accepting wagers on his own account and 
in receiving wagers for or on behalf of some other person is required to 
purchase but one special tax stamp.
    (2) The tax year begins July 1 and ends June 30 of the following 
calendar year. Persons commencing business between August 1 and June 30 
(both dates inclusive) shall pay a proportionate part of the annual tax. 
``Commencing business'' means the initial acceptance by a person of a 
wager subject to the tax imposed by section 4401 or the initial 
receiving of a taxable wager by an agent or employee for or on behalf of 
some other person. Persons in business for only a portion of a month are 
liable for tax for the full month, i.e., a person first becoming subject 
to the special tax on, for example, the 20th day of a month, is liable 
for tax for the entire month.
    (c) Tax payment evidenced by special tax stamp. (1) Upon receipt of 
a return on Form 11-C, together with remittance of the full amount of 
tax due, the district director will issue a special tax stamp as 
evidence of payment of the special tax.
    (2) District directors will distinctly write or print on the stamp 
before it is delivered or mailed to the taxpayer the following 
information: (i) The taxpayer's registered name, and (ii) the business 
or office address of the taxpayer if he has one; if not, the residence 
address. Special tax stamps will be transmitted by ordinary mail, unless 
it is requested that they be transmitted by registered mail in which 
case additional cost to cover registry fee shall be remitted with the 
return.
    (3) District directors and their collection officers are forbidden 
to issue receipts in lieu of stamps representing the payment of special 
taxes.
    (d) Cross references. For provisions relating to registration and 
information required to be reported on Form 11-C, see Sec. 44.4412-1. 
For other provisions relating to Form 11-C, see Sec. Sec. 44.6011(a)-1 
(relating to returns), 44.6071-1 (time for filing returns and other 
documents), and 44.6091-1 (place for filing returns or other documents).



Sec. 44.4902-1  Partnership liability.

    Any number of persons doing business in copartnership shall be 
required to pay but one special tax. The district director may issue a 
special tax stamp to a copartnership in a firm or trade name, provided 
the names and addresses of all members of the partnership are disclosed 
on Form 11-C.



Sec. 44.4905-1  Change of ownership.

    (a) Changes through death. Whenever any person who has paid the 
special tax imposed by section 4411 dies, the surviving spouse or child, 
or executor or administrator, or other legal representative, may carry 
on such business for the remainder of the term for which such special 
tax has been paid without any additional payment, subject to the 
conditions hereinafter stated. If the surviving spouse or child, or 
executor or administrator, or other legal representative of the deceased 
taxpayer continues the business, such person shall within 30 days after 
the date of the death of the taxpayer execute a return on Form 11-C. 
Such return shall show the name of the deceased taxpayer, together with 
all other data required to be reported on Form 11-C (see Sec. 44.4412-
1), and the stamp issued to such taxpayer shall be submitted with the 
return for proper notation by the district director.
    (b) Changes from other causes. A receiver or trustee in bankruptcy 
may continue the business under the stamp issued to the taxpayer at the 
place and for the period for which the special tax was paid. An assignee 
for the benefit of creditors may continue business under his assignor's 
special tax stamp without incurring additional special tax liability. In 
such cases the change shall be registered with the district director in 
a manner similar to that required by paragraph (a) of this section.
    (c) Changes in firm. When one or more members of a firm partnership 
withdraw, the business may be continued by the remaining partner or 
partners under the same special tax stamp for the remainder of the 
period for which the stamp was issued to the old firm. The change shall, 
however, be registered in the same manner as required in paragraph (a) 
of this section. If new partners are taken into a firm the new

[[Page 45]]

firm so constituted may not carry on business under the special tax 
stamp of the old firm. The new firm shall make a return on Form 11-C and 
pay the special tax imposed by section 4411 reckoned from the first day 
of the month in which it began business, even though the name of such 
firm be the same as that of the old. If the members of a partnership, 
which has paid the special tax, form a corporation to continue the 
business a new special tax stamp must be obtained in the name of the 
corporation.
    (d) Change in corporation. If a corporation changes its name, no 
additional tax is due, provided the change in name is registered with 
the district director in the manner required by paragraph (a) of this 
section. An increase in the capital stock of a corporation does not 
create a new special tax liability if the laws of the State under which 
it is incorporated permit such increase without the formation of a new 
corporation. A stockholder in a corporation, who after its dissolution 
continues the business, incurs liability for the special tax imposed by 
section 4411 unless he already has a special tax stamp obtained in 
respect of activities conducted as a sole proprietor.



Sec. 44.4905-2  Change of address.

    (a) Procedure by taxpayer--(1) After June 30, 1963. Whenever, after 
June 30, 1963, a taxpayer changes his business or residence address to a 
location other than that specified in his last return on Form 11-C, he 
shall register the change with the district director from whom the 
special tax stamp was purchased by filing a new return, Form 11-C, 
designated ``Supplemental Return'', setting forth the new address and 
the date of change. He shall so register the change of address before:
    (i) He engages in any wagering activity at the new address, or
    (ii) The termination of a 30-day period which begins on the day 
after the date of such change,

whichever occurs first. The taxpayer's special tax stamp shall accompany 
the supplemental return for proper notation by the district director. As 
to liability in case of failure to register a change of address, see 
Sec. 44.4905-3.
    (2) Before July 1, 1963. Whenever, before July 1, 1963, a taxpayer 
changes his business or residence address to a location other than that 
specified in his last return of Form 11-C, he shall, within 30 days 
after the date of such change, register the change with the district 
director from whom the special tax stamp was purchased by filing a new 
return, Form 11-C, designated ``Supplemental Return'', setting forth the 
new address and the date of change. The taxpayer's special tax stamp 
shall accompany the supplemental return for proper notation by the 
district director. As to liability in case of failure to register a 
change of address, see Sec. 44.4905-3.
    (b) Procedure by district director; removal within district. When 
registration of a change of address within the same district is made by 
a taxpayer in the manner specified in paragraph (a) of this section, the 
district director, if necessary, will enter on his records the new 
address and the date of change. If the information disclosed on the 
supplemental return is such as to require a change on the face of the 
special tax stamp, the district director will make the proper change and 
return the stamp to the taxpayer.
    (c) Procedure by district director; removal to another district. In 
case of removal of the taxpayer's office or principal place of business 
(or residence address, if he has no office or principal place of 
business) to another district, the district director, after noting the 
transfer on his records, shall transmit the special tax stamp to the 
district director for the district to which such office or business was 
removed. The latter will make an entry on his records, as in the case of 
an original registration in his district, correct the address on the 
stamp, if necessary, and note also thereon his name, title, date, and 
district, and then forward the stamp to the taxpayer.

[T.D. 6656, 28 FR 5720, June 12, 1963, as amended by T.D. 7087, 36 FR 
505, Jan. 14, 1971]



Sec. 44.4905-3  Liability for failure to register change or removal.

    Any person succeeding to and carrying on a business for which the 
special tax imposed by section 4411 has been paid, and any taxpayer 
changing

[[Page 46]]

his residence address or his place of business, without registering such 
change as provided in Sec. Sec. 44.4905-1 and 44.4905-2 shall be liable 
to an additional tax, and to the penalty prescribed in section 6651 for 
failure to make a return. (For regulations under section 6651, see the 
Regulations on Procedure and Administration (Part 301 of this chapter).)



Sec. 44.4906-1  Cross reference.

    For provisions relating to the applicability of Federal and State 
laws, see section 4422 and Sec. 44.4422-1.



Subpart E_Administrative Provisions of Special Application to the Taxes 
                               on Wagering



Sec. 44.6001-1  Record requirements.

    (a) In general. (1) In addition to all other records required 
pursuant to Sec. 44.4403-1, every person required to pay tax under 
section 4401 shall keep such records as will clearly show as to each 
day's operation:
    (i) Separately, the gross amount of wagers:
    (a) Accepted directly by the taxpayer or at any registered place of 
business of the taxpayer (other than laid-off wagers),
    (b) Accepted for his account by agents at any place other than a 
registered place of business of the taxpayer (other than laid-off 
wagers), and
    (c) Accepted as laid-off wagers from persons subject to the tax on 
wagers;
    (ii) With respect to wagers laid off with others, the name, address, 
and registration number of each person with whom the laid-off wagers 
were placed, and the gross amount laid off with each such person, 
showing separately the gross amount of laid-off wagers with respect to 
each event, contest, or other wagering medium, as, for example, the 
gross amount laid off on each horse in a race; and
    (iii) The gross amount of tax collected from or charged to bettors 
as a separate item.
    (2) If a taxpayer has any agents or employees receiving wagers on 
his behalf, he shall maintain a separate record showing the name and 
address of each agent or employee, the period of employment, and the 
number of the special tax stamp issued to each such agent or employee.
    (3) A duplicate copy of each return required by Sec. 44.6011(a)-1 
shall be retained as part of the taxpayer's records.
    (b) Records of agent or employee. Every person who is engaged in 
receiving for or on behalf of another person (at any place other than a 
registered place of business of such other person) wagers of a type 
subject to the tax imposed by section 4401 shall keep a record showing 
for each day (1) the gross amount of such wagers received by him, (2) 
the amount, if any, retained as a commission or as compensation for 
receiving such wagers, and (3) the amount turned over to the person on 
whose behalf the wagers were received, and the name and address of such 
person.
    (c) Record of claimants. Any person claiming a credit or refund 
shall keep a complete and detailed record of each overpayment and of 
each laid-off wager for which credit is taken or refund is claimed, 
including a copy of the certificate required under paragraph (d) of 
Sec. 44.6419-2.
    (d) Place for keeping records. Every person required to pay the tax 
imposed by section 4401 shall keep or cause to be kept, at his office or 
principal place of business, or, if he has no office or principal place 
of business, at his residence or some other convenient or safe location, 
all such records as are required pursuant to paragraphs (a) and (c) of 
this section and section 4403 and Sec. 44.4403-1.
    (e) Period for retaining records. All records required by the 
regulations in this part shall at all times be available for inspection 
by internal revenue officers. Records required by Sec. 44.4403-1 and by 
paragraph (a) of this section shall be maintained for a period of at 
least three years from the date the tax became due. Records required by 
paragraph (b) of this section shall be maintained for a period of at 
least three years from the date the wager was received. Records required 
by paragraph (c) of this section shall be maintained for a period of at 
least three years from the date any credit is taken or refund is 
claimed.

[T.D. 6370, 24 FR 2614, Apr. 4, 1959, as amended by T.D. 6568, 26 FR 
7545, Aug. 15, 1961]

[[Page 47]]



Sec. 44.6011(a)-1  Returns.

    (a) In general. Every person required to pay the tax on wagers 
imposed by section 4401 of the Code shall make for each month, from the 
daily records required by Sec. Sec. 44.4403-1 and 44.6001-1, a return 
on Form 730 in accordance with the instructions and regulations 
applicable thereto. A return shall be made for each month whether or not 
liability has been incurred for that month. If the taxpayer ceases 
operations which make him liable for the tax, the last return shall be 
marked ``Final Return''.
    (b) Return on Form 11-C. Every person required to pay the special 
tax imposed by section 4411 shall make a return on Form 11-C in 
accordance with the instructions and regulations applicable thereto.



Sec. 44.6060-1  Reporting requirements for tax return preparers.

    (a) In general. A person that employs one or more tax return 
preparers to prepare a return or claim for refund of tax on wagers under 
sections 4401 or 4411, other than for the person, at any time during a 
return period, shall satisfy the record keeping and inspection 
requirements in the manner stated in Sec. 1.6060-1 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78456, Dec. 22, 2008]



Sec. 44.6071-1  Time for filing return.

    (a) Return on Form 730. Each return required to be made on Form 730 
pursuant to Sec. 44.6011(a)-1 shall be filed on or before the last day 
of the first calendar month following the period for which it is made. 
For provisions relating to the time for filing a return when the 
prescribed due date falls on Saturday, Sunday, or a legal holiday, see 
the provisions of the Regulations on Procedure and Administration (Part 
301 of this chapter) under section 7503.
    (b) Return on Form 11C. (1) The first return required to be made on 
Form 11-C shall be filed to cover the period beginning with the first 
day of the calendar month in which a person engages (or expects to 
engage) in activities which make him liable for the special tax imposed 
by section 4411 and ending with the following June 30. Thereafter, each 
return required to be made on Form 11-C shall be filed on or before July 
1 to cover a 1-year period (beginning July 1 and ending June 30 of the 
following calendar year) during which taxable activity continues.
    (2) For additional provisions relating to the return on Form 11-C, 
see Sec. 44.4412-1 and Sec. Sec. 44.4901-1 to 44.4905-3, inclusive.



Sec. 44.6091-1  Place for filing returns.

    (a) In general. Except as provided in paragraph (b) of this section, 
a return on Form 730 or Form 11-C shall be filed with any person 
assigned the responsibility to receive returns in the local Internal 
Revenue Service office that serves the legal residence or principal 
place of business of the person making the return.
    (b) Returns of individuals outside the United States. The returns on 
Form 730 and Form 11-C of individuals (whether citizens of the United 
States, citizens of possessions of the United States, or aliens) outside 
the United States having no legal residence or principal place of 
business in the United States shall be filed with the Internal Revenue 
Service Center, Cincinnati, Ohio 45999, or as otherwise directed in the 
applicable forms and instructions.
    (c) Returns filed with service centers. Notwithstanding paragraphs 
(a) and (b) of this section, whenever instructions applicable to returns 
filed on Form 730 of Form 11-C provide that the returns be filed with a 
service center, the returns shall be so filed in accordance with the 
instructions.
    (d) Hand-carried returns. Returns which are filed by hand carrying 
shall be filed with any person assigned the responsibility to receive 
hand-carried returns in the local Internal Revenue Service office as 
provided in paragraph (a) of this section. See Sec. 301.6091-1(c) of 
this chapter (Regulations on Procedure and Admininstration) for 
provisions relating to the definition of hand carried.

[T.D. 6370, 24 FR 2614, Apr. 4, 1959, as amended by T.D. 7630, 44 FR 
40498, July 11, 1979; T.D. 8442, 57 FR 48185, Oct. 22, 1992; T.D. 9156, 
69 FR 55746, Sept. 16, 2004]

[[Page 48]]



Sec. 44.6107-1  Tax return preparer must furnish copy of return to 

taxpayer and must retain a copy or record.

    (a) In general. A person who is a signing tax return preparer of any 
return or claim for refund of tax on wagers under sections 4401 or 4411 
shall furnish a completed copy of the return or claim for refund to the 
taxpayer, and retain a completed copy or record in the manner stated in 
Sec. 1.6107-1 of this chapter.
    (b) Effective/applicability date. This section is applicable for 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78456, Dec. 22, 2008]



Sec. 44.6109-1  Tax return preparers furnishing identifying numbers

for returns or claims for refund.

    (a) In general. Each tax return or claim for refund of tax under 
sections 4401 or 4411 prepared by one or more signing tax return 
preparers must include the identifying number of the preparer required 
by Sec. 1.6695-1(b) of this chapter to sign the return or claim for 
refund in the manner stated in Sec. 1.6109-2 of this chapter.
    (b) Effective/applicability date. This section is applicable for 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78456, Dec. 22, 2008]



Sec. 44.6151-1  Time and place for paying taxes.

    The taxes imposed by sections 4401 and 4411 shall, without 
assessment or notice and demand, be paid to the internal revenue officer 
with whom the returns are required to be filed at the time fixed for 
filing returns. For provisions relating to the time for filing returns, 
see section 6071 and Sec. 44.6071-1. For provisions relating to the 
place for filing returns, see section 6091 and Sec. 44.6091-1.



Sec. 44.6419-1  Credit or refund generally.

    (a) Overpayment of wagering tax; in general. If a person overpays 
the tax imposed under section 4401, he may either file a claim for 
refund on Form 843 or take credit for such overpayment against the tax 
due on a subsequent monthly return. A complete statement of the facts 
involving the overpayment shall be attached either to the claim or to 
the return on which the credit is claimed. Every claim for refund shall 
be supported by evidence showing the name and address of the taxpayer, 
the date of payment of the tax, and the amount of such tax. A credit 
taken on a return shall be supported by evidence of the same character.
    (b) Statement supporting credit or refund. No credit or refund shall 
be allowed whether in pursuance of a court decision or otherwise unless 
the taxpayer files a statement explaining satisfactorily the reason for 
claiming the credit or refund and establishing (1) that he has not 
collected (whether as a separate charge or otherwise) the amount of the 
tax from the person who placed the wager on which the tax was imposed, 
or (2) that he has either repaid the amount of the tax to the person who 
placed the wager or has secured the written consent of such person to 
the allowance of the credit or refund. In the latter case, the written 
consent of the person who placed the wager shall accompany the statement 
filed with the credit or refund claim. The statement supporting the 
credit or refund claim shall also show whether any previous claim for 
credit or refund covering the amount involved, or any part thereof, has 
been filed. If the overpayment of tax relates to a laid-off wager 
accepted by the taxpayer, no credit or refund shall be allowed or made 
unless the taxpayer complies with the provisions of the first sentence 
of this paragraph, not only as to the person who placed the laid-off 
wager, but also with respect to the person who placed the original 
wager.
    (c) Limitation on credit or refund. No claim for credit or refund of 
a tax shall be allowed unless presented within the period of limitations 
prescribed in section 6511. (For regulations under section 6511, see the 
Regulations on Procedure and Administration (part 301 of this chapter).)



Sec. 44.6419-2  Credit or refund on wagers laid off by taxpayer.

    (a) Laid-off wagers; in general. If a taxpayer accepts a wager and 
lays off all or a part thereof with another person who is liable for tax 
under section

[[Page 49]]

4401 with respect to such laid-off wager, a credit may be allowed to 
such taxpayer in the amount of the tax due with respect to the amount of 
the wager so laid off, provided there is attached to the return for the 
month during which the wager was accepted and laid off by him the 
certificate prescribed in paragraph (d) of this section.
    (b) Claim for refund. If a taxpayer has paid the tax with respect to 
a wager laid off by him, he may file a claim for refund of such tax on 
Form 843 or take a credit for the tax paid by him against the tax shown 
to be due on any subsequent monthly return. If a refund is claimed, Form 
843 shall be completed in accordance with the instructions thereon and, 
in addition, there shall be attached to such form a statement setting 
forth the reason for claiming the refund, the month in which such tax 
was paid, the date of payment, and whether any previous claim for refund 
covering the amount involved or any part thereof has been filed. There 
shall also be attached to the Form 843 the certificate prescribed below. 
In the case of a credit, the statement and certificate shall be attached 
to the monthly return on which the credit is claimed.
    (c) Credit or refund not allowed. No credit or refund will be 
allowed under this section if the wager is laid off with a person or 
organization not liable for tax under section 4401 with respect to such 
laid-off wager. No interest shall be allowed on any amount of tax 
credited or refunded under this section.
    (d) Certificate required. The certificate prescribed for use in 
support of a credit or refund with respect to a laid-off wager shall be 
in the following form:

                               Certificate

(In support of credit or refund with respect to laid-off wagers under 
section 6419(b) of the Internal Revenue Code.)
    I hereby certify that I, or the ---------- (Corporation, 
partnership, or syndicate) of which I am an officer or member, doing 
business at ------------------------, (Address) registered with the 
District Director of Internal Revenue at --------------------, --------
------------ under Registration No. -------- as a person accepting 
wagers within the meaning of section 4401 of the Internal Revenue Code, 
accepted laid-off wagers, in the amounts and on the dates indicated 
below, from ------------------, (Name) ----------------, (Address) 
during the month of ----------------, 19----.

 
                                                        Subject of laid-
                                                           off wager
                                                        (Identify horse
               Date                 Amount of laid-       and track,
                                       off wager          particular
                                                          contest, or
                                                       contestant, etc.)
 
 
 
 
 
 
(Attach supplemental sheets for additional entries, if necessary.)

    The undersigned further certifies that he, or the corporation, 
partnership, or syndicate of which he is a member will make return of 
and account for the tax, under section 4401 of the Internal Revenue 
Code, with respect to the laid-off wagers so accepted.
    It is understood by the undersigned that this certificate is given 
for the purpose of enabling the person from whom the laid-off wagers 
were accepted to claim credit with respect to the tax due on such laid-
off wagers or to claim credit or refund of the tax, if any, paid on such 
laid-off wagers.
    It is further understood that the fraudulent use of this certificate 
will subject the undersigned and all guilty parties to a fine of not 
more than $10,000 or to imprisonment for not more than five years, or 
both, together with costs of prosecution.

(Signed)________________________________________________________________
(Date)__________________________________________________________________
(Title)_________________________________________________________________
                                (Owner, President Partner, Member, etc.)



Sec. 44.6694-1  Section 6694 penalties applicable to tax return preparer.

    (a) In general. For general definitions regarding section 6694 
penalties applicable to preparers of wagering tax returns or claims for 
refund under sections 4401 or 4411, see Sec. 1.6694-1 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78456, Dec. 22, 2008]



Sec. 44.6694-2  Penalties for understatement due to an unreasonable position.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of tax on wagers under sections 4401 or 4411 shall 
be subject to penalties under section 6694(a) in the manner stated in 
Sec. 1.6694-2 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and

[[Page 50]]

claims for refund filed, and advice provided, after December 31, 2008.

[T.D. 9436, 73 FR 78456, Dec. 22, 2008]



Sec. 44.6694-3  Penalty for understatement due to willful, reckless, or intentional conduct.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of tax on wagers under sections 4401 or 4411 shall 
be subject to penalties under section 6694(b) in the manner stated in 
Sec. 1.6694-3 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78457, Dec. 22, 2008]



Sec. 44.6694-4  Extension of period of collection when preparer pays 

15 percent of a penalty for understatement of taxpayer's liability and certain other 
          procedural matters.

    (a) In general. For rules relating to the extension of period of 
collection when a tax return preparer who prepared a return or claim for 
refund for tax on wagers under sections 4401 or 4411 pays 15 percent of 
a penalty for understatement of taxpayer's liability and procedural 
matters relating to the investigation, assessment and collection of the 
penalties under section 6694(a) and (b), the rules under Sec. 1.6694-4 
of this chapter will apply.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78457, Dec. 22, 2008]



Sec. 44.6695-1  Other assessable penalties with respect to the preparation 

of tax returns for other persons.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of tax on wagers under sections 4401 or 4411 of the 
Internal Revenue Code (Code) shall be subject to penalties for failure 
to furnish a copy to the taxpayer under section 6695(a) of the Code, 
failure to sign the return under section 6695(b) of the Code, failure to 
furnish an identification number under section 6695(c) of the Code, 
failure to retain a copy or list under section 6695(d) of the Code, 
failure to file a correct information return under section 6695(e) of 
the Code, and negotiation of a check under section 6695(f) of the Code, 
in the manner stated in Sec. 6695-1 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed after December 31, 2008.

[T.D. 9436, 73 FR 78457, Dec. 22, 2008; 74 FR 5106, Jan. 29, 2009]



Sec. 44.6696-1  Claims for credit or refund by tax return preparers.

    (a) In general. For rules for claims for credit or refund by a tax 
return preparer who prepared a return or claim for refund for tax on 
wagers under sections 4401 or 4411, the rules under Sec. 1.6696-1 of 
this chapter will apply.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78457, Dec. 22, 2008]



Sec. 44.7262-1  Failure to pay special tax.

    Any person liable for the special tax who does any act which makes 
him liable for such tax, without having paid the tax, is, besides being 
liable for the tax, subject to a fine of not less than $1,000 and not 
more than $5,000.



Sec. 44.7701-1  Tax return preparer.

    (a) In general. For the definition of a tax return preparer, see 
Sec. 301.7701-15 of this chapter.
    (b) Effective/applicability date. This section is applicable to 
returns and claims for refund filed, and advice provided, after December 
31, 2008.

[T.D. 9436, 73 FR 78457, Dec. 22, 2008]



PART 46_EXCISE TAX ON POLICIES ISSUED BY FOREIGN INSURERS AND OBLIGATIONS 

NOT IN REGISTERED FORM--Table of Contents



                         Subpart A_Introduction

Sec.
46.0-1 Introduction.
46.0-2 General definitions and use of terms.

[[Page 51]]

          Subpart B_Tax on Policies Issued by Foreign Insurers

46.4371-1 Applicability of subpart.
46.4371-2 Imposition of tax on policies issued by foreign insurers; 
          scope of tax.
46.4371-3 Rate and computation of tax.
46.4371-4 Records required with respect to foreign insurance policies.
46.4374-1 Liability for tax.

       Subpart C_Excise Tax on Obligations Not in Registered Form

46.4701-1 Tax on issuer of registration-required obligation not in 
          registered form.

    Authority: 26 U.S.C. 7805.

    Source: T.D. 8497, 25 FR 6461, May 6, 1960, unless otherwise noted.



                         Subpart A_Introduction



Sec. 46.0-1  Introduction.

    The regulations in this part 46 relate to the taxes on policies 
issued by foreign insurers imposed by chapter 34 of the Internal Revenue 
Code and the tax on the issuer of registration-required obligations not 
issued in registered form imposed by chapter 39 of the Internal Revenue 
Code. See part 40 of this chapter for regulations relating to returns, 
payments, and deposits of taxes imposed by chapters 34 and 39.

[T.D. 8442, 57 FR 48185, Oct. 22, 1992]



Sec. 46.0-2  General definitions and use of terms.

    As used in the regulations in this part, unless otherwise expressly 
indicated:
    (a) The terms defined in the provisions of law contained in the 
regulations in this part shall have the meanings so assigned to them.
    (b) The Internal Revenue Code of 1954 means the Act approved August 
16, 1954 (68A Stat.), entitled ``An Act to revise the internal revenue 
laws of the United States'', as amended.
    (c) District director means the district director of internal 
revenue. The term also includes the Director of International Operations 
in all cases where the authority to perform the functions which may be 
performed by a district director has been delegated to the Director of 
International Operations.
    (d) Calendar quarter means a period of 3 calendar months ending on 
March 31, June 30, September 30, or December 31.



          Subpart B_Tax on Policies Issued by Foreign Insurers



Sec. 46.4371-1  Applicability of subpart.

    The provisions of this subpart apply only to premiums paid on or 
after January 1, 1966. See Subpart H, Part 47 of this chapter for 
provisions relating to premiums paid or charged before January 1, 1966. 
If any portion of the tax imposed by section 4371 was paid on the basis 
of the premium charged before January 1, 1966, in accordance with the 
provisions of Sec. 47.4371-2 of this chapter (documentary stamp tax), 
then, to the extent that such portion was paid by stamp, no further tax 
is due under the provisions of this subpart.



Sec. 46.4371-2  Imposition of tax on policies issued by foreign insurers; scope of tax.

    (a) Certain insurance policies, and indemnity, fidelity, or surety 
bonds. Section 4371(1) imposes a tax upon each policy of insurance 
(other than those referred to in paragraph (b) of this section), upon 
each indemnity, fidelity, or surety bond, or upon each certificate, 
binder, covering note, receipt, memorandum, cablegram, letter, or other 
instrument by whatever name called, whereby a contract of insurance or 
an obligation in the nature of an indemnity, fidelity, or surety bond is 
made, continued, or renewed, if issued:
    (1) By a nonresident alien individual, a foreign partnership, or a 
foreign corporation, as insurer (unless the policy or other instrument 
is signed or countersigned by an officer or agent of the insurer in a 
State, Territory, or the District of Columbia in which the insurer is 
authorized to do business); and either
    (2) To or for, or in the name of, a domestic corporation, domestic 
partnership, or an individual resident of the United States, against or 
with respect to hazards, risks, losses, or liabilities wholly or partly 
within the United States; or
    (3) To or for, or in the name of, a foreign corporation, foreign 
partnership,

[[Page 52]]

or nonresident individual, engaged in a trade or business within the 
United States with respect to hazards, risks, or liabilities wholly 
within the United States.

For definition of the term ``indemnity bond,'' see section 4372(c).
    (b) Life insurance, sickness, and accident policies, and annuity 
contracts. Unless the insurer is subject to tax under section 819, 
section 4371(2) imposes a tax upon each policy of insurance or annuity 
contract, or upon each certificate, binder, covering note, receipt, 
memorandum, cablegram, letter, or other instrument by whatever name 
called, whereby a contract of insurance or an annuity contract is made, 
continued, or renewed, if issued:
    (1) By a nonresident alien individual, a foreign partnership, or a 
foreign corporation, as insurer (unless the policy or other instrument 
is signed or countersigned by an officer or agent of the insurer in a 
State, Territory, or the District of Columbia in which such insurer is 
authorized to do business); and
    (2) To any person with respect to the life or hazards to the person 
of a citizen or resident of the United States.
    (c) Reinsurance. Section 4371(3) imposes a tax upon each policy of 
reinsurance, certificate, binder, covering note, receipt, memorandum, 
cablegram, letter, or other instrument by whatever name called, whereby 
a contract of reinsurance is made, continued, or renewed, if issued:
    (1) By a nonresident alien individual, a foreign partnership, or a 
foreign corporation, as reinsurer (unless the policy or other instrument 
is signed or countersigned by an officer or agent of the reinsurer in a 
State, Territory, or the District of Columbia in which such reinsurer is 
authorized to do business); and
    (2) To any person against, or with respect to, any of the hazards, 
risks, losses, or liabilities covered by contracts of the type described 
in section 4371 (1) or (2).
    (d) Exempt indemnity bonds. The tax imposed by section 4371 does not 
apply to any indemnity bond described in section 4373(2).



Sec. 46.4371-3  Rate and computation of tax.

    (a) Rate of tax. (1) The tax under section 4371(1) is imposed at the 
rate of 4 cents on each dollar, or fractional part thereof, of the 
premium payment.
    (2) The tax under section 4371 (2) and (3) is imposed at the rate of 
1 cent on each dollar, or fractional part thereof, of the premium 
payment.
    (b) Meaning of premium payment. For purposes of this subpart, the 
term ``premium payment'' means the consideration paid for assuming and 
carrying the risk or obligation, and includes any additional assessment 
or charge paid under the contract, whether payable in one sum or 
installments.



Sec. 46.4371-4  Records required with respect to foreign insurance policies.

    (a) Each person required under the provisions of Sec. 46.4374-1 to 
remit the tax imposed by section 4371 shall keep or cause to be kept 
accurate records of all policies or other instruments subject to such 
tax upon which premiums have been paid. Such records must identify each 
such policy or other instrument in such a manner as to clearly establish 
the following: (1) The gross premium paid; (2) whether such policy or 
other instrument is (i) a policy of casualty insurance or an indemnity 
bond subject to tax under section 4371(1), (ii) a policy of life, 
sickness, or accident insurance or an annuity contract subject to tax 
under section 4371(2), or (iii) a policy of reinsurance subject to tax 
under section 4371(3); (3) the identity of the insured (as defined in 
section 4372(d)); (4) the identity of the foreign insurer or reinsurer 
(as defined in section 4372(a)); and (5) the total premium charged and, 
if the premium is to be paid in installments, the amount and anniversary 
date of each such installment.
    (b) The records required under the provisions of this section must 
be kept on file at the place of business or at some other convenient 
location, for a period of at least 3 years from the date any part of the 
tax became due or the date any part of the tax is paid, whichever is 
later, in such manner as to be readily accessible to authorized internal 
revenue officers or employees. The person having control or possession 
of

[[Page 53]]

a policy or other instrument subject to tax under section 4371 shall 
retain such policy or other instrument for at least 3 years from the 
date any part of the tax with respect to such policy was paid.

[T.D. 7023, 35 FR 1012, Jan. 24, 1970. Redesignated by T.D. 8328, 56 FR 
189, Jan. 3, 1991, as amended by T.D. 8442, 57 FR 48186, Oct, 22, 1992]



Sec. 46.4374-1  Liability for tax.

    (a) In general. Any person who makes, signs, issues, or sells any of 
the documents and instruments subject to the tax, or for whose use or 
benefit the same are made, signed, issued, or sold, shall be liable for 
the tax imposed by section 4371. For purposes of this section, in the 
case of a reinsurance policy that is subject to the tax imposed by 
section 4371(3), other than assumption reinsurance, the insured person 
on the underlying insurance policy, the risk of which is covered in 
whole or in part by such reinsurance policy, shall not constitute a 
person for whose use or benefit the reinsurance policy is made, signed, 
issued, or sold.
    (b) When liability for tax attaches. The liability for the tax 
imposed by section 4371 shall attach at the time the premium payment is 
transferred to the foreign insurer or reinsurer (including transfers to 
any bank, trust fund, or similar recipient, designated by the foreign 
insurer or reinsurer), or to any nonresident agent, solicitor, or 
broker. A person required to pay tax under this section may remit such 
tax before the time the tax attaches if he keeps records consistent with 
such practice.
    (c) Payment of tax. The tax imposed by section 4371 shall be paid on 
the basis of a return by the person who makes payment of the premium to 
a foreign insurer or reinsurer or to any nonresident agent, solicitor, 
or broker. If the tax is not paid by the person who paid the premium, 
the tax imposed by section 4371 shall be paid on the basis of a return 
by any person who makes, signs, issues, or sells any of the documents or 
instruments subject to the tax imposed by section 4371, or for whose use 
or benefit such document or instrument is made, signed, issued, or sold.
    (d) Penalty for failure to pay tax. Any person who fails to comply 
with the requirements of this section with intent to evade the tax 
shall, in addition to other penalties provided therefor, pay a fine of 
double the amount of tax. (See section 7270.)
    (e) Effective date. This section is applicable for premiums paid on 
or after November 27, 2002.

[T.D. 9024, 67 FR 70846, Nov. 27, 2002]



       Subpart C_Excise Tax on Obligations Not in Registered Form



Sec. 46.4701-1  Tax on issuer of registration-required obligation not in registered form.

    (a) In general. Section 4701 imposes a tax (determined under 
paragraph (c) of this section) on any person (referred to as the issuer) 
who issues an obligation that--
    (1) Is a registration-required obligation, and
    (2) Is not issued in registered form.
    (b) Definitions--(1) Person. The term ``person'' includes all 
governmental entities.
    (2) Obligation. The term ``obligation'' includes bonds debentures, 
notes, certificates and other evidences of indebtedness regardless of 
how denominated.
    (3) Registration-required obligation. The term ``registration-
required obligation'' has the same meaning as when used in section 
163(f) (and the regulations thereunder) which relates to the denial of a 
deduction for interest on certain obligations not in registered form. 
However, the term ``registration-required obligation'' does not include 
any obligation which would otherwise be exempt from Federal income tax 
under section 103(a) or any other provision of law.
    (4) Registered form. The term ``registered form'' has the same 
meaning as when used in section 103(j) (and the regulations thereunder) 
which relates to obligations which must be in registered form to be tax-
exempt.
    (5) Issuer. Except as provided in Sec. 1.163-5T(d) (relating to 
pass-through certificates) and Sec. 1.163-5T(e) (relating to REMICs), 
the ``issuer'' is the person whose interest deduction would be 
disallowed solely by reason of section 163(f)(1).

[[Page 54]]

    (6) Date of Issuance. (i) For obligations intended to be offered to 
the public, the term ``date of issuance'' means the date the obligation 
is first sold to the public at the issue price.
    (ii) For an obligation which is privately placed, the term ``date of 
issuance'' is the date the obligation is first sold by the issuer.
    (7) Issue price. See section 1273 (b) and the regulations thereunder 
for the definition of ``issue price''.
    (c) Rate and computation of tax. The tax under section 4701(a) is 
imposed in an amount equal to the product of--
    (1) 1 percent of the principal amount of the obligation, multiplied 
by
    (2) The number of calendar years (or portions thereof) during the 
period beginning on the date of issuance of the obligation and ending on 
the date of maturity.

For purposes of this paragraph, the term ``principal amount'' for a 
discounted obligation is the issue price, and for all other obligations, 
including obligations sold at a premium, the term ``principal amount'' 
is the stated redemption price at maturity.
    (d) Payment of tax. Every person who incurs liability for the tax 
imposed by section 4701 is required to file a return in accordance with 
section 6011 and Sec. 46.6011(a)-1 relating to the general requirement 
of a return, statement or list.
    (e) Effective date. The provisions of this section shall apply to 
obligations issued after December 31, 1982, unless issued on the 
exercise of a warrant or the conversion of a convertible obligation if 
the warrant or obligation was offered or sold outside the United States 
without registration under the Securities Act of 1933 and was issued 
before August 10, 1982. See section 310(d)(3) of the Tax Equity and 
Fiscal Responsibility Act of 1982.

[T.D. 8102, 51 FR 33594, Sept. 22, 1986; 51 FR 36392, Oct. 10, 1986, as 
amended by T.D. 8300, 55 FR 19627, May 10, 1990]



PART 48_MANUFACTURERS AND RETAILERS EXCISE TAXES--Table of Contents



                         Subpart A_Introduction

Sec.
48.0-1 Introduction.
48.0-2 General definitions and attatchment of tax.
48.0-3 Exemption certificates.

Subparts B-E [Reserved]

                         Subpart F_Special Fuels

48.4041-0 Applicability of regulations relating to diesel fuel after 
          December 31, 1993.
48.4041-3 Application of tax on sales of special motor fuel for use in 
          motor vehicles and motorboats.
48.4041-4 Application of tax on sales of liquid for use as fuel in 
          aircraft in noncommercial aviation.
48.4041-5 Sales of diesel and special motor fuels and fuel for use in 
          aircraft; rules of general application.
48.4041-6 Application of tax on use of taxable liquid fuel.
48.4041-7 Dual use of taxable liquid fuel.
48.4041-8 Definitions.
48.4041-9 Exemption for farm use.
48.4041-10 Exemption for use as supplies for vessels or aircraft.
48.4041-11 Tax-free sales of fuel for use in noncommercial aviation only 
          if sellers and certain purchasers are registered.
48.4041-12 Sales by United States, etc.
48.4041-13 Other credits or refunds.
48.4041-14 Exemption for sale to or use by certain aircraft museums.
48.4041-15 Sales to States or political subdivisions thereof.
48.4041-16 Sales for export.
48.4041-17 Tax-free retail sales to certain nonprofit educational 
          organizations.
48.4041-18 Fuels containing alcohol.
48.4041-19 Exemption for qualified methanol and ethanol fuel.
48.4041-20 Partially exempt methanol and ethanol fuel.
48.4041-21 Compressed natural gas (CNG).

                 Subpart G_Fuel Used on Inland Waterways

48.4042-1 Tax on fuel used in commercial waterway transportation.
48.4042-2 Special rules.
48.4042-3 Certain types of commercial waterway transportation excluded.

 Subpart H_Motor Vehicles, Tires, Tubes, Tread Rubber, and Taxable Fuel

                      Automotive and Related Items

                             motor vehicles

48.4052-1 Heavy trucks and trailers; certification requirement.
48.4061(a) [Reserved]
48.4061(a)-1 Imposition of tax; exclusion for light-duty trucks, etc.
48.4061(a)-2 Bonding of importers.
48.4061(a)-3 Definitions.

[[Page 55]]

48.4061(a)-4 Parts or accessories sold on or in connection with chassis, 
          bodies, etc.
48.4061(a)-5 Sale of automobile truck bodies and chassis.
48.4061(b) [Reserved]
48.4061(b)-1 Imposition of tax.
48.4061(b)-2 Definition of parts or accessories.
48.4061(b)-3 Rebuilt, reconditioned, or repaired parts or accessories.
48.4061-1 Temporary regulations with respect to floor stock refunds or 
          credits on cement mixers.
48.4062(a) [Reserved]
48.4062(a)-1 Specific parts or accessories.
48.4062(b) [Reserved]
48.4062(b)-1 Rebuilt parts or accessories sold on an exchange basis.
48.4063-1 Tax-free sales of bodies to chassis manufacturers.
48.4063-2 Tax-free sales of parts or accessories sold for resale on or 
          in connection with the first retail sale of a light-duty 
          truck.
48.4063-3 Other tax-free sales.
48.4064-1 Gas guzzler tax.

                     Tires, Tubes, and Tread Rubber

48.4071-1 Imposition and rates of tax.
48.4071-2 Determination of weight.
48.4071-3 Imposition of tax on tires and tubes delivered to 
          manufacturer's retail outlet.
48.4071-4 Original equipment tires on imported articles.
48.4072-1 Definitions.
48.4073 [Reserved]
48.4073-1 Exemption of tires of certain sizes.
48.4073-2 Exemption of tires with internal wire fastening.
48.4073-3 Exemption of tread rubber used for recapping nonhighway tires.
48.4073-4 Other tax-free sales.

                              Taxable Fuel

48.4081-1 Taxable fuel; definitions.
48.4081-2 Taxable fuel; tax on removal at a terminal rack.
48.4081-3 Taxable fuel; taxable events other than removal at the 
          terminal rack.
48.4081-4 Gasoline; special rules for gasoline blendstocks.
48.4081-5 Taxable fuel; notification certificate of taxable fuel 
          registrant.
48.4081-6 Gasoline; gasohol.
48.4081-7 Taxable fuel; conditions for refunds of taxable fuel tax under 
          section 4081(e).
48.4081-8 Taxable fuel; measurement.
48.4082-1 Diesel fuel and kerosene; exemption for dyed fuel.
48.4082-1T Diesel fuel and kerosene; exemption for dyed fuel 
          (temporary).
48.4082-2 Diesel fuel and kerosene; notice required for dyed fuel.
48.4082-3 Diesel fuel and kerosene; visual inspection devices. 
          [Reserved]
48.4082-4 Diesel fuel and kerosene; back-up tax.
48.4082-5 Diesel fuel and kerosene; Alaska.
48.4082-6 Kerosene; exemption for aviation-grade kerosene.
48.4082-7 Kerosene; exemption for feedstock purposes.
48.4083-1 Taxable fuel; administrative authority.
48.4091-3 Aviation fuel; conditions to allowance of refunds of aviation 
          fuel tax under section 4091(d).
48.4101-1 Taxable fuel; registration.
48.4101-1T Taxable fuel; registration (temporary).
48.4101-2 Information reporting.
48.4102-1 Inspection of records by State or local tax officers.

                             Subpart I_Coal

48.4121-1 Imposition and rate of tax on coal.

Subpart J [Reserved]

                        Subpart K_Sporting Goods

48.4161(a) [Reserved]
48.4161(a)-1 Imposition and rate of tax; fishing equipment.
48.4161(a)-2 Meaning of terms.
48.4161(a)-3 Parts and accessories.
48.4161(a)-4 Use considered sale.
48.4161(a)-5 Tax-free sales.
48.4161(b) [Reserved]
48.4161(b)-1 Imposition and rates of tax; bows and arrows.
48.4161(b)-2 Meaning of terms.
48.4161(b)-3 Use considered sale.
48.4161(b)-4 Tax-free sales.
48.4161(b)-5 Effective date.

Subpart L [Reserved]

     Subpart M_Special Provisions Applicable to Manufacturers Taxes

48.4216(a)-1 Charges to be included in sale price.
48.4216(a)-2 Exclusions from sale price.
48.4216(a)-3 Other items relating to tax on sale price.
48.4216(b)-1 Constructive sale price; scope and application.
48.4216(b)-2 Constructive sale price; basic rules.
48.4216(b)-3 Constructive sale price; special rule for arm's-length 
          sales.
48.4216(b)-4 Constructive sale price; affiliated corporations.
48.4216(c)-1 Computation of tax on leases and installment sales.
48.4216(d)-1 Sales of installment accounts.
48.4216(e)-1 Exclusion of local advertising charges from sale price.
48.4216(e)-2 Limitation on aggregate of exclusions and price 
          readjustments.

[[Page 56]]

48.4216(e)-3 No exclusion or readjustment for other advertising charges 
          or reimbursements.
48.4216(f)-1 Value of used components excluded from price of certain 
          trucks.
48.4217-1 Lease considered as sale.
48.4217-2 Limitation on amount of tax applicable to certain leases.

             Use by Manufacturer or Importer Considered Sale

48.4218-1 Tax on use by manufacturer, producer, or importer.
48.4218-2 Business or personal use of articles.
48.4218-3 Events subsequent to taxable use of article.
48.4218-4 Use in further manufacture.
48.4218-5 Computation of tax.

   Application of Tax in Case of Sales by Other Than Manufacturer or 
                                Importer

48.4219-1 Sales of taxable articles by a person other than the 
          manufacturer, producer, or importer.

                Subpart N_Exemptions, Registration, Etc.

48.4221-1 Tax-free sales; general rule.
48.4221-2 Tax-free sale of articles to be used for, or resold for, 
          further manufacture.
48.4221-3 Tax-free sale of articles for export, or for resale by the 
          purchaser to a second purchaser for export.
48.4221-4 Tax-free sale of articles for use by the purchaser as supplies 
          for vessels or aircraft.
48.4221-5 Tax-free sale of articles to State and local governments for 
          their exclusive use.
48.4221-6 Tax-free sales of articles to non-profit educational 
          organizations.
48.4221-7 Tax-free sales of tires and tubes.
48.4221-8 Tax-free sales of tires, tubes, and tread rubber used on 
          intercity, local, and school buses.
48.4222(a)-1 Registration.
48.4222(b)-1 Exceptions to the requirement for registration.
48.4222(c)-1 Revocation or suspension of registration.
48.4222(d)-1 Registration in the case of certain other exemptions.
48.4223-1 Special rules relating to further manufacture.
48.4225-1 Exemption of articles manufactured or produced by Indians.

    Subpart O_Refunds and Other Administrative Provisions of Special 
            Application to Retailers and Manufacturers Taxes

48.6412-1 Floor stocks credit or refund.
48.6412-2 Definitions for purposes of floor stocks credit or refund.
48.6412-3 Amount of tax paid on each article.
48.6416(a)-1 Claims for credit or refund of overpayments of taxes on 
          special fuels and manufacturers taxes.
48.6416(a)-2 Credit or refund of tax on special fuels.
48.6416(a)-3 Credit or refund of manufacturers tax under chapter 32.
48.6416(b)(1)-1 Price readjustments causing overpayments of 
          manufacturers tax.
48.6416(b)(1)-2 Determination of price readjustments.
48.6416(b)(1)-3 Readjustment for local advertising charges.
48.6416(b)(1)-4 Supporting evidence required in case of price 
          readjustments.
48.6416(b)(2)-1 Certain exportations, uses, sales, or resales causing 
          overpayments of tax.
48.6416(b)(2)-2 Exportations, uses, sales, and resales included.
48.6416(b)(2)-3 Supporting evidence required in case of manufacturers 
          tax involving exportations, uses, sales, or resales.
48.6416(b)(2)-4 Supporting evidence required in case of special fuels 
          tax involving exportations, uses, sales, or resales of special 
          fuels.
48.6416(b)(3)-1 Tax-paid articles used for further manufacture and 
          causing overpayments of tax.
48.6416(b)(3)-2 Further manufacture included.
48.6416(b)(3)-3 Supporting evidence required in case of tax-paid 
          articles used for further manufacture.
48.6416(b)(5)-1 Return of installment accounts causing overpayments of 
          tax.
48.6416(c)-1 Credit for tax paid on tires or, prior to January 1, 1984, 
          inner tubes.
48.6416(e)-1 Refund to exporter or shipper.
48.6416(f)-1 Credit on returns.
48.6416(h)-1 Accounting procedures for like articles.
48.6420-1 Credits or payments to ultimate purchaser of gasoline used on 
          a farm.
48.6420-2 Time for filing claim for credit or payment.
48.6420-3 Exempt sales; other payments or refunds available.
48.6420-4 Meaning of terms.
48.6420-5 Applicable laws.
48.6420-6 Records to be kept in substantiation of credits or payments.
48.6420(a)-2 Gasoline includible in claim.
48.6421-0 Off-highway business use.
48.6421-1 Credits or payments to ultimate purchaser of gasoline used for 
          certain nonhighway purposes.
48.6421-2 Credits or payments to ultimate purchasers of gasoline used in 
          intercity, local, or school buses.
48.6421-3 Time for filing claim for credit or payment.
48.6421-4 Meaning of terms.
48.6421-5 Exempt sales; other payments or refunds available.
48.6421-6 Applicable laws.

[[Page 57]]

48.6421-7 Records to be kept in substantiation of credits or payments.
48.6427-0 Off-highway business use.
48.6427-1 Credit or payments to purchaser of special fuels resold or 
          used for nontaxable, farming, or other purposes.
48.6427-2 Credits or payments to purchaser of diesel or special motor 
          fuels used in intercity, local, or school buses.
48.6427-3 Time for filing claim for credit or payment.
48.6427-4 Applicable laws.
48.6427-5 Records to be kept in substantiation of credits or payments.
48.6427-6 Limitation on credit or refund of tax paid on fuel used in 
          intercity, local or shcool buses after July 31, 1984.
48.6427-8 Diesel fuel and kerosene; claims by ultimate purchasers.
48.6427-9 Diesel fuel and kerosene; claims by registered ultimate 
          vendors (farming and State use).
48.6427-10 Kerosene; claims by registered ultimate vendors (blocked 
          pumps).
48.6427-11 Kerosene; claims by registered ultimate vendors (blending).
48.6715-1 Penalty for misuse of dyed fuel.

    Authority: 26 U.S.C. 7805, unless otherwise noted.
    Section 48.4052-1 also issued under 26 U.S.C. 4052(g).
    Section 48.4064-1(b)(3) also issued under 26 U.S.C. 
4064(b)(1)(C)(iii).
    Section 48.4064-1(d)(3)(iii) also issued under 26 U.S.C. 4064(d)(1).
    Section 48.4064-1(d)(5) also issued under 26 U.S.C. 4064(d)(2).
    Section 48.4081-4 also issued under 26 U.S.C. 4083(a)(2).
    Section 48.4081-6 also issued under 26 U.S.C. 4081(c);
    Section 48.4081-7 also issued under 26 U.S.C. 4081(e).
    Section 48.4082-1 also issued under 26 U.S.C. 4082.
    Section 48.4082-1T also issued under 26 U.S.C. 4082(a).
    Section 48.4082-2 also issued under 26 U.S.C. 4082.
    Section 48.4082-5 also issued under 26 U.S.C. 4082.
    Section 48.4082-6 also issued under 26 U.S.C. 4082(d).
    Section 48.4082-7 also issued under 26 U.S.C. 4082(d).
    Section 48.4101-1 also issued under 26 U.S.C. 4101(a).
    Section 48.4101-2 also issued under 26 U.S.C. 6071(a).
    Section 48.4221-3(e) also issued under 26 U.S.C. 4221(a).
    Section 48.6416(b)(2)-2(b) also issued under 26 U.S.C. 6416(b).
    Section 48.6427-8 also issued under 26 U.S.C. 6427(m).
    Section 48.6427-9 also issued under 26 U.S.C. 6427(m).
    Section 48.6427-10 also issued under 26 U.S.C. 6427(m).
    Section 48.6427-11 also issued under 26 U.S.C. 6427(m).



                         Subpart A_Introduction



Sec. 48.0-1  Introduction.

    The regulations in this part 48 are designated ``Manufacturers and 
Retailers Excise Tax Regulations.'' The regulations relate to the excise 
taxes imposed by chapter 31 and 32 of the Internal Revenue Code. Chapter 
31 (relating to retail taxes) imposes tax on certain luxury items, 
special fuels, fuel used in commercial transportation on inland 
waterways, and heavy trucks and trailers. Chapter 32 (relating to 
manufacturers taxes) imposes tax on gas guzzler automobiles, highway-
type tires, taxable fuel, aviation fuel, coal, certain vaccines, and 
sporting goods. Although chapter 32 also imposes a tax on firearms, this 
tax is under the jurisdiction of the Bureau of Alcohol, Tobacco, and 
Firearms. See part 40 of this chapter for regulations relating to 
returns, payments, and deposits of taxes imposed by chapters 31 and 32 
(other than the tax on firearms imposed by section 4181).

[T.D. 8442, 57 FR 48186, Oct. 22, 1992, as amended by T.D. 8659, 61 FR 
10453, Mar. 14, 1996]



Sec. 48.0-2  General definitions and attachment of tax.

    (a) Meaning of terms. As used in the regulations in this part, 
unless otherwise expressly indicated:
    (1) The terms defined in the provisions of law contained in the 
regulations in this part shall have the meanings so assigned to them.
    (2) [Reserved]
    (3) The term calendar quarter means a period of 3 calendar months 
ending on March 31, June 30, September 30, or December 31.
    (4)(i) The term manufacturer includes any person who produces a 
taxable article from scrap, salvage, or junk material, or from new or 
raw material, by processing, manipulating, or changing the form of an 
article or by combining or assembling two or more articles. The term 
also includes a ``producer'' and an ``importer''. An ``importer'' of a

[[Page 58]]

taxable article is any person who brings such an article into the United 
States from a source outside the United States, or who withdraws such an 
article from a customs bonded warehouse for sale or use in the United 
States. If the nominal importer of a taxable article is not its 
beneficial owner (for example, the nominal importer is a customs broker 
engaged by the beneficial owner), the beneficial owner is the 
``importer'' of the article for purposes of chapter 32 and is liable for 
tax on his sale or use of the article in the United States. See section 
4219 and the regulations thereunder for the circumstances under which 
sales by persons other than the manufacturer or importer are subject to 
the manufacturers excise tax.
    (ii) Under certain circumstances, as where a person manufactures or 
produces a taxable article for another person who furnishes materials 
under an agreement whereby the person who furnished the materials 
retains title thereto and to the finished article, the person for whom 
the taxable article is manufactured or produced, and not the person who 
actually manufactures or produces it, will be considered the 
manufacturer.
    (iii) A manufacturer who sells a taxable article in a knockdown 
condition is liable for the tax as a manufacturer. Whether the person 
who buys such component parts and assembles a taxable article from them 
will also be liable for tax as a further manufacturer of a taxable 
article will depend on the relative amount of labor, material, and 
overhead required to assemble the completed article and on whether the 
article is assembled for a business or personal use. See section 4218 
and the regulations thereunder.
    (5) The term sale means an agreement whereby the seller transfers 
the property (that is, the title or the substantial incidents of 
ownership) in goods to the buyer for a consideration called the price, 
which may consist of money, services, or other things.
    (6) The term taxable article means any article taxable under section 
4041 or Chapter 32, Subtitle D, of the Code.
    (7) The term vendor includes a lessor except that, with respect to 
the manufacturers excise taxes, this rule applies only where the lessor 
is also the manufacturer of the article.
    (8) The term purchaser includes a lessee except that, with respect 
to the manufacturers excise taxes, this rule applies only where the 
lessor is also the manufacturer of the article.
    (9) The term exporter means the person named as shipper or consignor 
in the export bill of lading.
    (10) The term exportation means the severance of an article from the 
mass of things belonging within the United States with the intention of 
uniting it with the mass of things belonging within some foreign country 
or within a possession of the United States.
    (11) The term possession of the United States includes Guam, the 
Midway Islands, Palmyra, the Panama Canal Zone, the Commonwealth of 
Puerto Rico, American Samoa, the Virgin Islands, and Wake Island.
    (b) Attachment of tax. (1) For purposes of this part, the 
manufacturers excise tax generally attaches when the title to the 
article sold passes from the manufacturer to a purchaser, and the 
retailers excise tax generally attaches when the title to the article 
sold passes from the retailer to a purchaser.
    (2) When title passes is dependent upon the intention of the parties 
as gathered from the contract of sale and the attendant circumstances. 
In the absence of expressed intention, the legal rules of presumption 
followed in the jurisdiction where the sale is made govern in 
determining when title passes.
    (3) In the case of a sale on credit, the tax attaches whether or not 
the purchase price is actually collected.
    (4) Where a consignor (such as a manufacturer) consigns articles to 
a consignee (such as a dealer), retaining ownership in them until they 
are disposed of by the consignee, title does not pass, and the tax does 
not attach, until sale by the consignee. Where the relationship between 
a manufacturer and a dealer is that of principal and agent, title does 
not pass, and the tax does not attach, until sale by the dealer.
    (5) In the case of a lease, an installment sale, a conditional sale, 
or a chattel mortgage arrangement or similar

[[Page 59]]

arrangement creating a security interest, a proportionate part of the 
tax attaches to each payment. See section 4217 and the regulations 
thereunder for a limitation on the amount of tax payable on lease 
payments.
    (6) In the case of use by the manufacturer, the tax attaches at the 
time the use begins.

[T.D. 7536, 43 FR 13515, Mar. 31, 1978, as amended by T.D. 8879, 65 FR 
17155, Mar. 31, 2000]



Sec. 48.0-3  Exemption certificates.

    Several sections of the regulations in this part, relating to sales 
exempt from retailers or manufacturers excise tax, require the retailer 
or manufacturer (as the case may be) to obtain an exemption certificate 
from the purchaser to substantiate the exempt character of the sale. 
Many of these sections also contain specimen forms of acceptable 
exemption certificates. However, any form of exemption certificate will 
be acceptable if it includes all the information required to be 
contained in such a certificate by the pertinent sections of the 
regulations in this part. If it contains all the required information, a 
form of exemption certificate that is processed by data processing 
equipment is acceptable.

[T.D. 7536, 43 FR 13516, Mar. 31, 1978. Redesignated by T.D. 8043, 50 FR 
32014, Aug. 8, 1985]

Subparts B-E [Reserved]



                         Subpart F_Special Fuels

    Source: T.D. 6505, 25 FR 11217, Nov. 26, 1960, unless otherwise 
noted.



Sec. 48.4041-0  Applicability of regulations relating to diesel fuel after December 31, 1993.

    Sections 48.4041-3 through 48.4041-17 do not apply to sales or uses 
of diesel fuel after December 31, 1993. For rules relating to the diesel 
fuel tax imposed by section 4041 after that date, see Sec. 48.4082-4.

[T.D. 8659, 61 FR 10453, Mar. 14, 1996]



Sec. 48.4041-3  Application of tax on sales of special motor fuel for use

in motor vehicles and motorboats.

    (a) In general. The tax imposed by paragraph (2)(A) of section 4041 
(a), (or before April 1, 1983, paragraph (1) of section 4041 (b)), 
applies to the taxable sale of special motor fuel by any person to an 
owner, lessee, or other operator of a motor vehicle or motorboat, for 
use as a fuel in the motor vehicle or motorboat. The tax does not apply 
to special motor fuel sold for use on or after April 1, 1983, and before 
October 1, 1988, in an off-highway business use.
    (b) Liability for tax. The tax on the taxable sale of special motor 
fuel is payable by the person who sells the special motor fuel to the 
owner, lessee, or other operator of a motor vehicle or motorboat.
    (c) Rate of tax--(1) In general. Tax is imposed on the sale of 
special motor fuel at the rate applicable on the date on which the 
special motor fuel is sold. See Sec. 48.4041-1(b)(2) for rates. The 
test of taxability at the rates specified in Sec. 48.4041-1(b)(2) 
(i)(A) and (ii)(A) is whether the fuel is to be used in a motor vehicle 
or motorboat. For purposes of paragraphs (c) (2) and (3) of this 
section, the term ``qualified business use'' has the same meaning as 
that given to the term ``off-highway business use'' by section 
6421(d)(2).
    (2) Special motor fuel sold for use as a fuel in a motor vehicle. 
Tax at the rates specified in paragraphs (b)(2) (i)(A) and (ii)(A) of 
Sec. 48.4041-1 applies in the case of the sale of special motor fuel 
for use as a fuel in a motor vehicle. Tax at the rates specified in that 
section applies regardless of whether the motor vehicle is a highway 
vehicle. However, a reduced rate of tax from that imposed by paragraphs 
(b)(2)(i)(A) of Sec. 48.4041-1 is allowed by paragraph (b)(2)(i)(C) of 
Sec. 48.4041-1 if special motor fuel is sold for use in a qualified 
business use. An exemption from the tax imposed by paragraph 
(b)(2)(ii)(A) of Sec. 48.4041-1 is allowed by paragraph (b)(2)(ii)(C) 
of Sec. 48.4041-1 if the special motor fuel is sold for use in an off-
highway business use.
    (3) Special motor fuel sold for use as fuel in a motorboat. Tax at 
the rates specified in paragraphs (b)(2)(i)(A) and (ii)(A) of Sec. 
48.4041-1 applies in the case

[[Page 60]]

of the sale of special motor fuel for use as fuel in a motorboat. The 
qualified business use reduced rate of tax set forth in paragraph 
(b)(2)(i)(C) of Sec. 48.4041-1 and the off-highway business use 
exemption set forth in paragraph (b)(2)(ii)(C) of Sec. 48.4041-1 are 
not applicable to motorboats unless the motorboat is a vessel employed 
in the fisheries or whaling business. See section 6421(d)(2)(B).
    (d) Example. Application of the tax to the sale of special motor 
fuels may be illustrated by the following example.

    Example. The N Company is engaged in the manufacture of ceramic 
products. It has a vehicle which is used to haul clay from a clay pit to 
its factory. This vehicle has not been registered for highway use and 
under the applicable State law is not required to be registered for 
highway use since none of the hauling of clay is done on public 
highways. The N Company also uses a ditch digging machine in the 
vicinity of the clay pit for the construction of drains. A fork lift 
truck is used to move cartons of merchandise from place to place inside 
the company's warehouse and to assist in the loading of merchandise onto 
the company's highway trucks for delivery to purchasers. The highway 
trucks are registered by the State for use on highways. Special motor 
fuel is used for the operation of all of these items of equipment. 
Before April 1, 1983, the special motor fuel sold for use as a fuel in 
the registered highway trucks is subject to tax at the rate specified in 
Sec. 48.4041-1(b)(2)(i)(A). On or after January 1, 1979, and before 
April 1, 1983, the special motor fuel sold for use as a fuel in the 
unregistered truck used to haul clay from the pit to the factory and in 
the fork lift truck, assuming both of these are used in qualified 
business uses, is subject to tax at the rate specified in Sec. 48.4041-
1(b)(2)(i)(C). If the unregistered truck and forklift are not used in 
qualified business uses, then the special motor fuel sold for use in 
these vehicles is taxable at the rate specified in Sec. 48.4041-
1(b)(2)(i)(A) since both are motor vehicles. No tax is payable with 
respect to the special motor fuel sold for use in the ditch digging 
machine since that machine is not a motor vehicle. On and after April 1, 
1983, and before October 1, 1988, special motor fuel sold for use in the 
registered trucks is taxable at the rate specified in Sec. 48.4041-
1(b)(2)(ii)(A) because the trucks are motor vehicles. On and after April 
1, 1983, and before October 1, 1988, special motor fuel sold for use in 
the unregistered truck and the fork lift, assuming that both vehicles 
are used in off-highway business uses, is exempt from tax as specified 
in Sec. 48.4041-1(b)(2)(ii)(C). If the unregistered truck and fork lift 
are not used in off-highway business uses, then the special motor fuel 
sold for use in these vehicles is taxable at the rate specified in Sec. 
48.4041-1(b)(2)(ii)(A) since both are motor vehicles. No tax is payable 
with respect to the special motor fuel sold for use in the ditch digging 
machine since that machine is not a motor vehicle.
    (e) Cross reference. (1) For the tax applicable in certain cases 
based on the use of special motor fuel as a fuel in a motor vehicle or 
motorboat, see Sec. 48.4041-6.
    (2) For the definition of the terms ``highway'', ``motor vehicle'', 
``special motor fuel'', and ``registered'', see paragraphs (a), (c), 
(f), and (i) of Sec. 48.4041-8. For the definition of the term ``off-
highway business use'', see section 6421(d)(2).
    (3) For the exemption from tax with respect to special motor fuel 
sold for use on a farm for farming purposes or as supplies for vessels, 
see Sec. Sec. 48.4041-9 and 48.4041-10, respectively.
    (4) For credit or refund of tax paid on special motor fuel resold or 
used otherwise than for the purpose for which purchased, see section 
6427(a).

[T.D. 8066, 51 FR 14, Jan. 2, 1986]



Sec. 48.4041-4  Application of tax on sales of liquid for use as fuel 

in aircraft in noncommercial aviation.

    (a) In general. The taxes imposed by subparagraphs (1)(A) and (2)(A) 
of section 4041(c) apply to the taxable sale of any liquid by any person 
to an owner, lessee, or other operator of an aircraft, for use as a fuel 
in the aircraft in noncommercial aviation.
    (b) Liability of tax. The tax on the taxable sale of any liquid used 
as fuel in aircraft in noncommercial aviation is payable by the person 
who sells the liquid to the owner, lessee, or operator of an aircraft in 
noncommercial aviation.
    (c) Rate of tax. Tax is imposed on the sale of liquids used as fuel 
in aircraft in noncommercial aviation at the rate applicable on the date 
on which the liquid is sold. See Sec. 48.4041-1(b)(3) for rates.
    (d) Cross references. (1) For the tax applicable on the basis of the 
use of fuel in an aircraft in noncommercial aviation, see Sec. 48.4041-
6.
    (2) For the definition of the term ``noncommercial aviation'', see 
paragraph (j) of Sec. 48.4041-8.

[[Page 61]]

    (3) For the exemption of tax with respect to liquids used as fuel in 
aircraft in noncommercial aviation sold for use on a farm for farming 
purposes or as supplies for vessels or aircraft, see Sec. Sec. 48.4041-
9 and 48.4041-10, respectively. For tax-free sales if sellers and 
purchasers are registered, see Sec. 48.4041-11.
    (4) For credit or refund of tax paid on fuel used in noncommercial 
aviation that is resold or used otherwise than for the purpose for which 
purchased, see section 6427(a).
    (e) Effective date. The provisions of this section shall apply to 
sales or uses occurring before October 1, 1980, and to sales or uses 
occurring on or after September 1, 1982, and ending before January 1, 
1988.

[T.D. 8066, 51 FR 15, Jan. 2, 1986]



Sec. 48.4041-5  Sales of diesel and special motor fuels and fuel for use

in aircraft; rules of general application.

    (a) Taxability of liquid fuel delivered into purchaser's tanks--(1) 
Fuel supply tanks. (i) The sale of diesel fuel to an owner, lessee, or 
other operator of a diesel-powered highway vehicle, or of special motor 
fuel to an owner, lessee, or other operator of a motor vehicle or 
motorboat, or of fuel to an owner, lessee, or other operator of an 
aircraft used in noncommercial aviation is considered a taxable sale of 
the liquid fuel if the liquid fuel is delivered by the seller into the 
fuel supply tank of the vehicle, motorboat, or aircraft. For purpose of 
this paragraph (a), liquid fuel sold at a location unattended by the 
seller (such as under a cardlock or meter system) on or after January 2, 
1986, is considered to be delivered into the fuel supply tank by the 
seller except as provided in paragraph (a)(1)(ii) of this section. In 
this regard, see section 6427(a) for credit or refund of tax if liquid 
fuel acquired in a transaction subject to tax is used in a nontaxable 
use.
    (ii) If the seller maintains special devices at the unattended 
location to account accurately for sales of liquid fuel for nontaxable 
uses (such as assigning a separate ``nontaxable'' meter or, in a 
cardlock system, issuing a special ``nontaxable'' card to a customer who 
regularly purchases fuel for nontaxable uses), then such sales of liquid 
fuel shall be considered nontaxable. The seller must maintain sufficient 
records of such nontaxable sales and include in these records the name 
of the purchaser, the date of the purchase, and the quantity of fuel 
purchased in each sale.
    (2) Bulk tanks. The sale of diesel fuel to an owner, lessee, or 
other operator of a diesel-powered highway vehicle, or of special motor 
fuel to an owner, lessee, or other operator of a motor vehicle or 
motorboat, or of fuel to an owner, lessee, or other operator of an 
aircraft used in noncommercial aviation is considered a taxable sale of 
the liquid fuel if--
    (i) The liquid fuel is delivered by the seller into a bulk supply 
tank (or other container) that is not the fuel supply tank of a vehicle, 
motorboat, or aircraft; and
    (ii) The purchaser furnishes a written statement to the seller 
before or at the time of the sale stating that the entire quantity of 
the liquid fuel covered by the sale is for a taxable purpose as a fuel 
in such a vehicle, motorboat, or aircraft.

If the purchaser fails to provide the written statement required by 
paragraph (a)(2)(ii) of this section, the purchaser is liable for the 
tax on the later taxable sale or use. If a purchaser acquires both fuel 
that is to be used for taxable purposes and fuel that is to be used for 
nontaxable purposes, and the fuel that is to be used for taxable 
purposes is stored in a different storage tank (or container) from the 
tank used to store the fuel to be used for nontaxable purposes, the 
written statement described in paragraph (a)(2)(ii) of this section will 
relate to the fuel to be used for taxable purposes if proper records are 
kept by the purchaser that sufficiently identify the tanks (or 
containers) into which tax-paid fuel is delivered and the quantities of 
fuel delivered into those tanks (or containers). If only occasional 
sales for delivery into a bulk storage tank (or other container) are 
made to a purchaser, a separate statement must be furnished for each 
order. However, if sales are regularly or frequently made to a 
purchaser, a written statement covering all orders for a specified 
period not to

[[Page 62]]

exceed 12 calendar quarters is acceptable.
    (b) Sales for resale and to consignees. (1) A sale to a dealer for 
resale is not subject to tax even if it is known at the time of the sale 
that the liquid fuel will be resold by the dealer for use as a fuel in a 
diesel-powered highway vehicle, motor vehicle, motorboat, or aircraft.
    (2) The tax is payable by the person who makes the taxable sale. If 
a taxable liquid fuel is consigned to a person for sale and the 
consignor retains ownership in the liquid fuel until it is disposed of 
by the consignee, the consignor is the person liable for the tax when a 
taxable sale of the liquid fuel is made by the consignee. If the 
consignor transfers ownership in the taxable liquid fuel to the 
consignee before sale of the liquid fuel by the consignee, the consignee 
is the person liable for the tax upon a subsequent taxable sale of the 
liquid. However, if ownership of the liquid fuel is transferred back to 
the consignor or to another person before a taxable sale is made, as 
described in paragraph (a) of this section, and thereafter a taxable 
sale of the liquid fuel is made by such person or by another person 
acting as the person's agent, such person is liable for the tax. See 
paragraph (d) of Sec. 48.4041-8 for definition of the term ``taxable 
liquid fuel.''

[T.D. 8066, 51 FR 15, Jan. 2, 1986, as amended by T.D. 8154, 52 FR 
32008, Aug. 25, 1987]



Sec. 48.4041-6  Application of tax on use of taxable liquid fuel.

    (a) In general--(1) Diesel fuel. (i) If, before April 1, 1983, a 
person acquires any diesel fuel by any means other than through a 
transaction subject to tax under section 4041(a)(1) and uses it as a 
fuel in a diesel powered highway vehicle, the person is liable for a tax 
under section 4041(a)(2) on the quantity of diesel fuel so used at the 
appropriate rate set forth in Sec. 48.4041-1(b)(1)(i). If a person 
acquired any diesel fuel through a transaction which is subject to tax 
at the rate set forth in paragraph (b)(1)(i) (C) or (D) of Sec. 
48.4041-1, and uses it for a use described in paragraph (b) (1) (i) (A) 
or (B) of Sec. 48.4041-1 the person is liable for an additional tax 
uder section 4041(a)(2) on the quantity of diesel fuel so used. See 
Sec. 48.4041-1(b)(1)(i)(E), (F), or (G) for the applicable rate of tax. 
See section 6427(a) for credit or refund of tax where diesel fuel 
acquired in a transaction subject to tax at the rate set forth in 
paragraph (b)(1)(i) (A) or (B) of Sec. 48.4041-1 is used as described 
in paragraph (b)(1)(i) (C) or (D) of Sec. 48.4041-1 or in a nontaxable 
use.
    (ii) On or after April 1, 1983, and before August 1, 1984, if a 
person acquires any diesel fuel by any means other than through a 
transaction subject to tax under section 4041(a)(1)(A) and uses it as a 
fuel in a diesel-powered highway vehicle, the person is liable for a tax 
under section 4041(a)(1)(B) on the quantity of diesel fuel so used at 
the appropriate rate set forth in paragraph (b)(1)(ii) of Sec. 48.4041-
1. If a person acquired any diesel fuel through a transaction for which 
no tax is imposed by reason of paragraph (b)(1)(ii)(C) of Sec. 48.4041-
1 and uses it in other than a nontaxable use, the person is liable for a 
tax under section 4041(a)(1)(B) on the quantity of fuel so used. See 
paragraph (b)(1)(ii) (D) or (E) of Sec. 48.4041-1 for the applicable 
rate of tax. See section 6427(a) for credit or refund of tax where 
diesel fuel acquired in a transaction subject to tax at the rate set 
forth in paragraph (b)(1)(ii)(A) of Sec. 48.4041-1 is used as described 
in paragraph (b)(1)(ii)(C) of Sec. 48.4041-1 or in another nontaxable 
use.
    (iii) On or after August 1, 1984, and before October 1, 1988, if a 
person acquires any diesel fuel by any means other than through a 
transaction subject to tax under section 4041(a)(1)(A) and uses it as a 
fuel in a diesel-powered highway vehicle, the person is liable for a tax 
under section 4041(a)(1)(B) on the quantity of diesel fuel so used at 
the appropriate rate set forth in paragraph (b)(1)(iii) of Sec. 
48.4041-1. If a person acquired any diesel fuel through a transaction 
for which no tax is imposed by reason of paragraph (b)(1)(iii)(C) of 
Sec. 48.4041-1 and uses it in other than a nontaxable use, the person 
is liable for a tax under section 4041(a)(1)(B) on the quantity of fuel 
so used. See paragraph (b)(1)(iii)(D) of Sec. 48.4041-1 for the 
applicable rate of tax. See section 6427(a) for credit or refund of tax 
where diesel fuel acquired in a transaction subject to tax at the rate 
set forth in paragraph

[[Page 63]]

(b)(1)(iii)(A) of Sec. 48.4041-1 is used as described in paragraph 
(b)(1)(iii)(C) of Sec. 48.4041-1 or in another nontaxable use.
    (2) Special motor fuel. (i) On or after January 1, 1979, and before 
April 1, 1983, if a person acquired any special motor fuel by any means 
other than through a transaction subject to tax under section 4041(b)(1) 
and uses it as a fuel in a motor vehicle or motorboat, the person is 
liable for a tax under section 4041(b)(2) on the quantity of special 
motor fuel so used at the appropriate rate set forth in Sec. 48.4041-
1(b)(2)(i). If a person acquired any special motor fuel through a 
transaction with is subject to a tax at the rate set forth in paragraph 
(b)(2)(i)(C) of Sec. 48.4041-1 and uses it in a use other than one for 
which the reduced rate applies, the person is liable for an additional 
tax under section 4041(b)(2) on the quantity of special motor fuel so 
used. See Sec. 48.4041-1(b)(2)(i) (D) or (E) for the applicable rate of 
tax. See section 6427(a) for credit or refund of tax where special motor 
fuel acquired in a transaction subject to tax at the rate set forth in 
paragraph (b)(2)(i)(A) of Sec. 48.4041-1 is used for a purpose 
described in paragraph (b)(2)(i)(C) of Sec. 48.4041-1 or in a 
nontaxable use.
    (ii) On or after April 1, 1983, and before October 1, 1988, if a 
person acquired any special motor fuel by any means other than through a 
transaction subject to tax under section 4041(a)(2)(A) and uses it as a 
fuel in a motor vehicle or motorboat, the person is liable for a tax 
under section 4041(a)(2)(B) on the quantity of spcial motor fuel so used 
at the appropriate rate set forth in paragraph (b)(2)(ii) of Sec. 
48.4041-1. If a person acquired any special motor fuel through a 
transaction for which no tax is imposed by reason of paragraph 
(b)(2)(ii)(C) of Sec. 48.4041-1 and uses it in other than a nontaxable 
use, the person is liable for a tax under section 4041(a)(2)(B) on the 
quantity of fuel so used. See paragraph (b)(2)(ii)(D) of Sec. 48.4041-1 
for the applicable rate of tax. See section 6427(a) for credit or refund 
of tax where special motor fuel acquired in a transaction subject to tax 
at the rate set forth in paragraph (b)(2)(ii)(A) of Sec. 48.4041-1 is 
used for a purpose described in paragraph (b)(2)(ii)(C) of Sec. 
48.4041-1 or in another nontaxable use.
    (3) Noncommercial aviation. If a person acquires any liquid fuel by 
any means other than through a transaction subject to tax under section 
4041(c)(1)(A) or section 4041(c)(2)(A) and uses it as fuel in an 
aircraft in noncommercial aviation, the person is liable for a tax under 
section 4041(c)(1)(B) or section 4041(c)(2)(B) on the quantity of the 
liquid fuel so used at the appropriate rate set forth in Sec. 48.4041-
1(b)(3).
    (b) Bulk purchases by users. Taxpayers who purchase taxable liquid 
fuel in bulk delivered into storage tanks or other containers and use it 
for taxable or nontaxable purposes or in registered and nonregistered 
vehicles must maintain adequate records of all fuel used for each 
purpose to permit verification of the tax paid and of any credits, 
refunds, or exemptions claimed.

[T.D. 8066, 51 FR 15, Jan. 2, 1986]



Sec. 48.4041-7  Dual use of taxable liquid fuel.

    Tax applies to all taxable liquid fuel sold for use or used as a 
fuel in the motor which is used to propel a diesel-powered vehicle or in 
the motor used to propel a motor vehicle, motorboat, or aircraft, even 
though the motor is also used for a purpose other than the propulsion of 
the vehicle, motorboat, or aircraft. Thus, if the motor of a diesel-
powered highway vehicle or a motorboat operates special equipment by 
means of a power take-off or power transfer, tax applies to all taxable 
liquid fuel sold for this use or so used, whether or not the special 
equipment is mounted on the vehicle or boat. For example, tax applies to 
diesel fuel sold to operate the mixing unit on a concrete mixer truck if 
the mixing unit is operated by means of a power take-off from the motor 
of the vehicle. Similarly, tax applies to all taxable liquid fuel sold 
for use or used in a motor propelling a fuel oil truck even though the 
same motor is used to operate the pump (whether or not mounted on the 
truck) for discharging the fuel into customers' storage tanks. However, 
tax does not apply to liquid fuel sold for use or used in a separate 
motor to operate special equipment (whether or not the equipment is 
mounted on the

[[Page 64]]

vehicle). If the taxable liquid fuel used in a separate motor is drawn 
from the same tank as the one which supplies fuel for the propulsion of 
the vehicle, a reasonable determination of the quantity of taxable 
liquid fuel used in such separate motor or during such period is 
acceptable for purposes of application of the tax. This determination 
must be based, however, on the operating experience of the person using 
the taxable liquid fuel, and the taxpayer must maintain records which 
support the allocation used. Devices to measure the number of miles the 
vehicle has traveled, such as hubometers, may be used in making a 
preliminary determination of the number of gallons of fuel used to 
propel the vehicle. In order to make a final determination of the number 
of gallons of fuel used to propel the vehicle, there must be added to 
this preliminary determination the amount of fuel consumed while idling 
or warming up the motor preparatory to propelling the vehicle.

[T.D. 8066, 51 FR 16, Jan. 2, 1986]



Sec. 48.4041-8  Definitions.

    For purposes of the regulations in this subpart, unless otherwise 
expressly indicated:
    (a) Highway. The term ``highway'' includes any road (whether a 
Federal highway, State highway, city street, rural road, or otherwise) 
in the United States which is not a private roadway.
    (b) Highway vehicle--(1) In general. The term ``highway vehicle'' 
means any self-propelled vehicle, or any trailer or semi-trailer, 
designed to perform a function of transporting a load over highways, 
whether or not also designed to perform other functions, but does not 
include a vehicle described in paragraph (b)(2) of this section. For 
purposes of this definition, a vehicle consists of a chassis, or a 
chassis and a body if the vehicle has a body, but does not include the 
vehicle's load. Therefore, in determining whether a vehicle is a 
``highway vehicle'', it is immaterial that the vehicle is designed to 
perform a highway transportation function for only a particular kind of 
load, such as passengers, furnishings and personal effects (as in a 
house, office, or utility trailer), a special type of cargo, goods, 
supplies, or materials, or, except to the extent otherwise provided in 
paragraph (b)(2)(i) of this section, machinery or equipment specially 
designed to perform some off-highway task unrelated to highway 
transportation. In the case of specially designed machinery or 
equipment, it is also immaterial, except as provided in paragraph 
(b)(2)(i) of this section, that such machinery or equipment is 
permanently mounted on the vehicle. For purposes of paragraph (b) of 
this section, the term ``transport'' includes the term ``tow''. A 
vehicle which is not a highway vehicle within the meaning of this 
paragraph shall be treated as a non-highway vehicle for purposes of 
section 4041. Examples of vehicles that are designed to perform a 
function of transporting a load over the public highways are passenger 
automobiles, motorcycles, buses, and highway-type trucks, truck 
tractors, trailers, and semi-trailers.
    (2) Exceptions--(i) Certain specially designed mobile machinery for 
nontransportation functions. A self-propelled vehicle, or trailer or 
semi-trailer, is not a highway vehicle if it (A) consists of a chassis 
to which there has been permanentaly mounted (by welding, bolting, 
riveting, or other means) machinery or equipment to perform a 
construction, manufacturing, processing, farming, mining, drilling, 
timbering, or other operation similar to any one of the foregoing 
enumerated operations if the operation of the machinery or equipment is 
unrelated to transportation on or off the public highways, (B) the 
chassis has been specially designed to serve only as a mobile carriage 
and mount (and a power source, where applicable) for the particular 
machinery or equipment involved, whether or not such machinery or 
equipment is in operation, and (C) by reason of such special design, 
such chassis could not, without substantial structural modification, be 
used as a component of a vehicle designed to perform a function of 
transporting any load other than that particular machinery or equipment 
or similar machinery or equipment requiring such a specially designed 
chassis.
    (ii) Certain vehicles specially designed for off-highway 
transportation. A self-propelled vehicle, or a trailer or semi-

[[Page 65]]

trailer, is not a highway vehicle if it is (A) specially designed for 
the primary function of transporting a particular type of load other 
than over the public highway in connection with a construction, 
manufacturing, processing, farming, mining, drilling, timbering, or 
other operation similar to any one of the foregoing enumerated 
operations, and (B) if by reason of such special design, the use of such 
vehicle to transport such load over the public highways is substantially 
limited or substantially impaired. For purposes of applying the rule of 
clause (b) of this paragraph (b)(2)(ii), account may be taken of whether 
the vehicle may travel at regular highway speeds, requires a special 
permit for highway use, is overweight, overheight or overwidth for 
regular use, and any other relevant considerations. Solely for purposes 
of determinations under this paragraph (b)(2)(ii), where there is 
affixed to the vehicle equipment used for loading, unloading, storing, 
vending, handling, processing, preserving, or otherwise caring for a 
load transported by the vehicle over the public highways, the functions 
are related to the transportion of a load over the public highways even 
though the functions may be performed off the public highways.
    (iii) Certain trailers and semi-trailers specially designed to 
perform nontransportation functions off the public highways. A trailer 
or semi-trailer is not a highway vehicle if it is specially designed to 
serve no purpose other than providing an enclosed stationary shelter for 
the carrying on of a function which is directly connected with and 
necessary to, and at the off-highway site of, a construction, 
manufacturing, processing, mining, drilling, farming, timbering, or 
other operation similar to any one of the foregoing enumerated 
operations, such as a trailer specially designed to serve as an office 
for such an operation.
    (3) Optional application. For purposes of section 4041, if any rules 
existing immediately prior to January 13, 1977, would, if applicable, 
unequivocally resolve an issue involving the definition of a highway 
vehicle with respect to a period prior to such date, at the option of 
the taxpayer, such rules existing prior to such date shall be applied to 
resolve the issue for all periods prior to such date, and the rules of 
paragraph (b) (1) and (2) of this section, which define the term 
``highway vehicle'', shall not apply with respect to such issue for all 
periods prior to such date.
    (4) Diesel-powered highway vehicle. The term ``diesel-powered 
highway vehicle'' means any highway vehicle (within the meaning of 
paragraph (b)(1) of this section) which is also a motor vehicle (as 
defined in paragraph (c) of this section) and which uses diesel fuel (as 
defined in paragraph (e) of this section) for propulsion purposes.
    (c) Motor vehicles. The term ``motor vehicle'' includes all types of 
vehicles propelled by motor that are designed for carrying or towing 
loads from one place to another, regardless of the type of load or 
material carried or towed and whether or not the vehicle is registered 
or required to be registered for highway use. Included are fork lift 
trucks used to carry loads at railroad stations, industrial plants, 
warehouses, etc. The term does not include farm tractors, trench 
diggers, power shovels, bulldozers, road graders or rollers, and similar 
equipment which does not carry or tow a load; nor does it include any 
vehicle which moves exclusively on rails. For periods prior to January 
6, 1977, a vehicle which is designed for towing, but not carrying, loads 
shall not be considered to be a motor vehicle.
    (d) Taxable liquid fuel. The term ``taxable liquid fuel'' (or 
``taxable liquid'') means any liquid which is either--
    (1) Diesel fuel as defined in paragraph (e) of this section,
    (2) Special motor fuel as defined in paragraph (f) of this section, 
or
    (3) Any liquid fuel used in an aircraft in ``noncommercial 
aviation'', as defined in paragraph (h) of this section.
    (e) Diesel fuel. The term ``diesel fuel'' means any liquid (other 
than a product taxable as gasoline under the provisions of section 4081) 
which is sold for use or used as a fuel in a diesel-powered highway 
vehicle.
    (f) Special motor fuel. (1) Except as provided in paragraph (f)(2) 
of this section, special motor fuel means any liquid fuel, including--

[[Page 66]]

    (i) Any liquefied petroleum gas (such as propane, butane, pentane, 
or mixtures of the same);
    (ii) Liquefied natural gas; or
    (iii) Benzol, benzene, naptha, or any other liquid, whether a 
refined, partly refined, or unrefined product, 10 percent of which has 
been recovered when the thermometer reads 347 [deg]F. (175 [deg]C.) or 
95 percent of which has been recoverd when the thermometer reads 464 
[deg]F. (240 [deg]C.) when subjected to distillation in accordance with 
the ``Standard Method of Test for Distillation of Gasoline, Naptha, 
Kerosene, and Similar Petroleum Products'' (A.S.T.M. designation: D86) 
of the American Society for Testing Materials, regardless of the trade 
name under which sold.
    (2) The term ``special motor fuel'' does not include any product 
taxable under the provisions of section 4081, nor does it include 
``kerosene, gas oil, or fuel oil'', as defined in paragraph (g) of this 
section.
    (g) Kerosene, gas oil, or fuel oil. (1) The term ``kerosene, gas, 
oil or fuel oil'' means any product (i) 10 percent of which has not been 
recovered when the thermometer reads 347 [deg]F. (175 [deg]C.), and (ii) 
95 percent of which has not been recovered when the thermometer reads 
464 [deg]F. (240 [deg]C.), when subjected to distillation in accordance 
with the ``Standard Method of Test for Distillation of Gasoline, Naptha, 
Kerosene, and Similar Petroleum Products'' (A.S.T.M. designation: D86) 
of the American Society for Testing Materials.
    (2) Products designated as kerosene, gas, oil, or fuel oil which do 
not fall within the specifications of both paragraphs (g)(1) (i) and 
(ii) of this section are taxable as special motor fuel if sold or used 
as a fuel in a motor vehicle or motorboat.
    (h) Fuel used in the aircraft in noncommercial aviation. The term 
``fuel used in an aircraft in noncommercial aviation'' means any liquid 
(including any product taxable under section 4081) that is sold for use 
or used as a fuel in an aircraft in noncommercial aviation (as defined 
in paragraph (j) of this section).
    (i) Registered. The term ``registered'', when used with reference to 
a highway vehicle, means--
    (1) Registered for highway use under the laws of any State, District 
of Columbia, or foreign country, or
    (2) Required to be registered for highway use under the law of the 
State, District of Columbia, or foreign country in which it is operated 
or situated. Any highway vehicle which is operated under a dealer's tag, 
license, or permit is considered to be registered. A highway vehicle is 
not considered to be ``registered'' solely because there has been issued 
a special permit for operation of the vehicle at particular times and 
under specified conditions. However, a highway vehicle which is required 
to be registered and which also has been issued a special permit for 
operation of the vehicle under specified conditions, such as carrying an 
oversized load, is still considered to be ``registered''.
    (j) Noncommercial aviation. The term ``noncommercial aviation'' 
means any use of an aircraft, other than in a business of transporting 
persons or property for compensation or hire by air. The term also 
includes any use of an aircraft, in a business described in the 
preceding sentence, which is properly allocable to any transportation 
exempt from taxes imposed by sections 4261 (transportation of persons) 
and 4271 (transportation of property) by reason of section 4281 (use of 
small aircraft on nonestablished lines) or 4282 (transportation of 
members of affiliated group).

[T.D. 8066, 51 FR 17, Jan. 2, 1986, as amended by T.D. 8609, 60 FR 
40081, Aug. 7, 1995]



Sec. 48.4041-9  Exemption for farm use.

    (a) In general. The tax imposed by section 4041 does not apply to 
diesel fuel or special motor fuel, or fuel used in noncommercial 
aviation, sold for use or used on a farm in the United States for 
farming purposes. The tax applies in the case of diesel fuel delivered 
into the fuel supply tank of a highway vehicle, or special motor fuel 
delivered into the fuel supply tank of a motor vehicle or motorboat, 
even if it is known that the liquid fuel is to be used on a farm for 
farming purposes. Credit or refund of the tax paid in such case may be 
claimed as provided by

[[Page 67]]

section 6427(c) upon proof that the taxable liquid was used on a farm 
for farming purposes. A tax-free sale of fuel delivered into the fuel 
supply tank of an aircraft in noncommercial aviation where such fuel is 
to be used on the farm for farming purposes may be made only if the 
requirements of Sec. 48.4041-11 are met. The terms ``used on a farm for 
farming purposes'', and related terms, have the same meaning for 
purposes of the exemption in section 4041(f) and the regulations in this 
section as these terms are defined in paragraphs (1), (2), and (3) of 
section 6420(c) and the regulations contained in Sec. 48.6420-4.
    (b) Application of exemption. The exemption referred to in paragraph 
(a) of this section does not apply with respect to diesel fuel or 
special motor fuel or fuel used in noncommercial aviation sold for use 
or used for nonfarming purposes, or diesel fuel or special motor fuel or 
fuel used in noncommercial aviation sold for use or used off a farm, 
regardless of the nature of the use. Thus, if a vehicle, motorboat, or 
aircraft is used both on a farm and off the farm, or if it is used on a 
farm both for farming and nonfarming purposes, the exemption applies 
only with respect to that portion of the diesel fuel or special motor 
fuel or fuel used in noncommercial aviation which is sold for use or 
used ``on a farm for farming purposes''. For purposes of this exemption, 
it is immaterial whether or not a vehicle is registered for highway use. 
However, the actual use of the vehicle and the place where it is used 
are material. For example, if a truck used on a farm for farming 
purposes is also used on the highways (even though in connection with 
operating the farm), tax applies to that diesel fuel or special motor 
fuel which is sold for use or used in operating the truck on the 
highways, since the fuel was used off the farm.
    (c) Termination of exemption. The exemption referred to in paragraph 
(a) of this section shall not apply on and after October 1, 1988.

[T.D. 8066, 51 FR 18, Jan. 2, 1986]



Sec. 48.4041-10  Exemption for use as supplies for vessels or aircraft.

    (a) Application of exemption. The tax imposed by section 4041 does 
not apply to any fuels which are sold for use or used as supplies for 
vessels or aircraft within the meaning of section 4221(a)(3) and (d)(3), 
and Sec. 48.4221-4. In the case of a liquid sold for use as fuel in an 
aircraft, a tax-free sale may be made only if the requirements of Sec. 
48.4041-11 are met. For credit or refund of tax paid on fuels which have 
been sold or used as supplies for vessels or aircraft, see section 
6416(b)(2)(B), section 6427, and paragraph (f) of this section.
    (b) Evidence required to establish exemption. (1) In order to 
establish exemption from tax in the case of a sale of fuels for use as 
supplies for vessels or aircraft, it is necessary that the seller obtain 
from the owner, charterer, or authorized agent of the vessel or aircraft 
and retain in its possession a property executed exemption certificate 
in the form prescribed by paragraph (c) of this section. If fuel is sold 
tax free for use as supplies for civil aircraft employed in foreign 
trade or in trade between the United States and any of its possessions, 
the exemption certificate must show the name of the country in which the 
aircraft is registered.
    (2) If only occasional sales of fuels are made to a purchaser for 
use which is exempt from tax as provided in this section, a separate 
exemption certificate must be furnished for each order. However, if 
sales are regularly or frequently made to a purchaser for such exempt 
use, a certificate covering all orders for a specified period not to 
exceed 12 calendar quarters is acceptable. Such certificates and proper 
records of invoices, orders, etc., relative to tax-free sales must be 
kept for inspection by the district director as provided in section 
6001. If a seller's records with respect to any sale claimed to be tax 
free do not include a proper certificate, with supporting invoices and 
such other evidence as may be necessary to establish the exempt 
character of the sale, tax is payable by the seller on the sale.
    (c) Acceptable form of exemption certificate. The following form of 
exemption certificate, which must be adhered to

[[Page 68]]

in substance, is acceptable for the purposes of this section.

                          Exemption Certificate

    (For use by purchasers of fuels for use as supplies for certain 
vessels or aircraft (section 4041(g) of the Internal Revenue Code of 
1954).)

(Date), 19--____________________________________________________________

    The undersigned purchaser hereby certifies that he/she is the
________________________________________________________________________
(owner, charterer, or authorized agent of owner or charterer)
of______________________________________________________________________
(Name of company and vessel)

and that the fuel specified in the accompanying order, or as specified 
below or on the reverse side hereof, will be used only as fuel supplies 
for a vessel belonging to one of the following classes of vessels 
(including aircraft) to which section 4041(g) of the Internal Revenue 
Code applies: (Check class to which vessel belongs):
    (1) Vessels (including aircraft) engaged in foreign trade.
    (2) Vessels engaged in trade between the Atlantic and Pacific ports 
of the United States.
    (3) Vessels (including aircraft) engaged in trade between the United 
States and any of its possessions.
    (4) Vessels employed in the fisheries or whaling business.
    (5) Vessels (including aircraft) of war of the United States or a 
foreign nation.
    The undersigned understands that if the fuels are sold or used 
otherwise than as stated above and for a taxable purpose specified in 
section 4041 of the Internal Revenue Code, the undersigned will be 
liable for the tax upon such sale or use. It is also understood that 
this certificate may not be used in purchasing fuels, if such fuels are 
for use as fuels in pleasure vessels, or of any type of aircraft 
except--
    (1) Civil aircraft employed in foreign trade or trade between the 
United States and any of its possessions, and otherwise entitled to 
exemption, and
    (2) Aircraft owned by the United States or any foreign country and 
constituting a part of the armed forces thereof.
    The undersigned understands that the fraudulent use of this 
certificate to secure exemption will subject the undersigned and all 
others making fraudulent use to a penalty equivalent to the amount of 
tax due on the sale of the fuel and, upon conviction, to a fine of not 
more than $10,000, or to imprisonment for not more than 5 years, or 
both, together with the costs of prosecution. The purchaser also 
understands that it must be prepared to establish by satisfactory 
evidence the purpose for which the fuel purchased under this certificate 
was used.

(Signature)_____________________________________________________________

(Address)_______________________________________________________________

________________________________________________________________________

Registration Number if fuel used as supplies for civil aircraft engaged 
in foreign trade or in trade between the United States and any of its 
possessions.

    (d) Exemption certificate not obtained prior to filing of seller's 
excise tax return. If the exemption certificate is not obtained prior to 
the time the seller files a return covering taxes due for the period 
during which the sale was made, the seller must include the tax on the 
sale in its return for that period. However, if the certificate is later 
obtained, a claim for refund of the tax paid on the sale may be filed on 
Form 843, or a credit for the tax paid may be taken upon a subsequent 
return as provided by section 6416(b)(2)(B) and Sec. 48.6416(b)-2(c).
    (e) Liability of purchaser. The person who purchases fuels tax free 
as provided in this section is liable for the tax imposed by section 
4041 if the person sells or uses such fuel in a sale or use that is not 
exempt under any provision of law applicable to the taxes imposed by 
section 4041.
    (f) Credit or refund. (1) If diesel fuel or special motor fuel upon 
which the tax imposed by section 4041(a) (1) or (2), has been paid, is 
sold or used as supplies for vessels, a credit or refund of the tax is 
available under section 6416(b)(2)(B) to the retail dealer who paid the 
tax. As an alternative, a credit or refund of tax is available under 
section 6427 to the operator of the vessel who used the fuel. Where the 
retail dealer claims refund of the tax, the dealer, in accordance with 
section 6416(a), must reimburse the operator of the vessel for the 
amount of tax or obtain the written consent of the operator to the 
filing of such claim.
    (2) If aviation fuel upon which the tax imposed by section 4041(c) 
has been paid is sold or used as supplies for aircraft, credit or refund 
of the tax is available only as a payment under section 6427 to the 
operator of the aircraft who uses the fuel or to the person who resells 
the fuel for such use.

[T.D. 8066, 51 FR 18, Jan. 2, 1986]

[[Page 69]]



Sec. 48.4041-11  Tax-free sales of fuel for use in noncommercial

aviation only if sellers and certain purchasers are registered.

    (a) In general. Any sale of liquid fuel for delivery into a fuel 
supply tank of an aircraft is presumed to be subject to tax under 
section 4041(c), unless both the seller and purchaser of the liquid fuel 
are registered as provided in paragraph (b) of this section or are 
within one of he exceptions provided in paragraph (c) of this section.
    (b) Form of registration. Except as provided in paragraph (c) of 
this section (relating to exceptions for State and local governments, 
for fuel purchased from customs bonded warehouses or continuous customs 
custody, and for fuel purchased for use in certain aircraft of the 
United States or of any foreign nation), tax-free sales under section 
4041(c) may be made only if both the seller and the purchaser have 
registered as required by section 4041(i) and this paragraph (b). If 
fuel is purchased tax paid for use in noncommercial aviation but is used 
for a nontaxable purpose, see section 6427(a) for provisions relating to 
refunds or credits of tax for tax-paid fuels not used for the purpose 
for which sold. Any person desiring to be registered in order to sell or 
purchase fuel free of the tax imposed by section 4041(c) must, before 
making any tax-free sale or purchase, file Form 637A, in duplicate. Form 
637A must be filed with the District Director of Internal Revenue for 
the district in which the principal place of business of the applicant 
is located (or if the applicant has no principal place of business in 
the United States, with the Director of International Operations, 
Internal Revenue Service, Washington, DC 20224). The person who receives 
a validated Certificate of Registry (Validated Form 637A) is considered 
to be registered for purposes of selling or purchasing fuel tax free as 
provided in this section.
    (c) Transactions excepted from registration. (1) A State or local 
government purchasing fuel delivered into a fuel supply tank of an 
aircraft it operates for its exclusive use may, but is not required to, 
register as provided in this section.
    (2) Any purchaser of aircraft fuel who purchases fuel from any 
customs bonded warehouse or from continuous customs custody elsewhere 
than in a bonded warehouse is not required to register to purchase 
aircraft fuel from these sources tax free.
    (3) Any purchaser of fuel for use in an aircraft which is owned by 
the United States or any foreign country and constitutes a part of the 
armed forces thereof is not required to register to purchase aircraft 
fuel tax free.
    (4) The exceptions from registration in paragraphs (c) (1), (2), and 
(3) of this section do not relieve purchasers from the requirement of 
furnishing an exemption certificate as required by paragraph (d) of this 
section.
    (d) Evidence of tax-free sale. (1) To establish the right of a 
purchaser to purchase fuel delivered into the fuel supply tank of an 
aircraft tax free, the seller must obtain from the purchaser and retain 
in its possession a certificate, properly executed and signed by or on 
behalf of the purchaser, containing the following information:
    (i) Date of purchase,
    (ii) The purchaser's registration number (or the exception from 
registration which is relied upon), and
    (iii) A brief statement of the intended tax-free use of the fuel 
(for example, by an airline in the business of transporting persons or 
property for hire).
    (2) The following form of certificate, which must be adhered to in 
substance, is acceptable for the purposes of this paragraph.

(Date) --------------------, 19----
    The undersigned signifies that he/she, or the

________________________________________________________________________
(Name of purchaser if other than undersigned)

of which the undersigned is

________________________________________________________________________
(Title)

holds Certificate of Registry No. ----------
or has not registered because

________________________________________________________________________

(Brief statement of exception from registration relied upon)

delivered into a supply tank of the subject aircraft may be purchased 
free of tax because the fuel will be used


[[Page 70]]


________________________________________________________________________

(Brief statement of tax-free use)
    The undersigned understands that if the fuel is used otherwise than 
as stated above and for a purpose taxable under section 4041 of the 
Internal Revenue Code, the undersigned will be liable for the tax upon 
such use, and that the undersigned must be prepared to establish by 
satisfactory evidence the purpose for which the fuel purchased under 
this certificate was used.
    The undersigned also understands that the fraudulent use of this 
certificate to secure exemption will subject the undersigned and all 
others making fraudulent use to a penalty equivalent to the amount of 
tax due on the sale of the fuel and, upon conviction, to a fine of not 
more than $10,000, or to imprisonment for not more than 5 years, or 
both, together with the costs of prosecution.

________________________________________________________________________
 (Signature)

________________________________________________________________________
 (Address)

    (3) Except as provided in paragraph (d)(4) of this section, a 
separate exemption certificate must be furnished for each sale of fuel 
delivered into a fuel supply tank of an aircraft. If a portion of the 
fuel is intended to be used for a nontaxable purpose, the entire amount 
of the fuel may be sold tax free. Exemption certificates and proper 
supporting records such as invoices, orders, etc., relative to tax-free 
sales must be readily accessible for inspection by internal revenue 
officers and retained as provided in section 6001 of the Code and the 
regulations thereunder.
    (4) If the purchaser of fuel to be used in an aircraft has 
reasonable grounds to believe that 90 percent or more of the total of 
the fuel to be purchased by it during a specified period not to exceed 
12 calendar quarters will be used in a tax-free use, it may furnish each 
of its suppliers an exemption certificate covering all purchases for the 
specified period. The certificate shall be substantially in the same 
form as the certificate in paragraph (d)(2) of this section, except that 
in place of the date the purchaser shall specify the period covered by 
the certificate, and the purchaser shall give a brief explanation of its 
grounds for belief that 90 percent or more of its total fuel will be 
used in a tax-free use.
    (5) The presumption under section 4041(i) that any liquid delivered 
into a fuel supply tank of an aircraft is taxable places the duty on the 
seller of the liquid fuel to use reasonable diligence to satisfy itself 
that a tax-free sale of fuel to the purchaser is allowed by law. In the 
absence of circumstances surrounding a sale that would raise a question 
as to whether a tax-free sale is allowable, the requirement of 
reasonable diligence is satisfied if the seller receives and retains the 
required certificate evidencing the right of the purchaser to buy the 
fuel tax free. However, if the circumstances are such as to indicate the 
seller has failed to use reasonable diligence, it is not relieved of 
liability for the tax imposed by section 4041(c). In addition, if the 
seller fails to obtain and retain the evidence of tax-free sales as 
required by this paragraph (d), it is not relieved of liability for the 
tax imposed by section 4041(c).

[T.D. 8066, 51 FR 19, Jan. 2, 1986]



Sec. 48.4041-12  Sales by United States, etc.

    The taxes imposed by section 4041 apply to the sale at retail of 
taxable liquid fuels by the United States or by any agency or 
instrumentality of the United States, unless by statute specifically 
exempted from these taxes. However, the exemptions from these taxes 
provided by section 4041 (f), (g), and (h) and the regulations 
thereunder contained in this subpart F are available to the extent 
therein provided.

[T.D. 8066, 51 FR 20, Jan. 2, 1986]



Sec. 48.4041-13  Other credits or refunds.

    (a) In general. For provisions relating to credit or refund of tax 
paid on taxable liquid fuel resold by the purchaser, or used otherwise 
than for the purpose for which purchased, see section 6427 and the 
regulations thereunder contained in Subpart O of this part.
    (b) Tax-paid liquid fuel used by local transit systems. For 
provisions relating to credit or refund in the case of taxable liquid 
fuel used in vehicles while engaged in furnishing scheduled common 
carrier public passenger land transportation service along regular

[[Page 71]]

routes, see section 6427(b) and the regulations thereunder contained in 
Subpart O of this part.
    (c) Credit or refund of diesel fuel differential amount. For 
provisions relating to an income tax credit or refund of the increased 
diesel fuel tax for original purchasers of diesel-powered automobiles 
and light trucks, see section 6427(g) and the regulations thereunder 
contained in Subpart O of this part.

[T.D. 8066, 51 FR 20, Jan. 2, 1986]



Sec. 48.4041-14  Exemption for sale to or use by certain aircraft museums.

    (a) In general. (1) The tax imposed by section 4041 does not apply 
to liquids which are sold for use or used by an aircraft museum in an 
aircraft or vehicle owned by such museum and used exclusively for the 
procurement, care, and exhibition of aircraft of the type used for 
combat or transport in World War II.
    (2) In the case of liquid sold for use in an aircraft owned by an 
aircraft museum and to be used for the pruposes described in paragraph 
(a)(1) of this section, a tax-free sale may be made only if the 
requirements of Sec. 48.4041-11 are met.
    (b) Cross reference. For the definition of aircraft museum, see 
section 4041(h)(2).

[T.D. 8066, 51 FR 20, Jan. 2, 1986]



Sec. 48.4041-15  Sales to States or political subdivisions thereof.

    (a) Application of exemption. The taxes imposed by section 4041 do 
not apply in the case of a sale of any liquid by any person for the 
exclusive use of any State or any political subdivision thereof, the 
District of Columbia, or in the case of the use of any liquid by any 
State or any political subdivision thereof, or the District of Columbia, 
as a fuel in a motor vehicle, motorboat, or aircraft.
    (b) Evidence required to establish exemption. Any vendor claiming 
exemption under this section shall be prepared to produce evidence that 
will establish the right to exemption from the tax imposed by section 
4041. Generally, orders or contracts of a State or a political 
subdivision thereof, or the District of Columbia, when signed by an 
authorized officer thereof will be accepted in support of the exemption. 
However, in the absence of such orders or contracts, a certificate 
signed by such an authorized officer that the liquid sold was purchased 
for the exclusive use of a State or political subdivision thereof, or 
the District of Columbia, will be acceptable. The certificate shall be 
in substantially the following form:

                          Exemption Certificate

    (For use by States and local governments. (section 4041(g)(2) of the 
Internal Revenue Code).)

Date --------------------, 19----.

    I hereby certify that I am -------------- of -------------- (State 
or local government) that I am authorized to execute this certificate; 
and that

                 (Check applicable type of certificate)

------the liquid or liquids specified in the accompanying order, or on 
the reverse side hereof, (or)

------all orders placed by the purchaser for the period commencing ----
------ (Date) and ending ---------- (Date) (period not to exceed 12 
calendar quarters) are, or will be, purchased from ---------- (Name of 
vendor) for the exclusive use of ---------- (Governmental unit) of ----
---------------- (State or local government).
    I understand that the exemption from tax in the case of sales of 
liquids under this exemption certificate is limited to the sale of 
articles purchased for the exclusive use of a State, etc. I understand 
that the fraudulent use of this certificate for the purpose of securing 
this exemption will subject me and all parties making such fraudulent 
use of this certificate to a fine of not more than $10,000, or to 
imprisonment for not more than 5 years, or both, together with costs of 
prosecution.

Signature --------------------

Address --------------------


[T.D. 7536, 43 FR 13516, Mar. 31, 1978. Redesignated by T.D. 8066, 51 FR 
14, Jan. 2, 1986]



Sec. 48.4041-16  Sales for export.

    (a) General rule. In order for a sale to be exempt from tax under 
section 4041 as a sale for export, it is necessary that the liquid be 
(1) identified as having been sold by the retailer for export and (2) 
exported in due course. To establish exemption from tax in the case of a

[[Page 72]]

taxable article for export, it is necessary that the retailer maintain 
adequate records and have in his possession documentary evidence showing 
that the article was so sold.
    (b) Proof of exportation. Exportation may be evidenced by any one of 
(1) a copy of the export bill of lading issued by the delivering 
carrier, (2) a certificate by the agent or representative of the export 
carrier showing actual exportation of the liquid, (3) a certificate of 
landing signed by a customs officer of the foreign country to which the 
liquid is exported, or (4) a statement of the foreign consignee showing 
receipt of the liquid.
    (c) Shipment to possessions of the United States. The same 
provisions as relate to sales for export and proof of exportation will 
apply to sales for shipment to a possession of the United States, within 
the meaning of Sec. 48.0-2.

[T.D. 7536, 43 FR 13516, Mar. 31, 1978. Redesignated by T.D. 8066, 51 FR 
14, Jan. 2, 1986]



Sec. 48.4041-17  Tax-free retail sales to certain nonprofit educational organizations.

    (a) In general. The taxes imposed by section 4041 do not apply in 
the case of a sale of any liquid by any person to a nonprofit 
educational organization (as defined in paragraph (b) of this section) 
for its exclusive use, or in the case of the use of any liquid by such 
an organization. In the case of a school operated as an activity of an 
organization described in section 501(c)(3), as referred to in paragraph 
(b) of this section, the liquid must be sold for the exclusive use of 
the school, or the liquid must be used exclusively by the school.
    (b) Definition of nonprofit educational organization. For purposes 
of section 4041(g)(4) and this section, the term ``nonprofit educational 
organization'' means an organization described in section 
170(b)(1)(A)(ii), that is exempt from income tax under section 501(a), 
whose primary function is the presentation of formal instruction and 
which normally maintains a regular faculty and curriculum and normally 
has a regularly enrolled body of pupils or students in attendance at the 
place where its educational activities are regularly carried on. The 
term also includes a school operated as an activity of an organization 
described in section 501(c)(3) which is exempt from income tax under 
section 501 (a), provided such school normally maintains a regular 
faculty and curriculum and normally has a regularly enrolled body of 
pupils or students in attendance at the place where its educational 
activities are regularly carried on.
    (c) Evidence required to establish tax-free sales to a nonprofit 
educational organization; general rule. To establish the right to 
exemption, the retailer must obtain from the purchaser and retain in its 
possesson a properly executed certificate as set forth in paragraph (d) 
of this section.
    (d) Forms of exemption certificates. The following forms of 
exemption certificates will be acceptable for the purpose of this 
section and must be adhered to in substance.
    (1) Form of certificate for exemption from retailers excise taxes 
for use by a nonprofit educational organization, other than a school 
operated as an activity of a church or other exempt organization that in 
itself is not a nonprofit educational organization.

                          Exemption Certificate

    (For use by a nonprofit educational organization (other than a 
school operated as an activity of a church or other exempt organization 
that in itself is not a nonprofit educational organization) purchasing 
articles subject to retailers excise tax for its exclusive use) --------
----------, 19---- (Date) I hereby certify that I am ---------- (Title) 
of ---------- (Exempt organization); that I am authorized to execute 
this certificate; and that the articles specified in the accompanying 
order or on the reverse side hereof are purchased by such organization 
exclusively for use in its educational activities.
    I understand that this exemption certificate is for use only by a 
nonprofit educational organization in the tax-free purchase for its 
exclusive use of articles subject to the retailers excise tax; and it is 
agreed that if any article purchased tax free under this exemption 
certificate is used otherwise, such fact will be reported to the 
retailer from whom the tax-free purchase was made.
    The organization claiming exemption under this certificate has 
received a determination letter (or a ruling) from the Internal Revenue 
Service holding the organization to be exempt from income tax as an 
organization described in section 170(b)(1)(A)(ii) that is exempt from 
income tax under section 501(a) of the Internal Revenue Code (or has 
received a determination

[[Page 73]]

letter (or ruling) under the corresponding provisions of prior revenue 
laws). The date of such determination letter (or ruling) is ------ and 
such determination letter (or ruling) has not been withdrawn or revoked.
    I understand that the fraudulent use of this certificate for the 
purpose of securing this exemption will subject me and all parties 
making such fraudulent use of this certificate to a fine of not more 
than $10,000, or to imprisonment for not more than 5 years, or both, 
together with costs of prosecution.

________________________________________________________________________

                  (Signature of authorized individual)

________________________________________________________________________

                                (Address)

    (2) Form of certificate for exemption from retailers excise taxes 
for use by a school operated as an activity of a church or other 
organization described in section 501(c)(3) that in itself is not an 
educational organization described in section 170(b)(1)(A)(ii) of the 
Code:

                          Exemption Certificate

    (For use by or for a school operated as an activity of a church or 
other organization described in section 501(c)(3) of the Internal 
Revenue Code of 1954, that is not, in itself, an educational 
organization described in section 170(b)(1)(A)(ii), purchasing articles 
subject to retailers excise tax for the exclusive use of the school) -- 
--------------------, 19---- (Date) I hereby certify that I am --------
-- (Title) of ---------- (School, church, parish, etc.); that I am 
authorized to execute this certificate; and that the articles specified 
in the accompanying order or on the reverse side hereof are purchased by 
such institution exclusively for use in its educational activities.
    I understand that this exemption certificate is for use only by a 
school operated as an activity of a church or other organization 
described in section 501(c)(3) of the Internal Revenue Code of 1954, in 
the tax-free purchase for its exclusive use of articles subject to the 
retailers excise tax; or by a church, or other organization in the tax-
free purchase of any such article for the exclusive use of its school 
which qualifies for the exemption; and it is agreed that if any article 
purchased tax free under this exemption certificate is used otherwise, 
such fact will be reported to the retailer from whom the tax-free 
purchase was made.
    The school operated as an activity of the church or other 
organization described in section 501(c)(3) of the Internal Revenue Code 
of 1954, normally maintains a regular faculty and curriculum and 
normally has a regularly enrolled body of pupils or students in 
attendance at the place where its educational activities are regularly 
carried on.
    I understand that the fraudulent use of this certificate for the 
purpose of securing this exemption will subject me and all parties 
making such fraudulent use of this certificate to a fine of not more 
than $10,000, or to imprisonment for not more than 5 years, or both, 
together with costs of prosecution.
________________________________________________________________________

                  (Signature of authorized individual)

________________________________________________________________________

                                (Address)

    (e) Frequency of certificates. Where only occasional sales are made 
by a retailer to a nonprofit educational organization, as defined in 
paragraph (b) of this section, a separate exemption certificate should 
be furnished for each order. However, where sales by the retailer to the 
educational organization are regularly or frequently made, a certificate 
covering all orders for a specified period not to exceed 12 calendar 
quarters will be acceptable. Such certificate and proper records of 
invoices, orders, etc., relative to tax-free sales must be readily 
accessible for inspection by internal revenue officers and retained as 
provided in section 6001 of the Code and the regulations thereunder.
    (f) Prima facie evidence of exempt use. The exemption certificate 
procured by the retailer from the purchasing nonprofit educational 
organization will be acceptable as prima facie evidence that the article 
is purchased for the exclusive use of such organization.
    (g) Exemption certificate not obtained prior to filing of retailer's 
excise tax return. If the sale is otherwise exempt but the exemption 
certificate is not obtained prior to the time the retailer files a 
return covering taxes due for the period in which the sale was made, the 
retailer must include the tax on such sale in its return for that 
period. However, if the certificate is later obtained, a credit may be 
taken on a subsequent return or a claim for refund of the tax paid on 
such sale may be filed, within the period of limitation prescribed by 
section 6511(b) of the Code and Sec. 301.6511(b)-1 of this chapter.

[T.D. 7536, 43 FR 13516, Mar. 31, 1978. Redesignated by T.D. 8066, 51 FR 
14, Jan. 2, 1986]

[[Page 74]]



Sec. 48.4041-18  Fuels containing alcohol.

    (a) In general--(1) Sale or use after December 31, 1984 and before 
January 1, 1993. Under section 4041(k) the rate of tax applicable to the 
sale or use after December 31, 1984 and before January 1, 1993, of any 
liquid fuel described in section 4041(a) (1) or (2) which consists of at 
least 10% alcohol by volume is:
    (i) 9 cents for each gallon of alcohol mixture sold or used in the 
case of mixtures described in section 4041(a)(1); or
    (ii) 3 cents for each gallon of alcohol mixture sold or used in the 
case of mixtures described in section 4041(a)(2). The amount of tax is 
based upon the total volume of fuel and not merely upon the volume of 
the nonalcohol components of such fuel. However, see section 4041(b)(2) 
and Sec. 48.4041-19 for rules relating to the complete exemption from 
taxes imposed by section 4041(a) where at least 85% of the fuel consists 
of alcohol produced from certain sources.
    (2) Sale or use after March 31, 1983, and before January 1, 1985. 
For rules relating to the rate of tax imposed on the sale or use after 
March 31, 1983, and before January 1, 1985 of any liquid fuel described 
in section 4041(a) (1) or (2) which consists of at least 10% alcohol by 
volume, see section 4041(k) prior to the enactment of the Tax Reform Act 
of 1984 (Pub. L. 98-369, 98 Stat. 1007).
    (3) Sale or use before April 1, 1983. No tax is imposed upon the 
sale or use of any liquid fuel described in section 4041 (a)(1) or 
(a)(2) which consists of at least 10% alcohol if the sale or use occurs 
after December 31, 1978 and before April 1, 1983.
    (4) Rate of tax for mixtures which fail to qualify. If an alcohol 
mixture fuel fails to qualify under this section, the entire mixture is 
taxed at the rate of tax specified under section 4041(a)(1) if the 
mixture contains diesel fuel, or section 4041(a)(2) if the mixture 
contains special motor fuel.
    (b) Alcohol mixture fuels qualifying for special tax treatment. In 
order to qualify for the reduced rates of tax described in paragraphs 
(a)(1) and (a)(2) of this section or the exemption from tax described in 
paragraph (a)(3) of this section, at least 10% of an alcohol mixture 
fuel must consist of alcohol as defined in section 4081(c) and Sec. 
48.4081-2(a)(4) of the regulations. The actual gallonage of each 
component of the mixture (without adjustment for temperature) shall be 
used in determining whether the 10 percent alcohol requirement has been 
met. Further, in determining whether a particular mixture containing 
less than 10 percent alcohol satisfies this percentage requirement, the 
District Director shall take into account the existence of any facts and 
circumstances that establish that but for the commercial and operational 
realities of the blending process, it may reasonably be concluded that 
the mixture would have contained at least 10 percent alcohol. A 
circumstance from which it might be concluded that the mixture would 
have contained 10 percent alcohol but for its existence is 
malfunctioning of the meter measuring the amount of a component pumped 
into a mixture. However, the necessary facts and circumstances will not 
be found to exist if over a period of time the mixtures blended by a 
blender show a consistent pattern of failing to contain 10 percent 
alcohol. In no case will any mixture containing less than 9.802 percent 
alcohol qualify for the reduced rates set forth in this section. See 
paragraph (f) of this section for rules relating to information required 
to be attached to the taxpayer's return of the tax imposed by chapter 31 
relating to the alcohol content of the mixture for which tax is paid.
    (c) Later separation. If a person separates out the alcohol from a 
mixture which has been taxed under the rates of section 4041(k), such 
separation will be treated as a sale of the liquid on the date separated 
and is subject to tax at the rates set forth under section 4041(a) (1) 
or (2). The tax liability incurred upon the separation is reduced by the 
amount of any tax previously imposed under section 4041. Thus, if Y buys 
1000 gallons of alcohol mixture fuel taxed at the rate of 3 cents per 
gallon under section 4041(k) and later separates the fuel into 900 
gallons of special motor fuel and 100 gallons of alcohol, the separation 
is treated as a sale of 900 gallons of special motor fuel, taxed at the 
rate of 9 cents per gallon under section 4041(a), and a sale of 100 
gallons of alcohol, exempt from tax under section 4041(b)(2). The tax of 
$81 on the deemed

[[Page 75]]

sale of special motor fuel is reduced by the tax of $30 previously paid 
on the sale of the alcohol mixture fuel.
    (d) Exemption from tax for alcohol mixture fuels sold or used in an 
aircraft in noncommercial aviation--(1) In general. No tax is imposed 
upon the sale or use of any liquid fuel described in section 4041 (a)(1) 
or (a)(2) which consists of at least 10% alcohol if such fuel is sold to 
or used by an owner, lessee or other operator of an aircraft as fuel in 
such aircraft in noncommercial aviation. See section 4041(c)(4) and the 
regulations thereunder for the definition of noncommercial aviation.
    (2) Failure to use alcohol mixture fuel in an aircraft in 
noncommercial aviation. If fuel which is exempt from tax under paragraph 
(d)(1) of this section is not used as fuel in an aircraft in 
noncommercial aviation, any other use or sale of such fuel will be 
considered the use or sale of an alcohol mixture fuel subject to tax 
according to the rules of this section.
    (e) Refunds relating to diesel, special motor and noncommercial 
aviation fuels. See section 6427 for rules which relate to the allowance 
of a refund or credit to a person who uses tax-paid diesel, special 
motor or noncommercial aviation fuels to produce an alcohol mixture 
fuel.
    (f) Records required to be furnished by the taxpayer. A taxpayer 
making a return of the tax imposed by chapter 31 indicating payment of 
the tax under section 4041(k) and Sec. 48.4041-18 at the reduced rate 
must attach a statement to the return indicating the total number of 
gallons of alcohol mixture fuels containing at least 10 percent alcohol 
and the total number of gallons of alcohol mixture fuels containing less 
than 10 percent alcohol but more than 9.802 percent alcohol. However, 
the taxpayer does not have to specify the precise mixture ratio for 
every mixture blended for which tax is being paid. For example, the 
taxpayer pays tax for 10,000 gallons of alcohol mixture fuels. Of these 
mixtures, 1,000 gallons contain 9.9 percent alcohol, 1,500 gallons 
contain 9.91 percent alcohol and 7,500 gallons contain 10 percent 
alcohol. The taxpayer seeks to have all of the mixtures described above 
qualify for taxation at the reduced rate under the rules of paragraph 
(b) of this section. The blender must attach a statement to the return 
of tax filed for these mixtures indicating that of the 10,000 gallons, 
7,500 gallons contain at least 10 percent alcohol and 2,500 gallons 
contain less than 10 percent alcohol.
    (g) Alcohol mixture fuel within the tank of a vehicle--(1) Mixtures 
within the tank of a vehicle before April 1, 1983. If an alcohol mixture 
fuel is put into the tank of a vehicle prior to April 1, 1983, the fuel 
is considered used prior to that date. Thus, such fuel will not be 
subject to the tax described in paragraph (a)(2) of this section and 
will be exempt from tax according to the provision of paragraph (a)(3) 
of this section.
    (2) Mixture within the tank of a vehicle before January 1, 1985. If 
an alcohol mixture is put into the tank of a vehicle prior to January 1, 
1985, the fuel is considered used prior to that date. Thus, such fuel is 
subject to the tax described in paragraph (a)(2) of this section.

[T.D. 8152, 52 FR 31616, Aug. 21, 1987]



Sec. 48.4041-19  Exemption for qualified methanol and ethanol fuel.

    (a) In general. Under section 4041(b)(2), the tax imposed upon the 
sale or use of motor fuels under section 4041(a) does not apply to the 
sale or use of qualified methanol or ethanol fuel.
    (b) Qualified methanol or ethanol fuel defined. For purposes of 
section 4041(b)(2) and this section, qualified methanol or ethanol fuel 
is liquid motor fuel, 85% of the volume of which consists of alcohol, as 
defined in section 4081(c) and Sec. 48.4081-2(a)(4) of the regulations 
as modified by the following sentence. For purposes of section 
4041(b)(2) and this section, the alcohol contained in a qualified 
methanol or ethanol fuel may be produced from coal. The actual gallonage 
of each component of the mixture (without adjustment for temperature) 
shall be used in determining whether the 85 percent alcohol has been 
met. Further, in determining whether a particular mixture containing 
less than 85 percent alcohol satisfies this percentage requirement, the 
District Director shall take into account the existence of any facts and 
circumstances, that establish that but for the commercial and 
operational realities of the blending process, it

[[Page 76]]

may reasonably be concluded that the mixture would have contained at 
least 85 percent alcohol. The necessary facts and circumstances will not 
be found to exist if over a period of time the mixtures blended by a 
blender show a consistent pattern of failing to contain 85 percent 
alcohol.
    (c) Mixtures which do not qualify as qualified methanol or ethanol 
fuel. If a methanol or ethanol fuel does not qualify as qualified 
methanol or ethanol fuel under this section, the entire mixture is taxed 
at the rate of tax applicable to sales of special motor fuels under 
section 4041(a)(2) of the Code.
    (d) Refunds relating to fuels used to produce qualified fuels. See 
section 6427 for rules which relate to the allowance of a refund or 
credit to a person who uses tax-paid diesel, special motor or 
noncommercial aviation fuels to produce a qualified methanol or ethanol 
fuel and section 6416 for rules which relate to the allowance of a 
refund or credit to a person who uses tax-paid gasoline to produce a 
qualified methanol or ethanol fuel.
    (e) Later blending. If a qualified methanol or ethanol fuel is 
blended with other motor fuel in a mixture less than 85 percent of which 
consists of alcohol, the subsequent sale or use of such alcohol mixture 
fuel is taxable under the provisions of section 4041 or section 4081 
subject to the requirements, limitations and exemptions of those 
sections. Thus, if the alcohol mixture fuel is at least 10% alcohol by 
volume, sale or use of the fuel is taxed at the rates provided in 
section 4041(k) or section 4081(c), but if the fuel is less than 10% 
alcohol, sale or use of the fuel is taxed at the rates provided in 
section 4041(a) or section 4081(a).
    (f) Effective date. Section 4041(b)(2) applies to sales or uses 
after March 31, 1983, and before October 1, 1988.

[T.D. 8152, 52 FR 31617, Aug. 21, 1987]



Sec. 48.4041-20  Partially exempt methanol and ethanol fuel.

    (a) In general. Under section 4041(m), the sale or use of partially 
exempt methanol or ethanol fuel is taxed at the rate of 4\1/2\ cents per 
gallon of fuel sold or used. The amount of tax is based upon the total 
volume of fuel and not merely upon the nonalcohol portion of the fuel.
    (b) Partially exempt methanol or ethanol fuel defined. For purposes 
of section 4041(m) and this section, partially exempt methanol or 
ethanol fuel is liquid motor fuel, 85% of which by volume consists of 
alcohol, as defined in section 4081 and Sec. 48.4081-2(a)(4) of the 
regulations, as modified by the following sentence. For purposes of 
section 4041(m) and this section, the alcohol contained in partially 
exempt methanol or ethanol fuel must be produced from natural gas. The 
actual gallonage of each component of the mixture (without adjustment 
for temperature) shall be used in determining whether the 85 percent 
alcohol requirement has been met. Further, in determining whether a 
particular mixture containing less than 85 percent alcohol satisfies 
this percentage requirement, the District Director shall take into 
account the existence of any facts and circumstances that establish that 
but for the commercial and operational realities of the blending 
process, it may reasonably be concluded that the mixture would have 
contained at least 85 percent alcohol. The necessary facts and 
circumstances will not be found to exist if over a period of time the 
mixtures blended by a blender show a consistent pattern of failing to 
contain 85 percent alcohol. See paragraph (f) of this section for rules 
relating to information required to be attached to the taxpayer's return 
of the tax imposed by chapter 31 relating to the alcohol content of the 
partially exempt methanol or ethanol fuel for which tax is paid.
    (c) Mixtures which do not qualify as partially exempt methanol or 
ethanol fuel. If methanol or ethanol fuel does not qualify as partially 
exempt methanol or ethanol fuel under this section, the entire mixture 
is taxed at the rate of tax applicable under section 4041(a)(2) of the 
Code.
    (d) Refunds relating to fuels. See section 6427 for rules which 
relate to the allowance of a refund or credit to a person who uses tax-
paid diesel, special motor or noncommercial aviation fuel to produce a 
partially exempt methanol or ethanol fuel and section 6416 for rules 
which relate to the allowance of a refund or credit to a person who uses

[[Page 77]]

tax-paid gasoline to produce a partially exempt methanol or ethanol 
fuel.
    (e) Later blending. If a partially exempt methanol or ethanol fuel 
is blended with other motor fuel in a mixture less than 85 percent of 
which consists of alcohol, the subsequent sale or use of such blended 
motor fuel is taxable under the provisions of section 4041(a) or section 
4081(a), subject to the requirements, limitations and exemptions of 
those sections.
    (f) Records required to be furnished by the taxpayer. A taxpayer 
making a return of the tax imposed by chapter 31 indicating payment of 
the tax under section 4041(m) and Sec. 48.4041-20 at the reduced rate 
must attach a statement to the return indicating the total number of 
gallons of partially exempt methanol or ethanol fuel containing at least 
85 percent alcohol and the total number of gallons of partially exempt 
methanol or ethanol fuel containing less than 85 percent alcohol, but 
qualifying for taxation at the reduced rate under the rules of paragraph 
(b) of this section. However, the taxpayer does not have to specify the 
precise mixture ratio of every mixture blended for which tax is being 
paid.
    (g) Effective date. Section 4041(m) applies to sales and uses after 
July 31, 1984. If methanol or ethanol fuel meeting the requirements of 
paragraph (b) of this section was put into the tank of a vehicle prior 
to August 1, 1984, the fuel is considered used prior to that date and is 
subject to the tax described in paragraph (a) of section 4041.

[T.D. 8152, 52 FR 31617, Aug. 21, 1987]



Sec. 48.4041-21  Compressed natural gas (CNG).

    (a) Delivery of CNG into the fuel supply tank of a motor vehicle or 
motorboat--(1) Imposition of tax. Tax is imposed on the delivery of 
compressed natural gas (CNG) into the fuel supply tank of the propulsion 
engine of a motor vehicle or motorboat unless tax was previously imposed 
on the CNG under paragraph (b) of this section.
    (2) Liability for tax. If the delivery of the CNG is in connection 
with a sale, the seller of the CNG is liable for the tax imposed under 
paragraph (a)(1) of this section. If the delivery of the CNG is not in 
connection with a sale, the operator of the motor vehicle or motorboat, 
as the case may be, is liable for the tax imposed under paragraph (a)(1) 
of this section.
    (b) Bulk sales of CNG--(1) In general. Tax is imposed on the sale of 
CNG that is not in connection with the delivery of the CNG into the fuel 
supply tank of the propulsion engine of a motor vehicle or motorboat if, 
by the time of the sale--
    (i) The buyer has given the seller a written statement stating that 
the entire quantity of the CNG covered by the statement is for use by 
the buyer for a taxable use as a fuel in a motor vehicle or motorboat; 
and
    (ii) The seller has given the buyer a written acknowledgement of 
receipt of the statement described in paragraph (b)(1)(i) of this 
section.
    (2) Liability for tax. The seller of the CNG is liable for the tax 
imposed under this paragraph (b).
    (c) Exemptions--(1) In general. The taxes imposed under this section 
do not apply to a delivery or sale of CNG for a use described in section 
4041(a)(3)(B), (b)(1), (f), (g), or (h). However, if the person 
otherwise liable for tax under this section is the seller of the CNG, 
the exemption under this section applies only if, by the time of sale, 
the seller receives an unexpired certificate (as described in this 
paragraph (c)) from the buyer and has no reason to believe any 
information in the certificate is false.
    (2) Certificate; in general. The certificate to be provided by a 
buyer of CNG is to consist of a statement that is signed under penalties 
of perjury by a person with authority to bind the buyer, should be in 
substantially the same form as the model certificate provided in 
paragraph (c)(4) of this section, and should contain all information 
necessary to complete the model certificate. A new certificate must be 
given if any information in the current certificate changes. The 
certificate may be included as part of any business records normally 
used to document a sale. The certificate expires on the earliest of the 
following dates:
    (i) The date one year after the effective date of the certificate 
(which may be no earlier than the date it is signed).

[[Page 78]]

    (ii) The date a new certificate is provided to the seller.
    (iii) The date the seller is notified by the Internal Revenue 
Service or the buyer that the buyer's right to provide a certificate has 
been withdrawn.
    (3) Withdrawal of the right to provide a certificate. The Internal 
Revenue Service may withdraw the right of a buyer of CNG to provide a 
certificate under this paragraph (c) if the buyer uses CNG to which a 
certificate applies in a taxable use. The Internal Revenue Service may 
notify any seller to whom the buyer has provided a certificate that the 
buyer's right to provide a certificate has been withdrawn.
    (4) Model certificate.

    Certificate of Person Buying Compressed Natural Gas (CNG) for a 
                             Nontaxable Use

(To support tax-free sales of CNG under section 4041 of the Internal 
Revenue Code.)

________________________________________________________________________
________________________________________________________________________

Name, address, and employer identification number of seller

    -------------------- (``Buyer'') certifies the following under 
penalties of perjury:
    The CNG to which this certificate relates will be used in a 
nontaxable use.
    This certificate applies to the following (complete as applicable):
    If this is a single purchase certificate, check here ------ and 
enter:
    1. Invoice or delivery ticket number ----------------
    2. -------- (number of MCFs) --------
    If this is a certificate covering all purchases under a specified 
account or order number, check here ------ and enter:
    1. Effective date ----------------
    2. Expiration date ---------------- (period not to exceed 1 year 
after the effective date)
    3. Buyer account or order number ----------------
    Buyer will not claim a credit or refund under section 6427 of the 
Internal Revenue Code for any CNG to which this certificate relates.
    Buyer will provide a new certificate to the seller if any 
information in this certificate changes.
    Buyer understands that if Buyer violates the terms of this 
certificate, the Internal Revenue Service may withdraw Buyer's right to 
provide a certificate.
    Buyer has not been notified by the Internal Revenue Service that its 
right to provide a certificate has been withdrawn. In addition, the 
Internal Revenue Service has not notified Buyer that the right to 
provide a certificate has been withdrawn from a purchaser to which Buyer 
sells CNG tax free.
    Buyer understands that the fraudulent use of this certificate may 
subject Buyer and all parties making any fraudulent use of this 
certificate to a fine or imprisonment, or both, together with the costs 
of prosecution.

________________________________________________________________________

Printed or typed name of person signing

________________________________________________________________________

Title of person signing

________________________________________________________________________

Employer identification number

________________________________________________________________________

Address of Buyer

________________________________________________________________________

Signature and date signed

    (d) Rate of tax. The rate of the tax imposed under this section is 
the rate prescribed by section 4041(a)(3).
    (e) Effective date. This section is effective October 1, 1995.

[T.D. 8609, 60 FR 40082, Aug. 7, 1995; 60 FR 50245, Sept. 28, 1995; T.D. 
8659, 61 FR 10453, Mar. 14, 1996; T.D. 8879, 65 FR 17155, Mar. 31, 2000; 
T.D. 9051, 69 FR 15941, Apr. 2, 2003]



                 Subpart G_Fuel Used on Inland Waterways

    Source: T.D. 7536, 43 FR 13516, Mar. 31, 1978, unless otherwise 
noted.



Sec. 48.4042-1  Tax on fuel used in commercial waterway transportation.

    (a) In general. Section 4042(a) imposes an excise tax on the use of 
liquid fuel in the propulsion system of commercial transportation 
vessels while traveling on certain inland and intracoastal waterways 
(see Sec. 48.4042-1 (f)). The tax applies generally to all types of 
vessels, including ships, barges, and tugboats. It is in addition to all 
other taxes imposed on the sale or use of fuel.
    (b) Amount of tax. For the amount of tax, see section 4042(b).
    (c) Person liable for tax. The person operating the vessel in which 
the propulsion fuel is consumed is the user of liquid fuel for purposes 
of section 4042(a). Thus, a person who operates (or whose employees 
operate) a vessel is responsibile for filing returns and paying the tax. 
If a vessel owner (or lessee) contracts with an independent contractor 
to operate the vessel, the independent contractor is the user of liquid

[[Page 79]]

fuel for purposes of section 4042(a), regardless of who purchases the 
fuel.
    (d) Time of use. Fuel is not taxed by section 4042(a) when put into 
a vessel's tanks. For purposes of section 4042(a), fuel is used when it 
is actually consumed by a vessel's engine.
    (e) Liquid fuel. For purposes of the tax imposed under this section, 
liquid fuel means any liquid fuel including gasoline, diesel fuel, 
special motor fuel, or Bunker C residual fuel oil.
    (f) Commercial waterway transportation--(1) In general. For purposes 
of section 4042(a) and Sec. 48.4042-2(c)(1), the term ``commercial 
waterway transportation'' means the use of a vessel on the waterways 
specified in paragraphs (g) (1) through (27) of this section if:
    (i) Use of the vessel is in the business of transporting property 
for compensation or hire, or
    (ii) Use of the vessel is in transporting property in the business 
of the owner, lessee, or operator of the vessel (whether or not a fee is 
charged).

Except for the operation of certain fishing vessels, the operation of 
all vessels satisfying the requirements of paragraph (f)(1)(i) or 
(1)(ii) of this section will be deemed ``commercial waterway 
transportation,'' regardless of whether the vessel is actually engaged 
in the transportation of property on a particular voyage. Thus, 
``commercial waterway transportation'' includes the operation of vessels 
while moving empty of cargo, while awaiting passage through locks, while 
dislodging vessels grounded on a sandbar, while moving to or from a 
repair facility, while maneuvering around loading and unloading docks, 
and while fleeting barges into a single tow.
    (2) Fishing vessels exception. A vessel does not transport property 
in the business of the owner, lessee, or operator, for purposes of 
paragraph (f)(1)(ii) of this section, by merely transporting fish or 
other aquatic animal life caught on the voyage. The tax imposed by 
section 4042(a) does not apply to fuel used by a fishing vessel while 
traveling to a fishing site, while engaged in fishing, or while 
returning from the fishing site with its catch. However, the tax applies 
to fuel used by a commercial vessel along the taxable waterways while 
traveling to pick up aquatic animal life caught by another vessel and 
while transporting the catch of such other vessel.
    (g) Specified waterways. Only fuel used on those waterways specified 
in section 206 of the Inland Waterways Revenue Act of 1978 (specified 
waterways) is taxable. The specified waterways are as follows:
    (1) Alabama-Coosa Rivers. From junction with the Tombigbee River at 
river mile (hereinafter referred to as RM) 0 to junction with the Coosa 
River at RM 314.
    (2) Allegheny River. From confluence with the Monongahela River to 
form the Ohio River at RM 0 to the head of the existing project at East 
Brady, Pennsylvania, RM 72.
    (3) Apalachicola-Chattachoochee and Flint Rivers. Apalachicola River 
from mouth at Apalachicola Bay (intersection with the Gulf Intracoastal 
Waterway) RM 0 to junction with Chattachoochee and Flint Rivers at RM 
107.8. Chattachoochee River from junction with Apalachicola and Flint 
Rivers at RM 0 to Columbus, Georgia, at RM 155 and Flint River, from 
junction with Apalachicola and Chattachoochee Rivers at RM 0 to 
Bainbridge, Georgia, at RM 28.
    (4) Arkansas River (McClellan-Kerr Arkansas River Navigation 
System). From junction with Mississippi River at RM 0 to port of 
Catoosa, Oklahoma, at RM 448.2.
    (5) Atchafalaya River. From RM 0 at its intersection with the Gulf 
Intracoastal Waterway at Morgan City, Louisiana, upstream to junction 
with Red River at RM 116.8.
    (6) Atlantic Intracoastal Waterway (A.I.W.W.). Two inland water 
routes approximately paralleling the Atlantic coast between Norfolk, 
Virginia, and Miami, Florida, for 1,192 miles via both the Albermarle 
and Chesapeake Canal and Great Dismal Swamp Canal routes. For vessels 
traveling along the A.I.W.W. no matter how short the distance, the 
A.I.W.W. includes the main channel, all alternate channels, and all 
adjoining bays and sounds, regardless of depth. However, vessels merely 
crossing the A.I.W.W. on route either to a coastal port or to a 
nonspecified waterway will not be treated as traveling on the A.I.W.W.

[[Page 80]]

    (7) Black Warrior-Tombigbee-Mobile Rivers. Black Warrior River 
System from RM 2.9, Mobile River (at Chickasaw Creek) to confluence with 
Tombigbee River at RM 45. Tombigbee River (to Demopolis at RM 215.4) to 
port of Birmingham, RM's 374--411 and upstream to head of navigation on 
Mulberry Fork (RM 429.6), Locust Fork (RM 407.8), and Sipsey Fork (RM 
430.4).
    (8) Columbia River (Columbia-Snake Rivers Inland Waterways). From 
The Dalles at RM 191.5 to Pasco, Washington (McNary Pool), at RM 330, 
Snake River from RM 0 at the mouth to RM 231.5 at Johnson Bar Landing, 
Idaho.
    (9) Cumberland River: Junction with Ohio River at RM 0 to head of 
navigation, upstream to Carthage, Tennessee, at RM 313.5.
    (10) Green and Barren Rivers. Green River from junction with the 
Ohio River at RM 0 to head of navigation at RM 149.1.
    (11) Gulf Intracoastal Waterway (G.I.W.W.) From the mouth of St. 
Mark's River, Florida, to Brownsville, Texas, 1,134.5 miles. For vessels 
traveling along the G.I.W.W. no matter how short the distance, the 
G.I.W.W. includes the main channel, all alternate channels, and all 
adjoining bays and sounds, regardless of depth. However, vessels merely 
crossing the G.I.W.W. on route either to a coastal port or to a 
nonspecified waterway will not be treated as traveling on the G.I.W.W.
    (12) Illinois Waterway. Illinois River from junction with the 
Mississippi River at RM 0 to the Des Plaines River and along the Des 
Plaines River to Lockport Lock and Dam at RM 291. Chicago Sanitary and 
Ship Canal from Lockport Lock and Dam at RM 291 to the South Branch 
Chicago River and along the South Branch Chicago River to Lake Street, 
Chicago at RM 325.5 near Chicago Harbor. Calumet-Sag Channel from 
junction with the Chicago Sanitary and Ship Canal to the Little Calumet 
River and along the Little Calumet and Calumet Rivers to turning basin 
5, near the entrance to Lake Calumet, an additional 23.8 RMS. Total 
waterway distance approximately 350 RMs.
    (13) Kanawha River. From junction with Ohio River at RM 0 to RM 90.6 
at Deepwater, West Virginia.
    (14) Kaskaskia River. From junction with the Mississippi River at RM 
0 to RM 36.2 at Fayetteville, Illinois.
    (15) Kentucky River. From junction with Ohio River at RM 0 to 
confluence of Middle and North Forks at RM 258.6.
    (16) Lower Mississippi River. From Baton Rouge, Louisiana, RM 233.9 
to Cairo, Illinois, RM 953.8.
    (17) Upper Mississippi River From Cairo, Illinois, RM 953.8 to 
Minneapolis, Minnesota, RM 1,811.4.
    (18) Missouri River. From junction with Mississippi River at RM 0 to 
Sioux City, Iowa, at RM 734.8.
    (19) Monongahela River. From junction with Allegheny River to form 
the Ohio River at RM 0 to junction of the Tygart and West Fork Rivers, 
FairmontOhio River. From junction with the Mississippi River at RM 0 to 
junction of the Allegheny and Monongahela Rivers at Pittsburgh, 
Pennsylvania, at RM 981.
    (21) Ouachita-Black Rivers. From the mouth of the Black River at its 
junction with the Red River at RM 0 to RM 351 at Camden, Arkansas.
    (22) Pearl River. From junction of West Pearl River with the 
Rigolets at RM 0 to Bogalusa, Louisiana, RM 58.
    (23) Red River. From RM 0 to the mouth of Cypress Bayou at RM 236.
    (24) Tennessee River. From junction with Ohio River at RM 0 to 
confluence with Holstein and French Rivers at RM 652.
    (25) Tennessee-Tombigbee Waterway. From its confluence with the 
Tennessee River to the Warrior River at Demopolis, Alabama.
    (26) White River. From RM 9.8 to RM 255 at Newport, Arkansas.
    (27) Willamette River. From RM 21 upstream of Portland, Oregon, to 
Harrisburg, Oregon, at RM 194.

[T.D. 7727, 45 FR 70861, Oct. 27, 1980. Redesignated by T.D. 8066, 51 FR 
14, Jan. 2, 1986, as amended by T.D. 8659, 61 FR 10453, Mar. 14, 1996]



Sec. 48.4042-2  Special rules.

    (a) Dual use of liquid fuels--(1) Dual use by the propulsion engine. 
The tax imposed by section 4042(a) applies to all

[[Page 81]]

taxable liquid used as a fuel in the propulsion system of the vessel, 
regardless of whether the engine (or other propulsion system) is used 
for a purpose other than propulsion of the vessel. For purposes of this 
section, any engines generating movement of a vessel (including bow 
thrusters used for steering) are part of the propulsion system. The tax 
does not apply to fuel consumed in engines which are not used to 
generate movement of a vessel. When the propulsion engine operates 
special equipment by means of a power take-off or power transfer, the 
tax applies to all liquid fuel consumed by that engine. For example, the 
tax applies to all fuel used in the engine operating an alternator, a 
generator, or pumps, if that engine is used to generate movement of a 
vessel.
    (2) Common tank. If the liquid fuel consumed by a nonpropulsion 
engine is drawn from the same tank as fuel consumed by a propulsion 
engine, a reasonable determination of the quantity of fuel used in such 
a separate engine will be acceptable for purposes of excluding from 
taxation a portion of the fuel consumed by the vessel. The determination 
of the amount of fuel consumed by the nonpropulsion engine may be based 
primarily on the operating experience of the person using the fuel; 
however, in order to exclude fuel from taxation under the rule set out 
in this paragraph (a)(2), the taxpayer must maintain records which will 
support the allocation used.
    (b) Voyages crossing boundaries of the specified waterways. Fuel 
consumed by a vessel traveling along the specified waterways is taxable 
only to the extent of fuel consumed for propulsion while on the 
specified waterways. Generally, the operator may calculate the amount of 
fuel consumed while on the specified waterways during a particular 
voyage by mulitplying total fuel consumed in the propulsion engine by a 
fraction. The numerator of the fraction is the time spent operating on 
the specified waterways; the denominator is the total time spent 
operating on the specified and nonspecified waterways during the voyage. 
This calculation may not be used when it is unreasonable. It may be 
determined to be unreasonable by:
    (1) Better evidence of fuel consumed (e.g., readings from an 
accurate fuel gauge or records from similar voyages); or
    (2) The existence of factors causing a substantial discrepancy 
between the rate of fuel consumption on the specified and nonspecified 
waterways.
    (c) Records required. (1) All operators of vessels used in 
commercial waterway transportation must maintain records sufficient to 
establish to the satisfaction of the district director the amount of 
fuel used for taxable purposes. Those records may include, when relevant 
to establish liability:
    (i) Quantity of fuel and date of acquisition of all liquid fuels 
acquired for both taxable and nontaxable purposes, whether delivered to 
storage tanks or tanks on a vessel;
    (ii) Date and quantity of fuel pumped into tanks on each vessel;
    (iii) Identification number or name of each vessel using fuel; and
    (iv) Departure time, departure point, route traveled, destination, 
and arrival time for each vessel.
    (2) Vessel operators seeking a tax exemption provided by section 
4042(c) must maintain records which will support any exemption claimed. 
Where applicable, the records shall contain:
    (i) The draft of the vessel on each voyage (for exemption under 
section 4042(c)(1));
    (ii) The type of vessel in which fuel is consumed and the type of 
vessel in which cargo is transported (for exemption under section 
4042(c) (1), (2) or (4); and
    (iii) The ultimate use of cargo transported (for exemption under 
section 4042(c)(3)).

[T.D. 7727, 45 FR 70862, Oct. 27, 1980, as amended by T.D. 8442, 57 FR 
48186, Oct. 22, 1992]



Sec. 48.4042-3  Certain types of commercial waterway transportation excluded.

    (a) Deep draft ocean-going vessels--(1) In general. Under section 
4042(c)(1), there is no tax imposed by section 4042(a) if:
    (i) The vessel was designed primarily for use on the high seas; and
    (ii) The vessel has a draft of more than 12 feet on the voyage for 
which

[[Page 82]]

the fuel tax exclusion is sought (e.g. 12 feet 1 inch).
    (2) Meaning of ``designed primarily for use on the high seas.'' 
Section 4042(c)(1) requires a determination of the primacy of the design 
features rendering the vessel useful for service on the high seas, as 
opposed to the features which render the vessel useful for service on 
all less turbulent waters. Thus, whether a ship is ``designed primarily 
for use on the high seas'' must be determined from all the facts, 
including structural features and equipment. If the predominant use of a 
vessel is on the high seas, it shall be presumed to be ``designed 
primarily for use on the high seas.'' If the predominant use of a vessel 
is on waters other than the high seas, it shall be presumed not to be 
``designed primarily for use on the high seas.''
    (3) Meaning of ``high seas.'' For purposes of this section, ``high 
seas'' shall mean waters other than the territorial waters of the United 
States or any other country. Thus, the high seas shall not include the 
internal waters of any country, the Great Lakes, harbors, or narrow 
coastal indentations.
    (4) Twelve foot draft--(i) Definition. For purposes of section 
4042(c)(1), ``draft'' shall mean the maximum vertical distance between 
the mean water line and the bottom of the keel. In cases where a vessel 
has a skeg or other appendage extending locally below the line of the 
keel, the draft shall be measured from the deepest appendage. A separage 
determination of draft must be made for each voyage when the vessel has 
its greatest load of cargo and fuel. For purposes of this determination, 
the term ``voyage'' means a round trip voyage. Therefore, if a vessel 
travels into the specified waterway system to pick up cargo and has a 
draft sufficient to qualify for the exclusion when loaded, then for 
purposes of section 4042(c)(1) the vessel satisfies the 12 foot draft 
requirement for the entire voyage. Similarly, if a vessel loaded with 
cargo travels into the specified waterway system with a draft sufficient 
to qualify for the exclusion provided by section 4042(c)(1), then the 
fuel consumed on the entire voyage may be excluded, regardless of the 
vessel's draft after the cargo is unloaded.
    (ii) Example. The following example illustrates the application of 
paragraph (a)(4)(i) of this section:

    Example. A ship with a design draft of 20 feet (maximum certified 
draft when fully loaded) travels into a taxable waterway with only a 
partial load, such that the draft is 12 feet. The ship unloads and 
departs the waterway empty. The portion of the fuel consumed for 
propulsion of the vessel on the specified waterway is taxable because 
only vessels with a draft greater than 12 feet are eligible for the 
section 4042(c)(1) exemption from tax.

    (b) Commercial passenger vessels. Under section 4042(c)(2), the tax 
imposed by section 4042(a) does not apply to fuel consumed by vessels 
used primarily for the transportation of persons. Thus, commercial 
passenger vessels while being operated as passenger vessels are not 
subject to tax, even if such vessels in fact transport property in 
addition to transporting passengers. Similarly, ferry boats carrying 
passengers are not subject to tax, even if such vessels carry the 
passengers' automobiles.
    (c) Exemption for State or local governments--(1) In general. Under 
section 4042(c)(3), there is no tax imposed by section 4042(a) if:
    (i) The vessel is being used by a State or local government; and
    (ii) The vessel is being used in transporting property in the State 
or local government's business.
    (2) State or local government. For purposes of paragraph (c)(1)(i) 
of this section a ``vessel is being used by a State or local 
government'' if it is operated by any State, the District of Columbia, 
or any political subdivision of a State. If a private party is 
contracted to haul for a State or local government, the vessel is not 
``being used by a State or local government.'' Similarly, if a person 
other than a State or local government is contracted to supply vessel 
operators, the fuel consumed by the vessel is not used ``by a State or 
local government,'' regardless of ownership of the vessel. However, when 
a local government leases barges and employees of the local government 
operate the barges, the vessel is being used by the local government.
    (3) Government business. The test for whether a vessel is being used 
``in transporting in a State or local government's business,'' within 
the meaning

[[Page 83]]

of paragraph (c)(1)(ii) of this section, is whether the ultimate use of 
the cargo is for a function which is ordinarily carried out by 
governmental units. For example, when the cargo transported is salt to 
be spread on icy roads, the vessel is being used ``in transporting in a 
State or local business'' because the use to which the cargo will be put 
(road maintenance) is a function ordinarily performed by governmental 
units. Fuel consumed in a vessel transporting property for compensation 
or in furtherance of a business not ordinarily carried out by a 
governmental unit is not exempt from taxation by section 4042(c)(3).
    (d) Ocean-going barges. Under section 4042(c)(4), the tax imposed by 
section 4042(a) does not apply to fuel consumed by tugs moving 
exclusively barges released by ocean-going carriers solely to pick up or 
deliver international cargos. The tax exemption provided by section 
4042(c)(4) applies to LASH barges, SEABEE barges, and all other ocean-
going barges carried aboard ocean-going vessels. There is no exemption 
under section 4042(c)(4) while:
    (1) One or more of the barges in the tow is not a LASH barge, SEABEE 
barge, or other ocean-going barge carried aboard on ocean-going vessel; 
or
    (2) One or more of the barges in the tow is not on an international 
voyage; or
    (3) Part of the cargo in the tow is not being transported 
internationally.

[T.D. 7727, 45 FR 70862, Oct. 27, 1980]



 Subpart H_Motor Vehicles, Tires, Tubes, Tread Rubber, and Taxable Fuel

    Source: T.D. 6648, 28 FR 3633, Apr. 13, 1963, unless otherwise 
noted.

                      Automotive and Related Items

                             motor vehicles



Sec. 48.4052-1  Heavy trucks and trailers; certification requirement.

    (a) In general. Tax is not imposed by section 4051 on the sale of an 
article for resale or leasing in a long-term lease if, by the time of 
sale, the seller has in good faith accepted from the buyer a statement 
that the buyer executed in good faith and that is in substantially the 
same form, and subject to the same conditions, as the certificate 
described in Sec. 145.4052-1(a)(6) of this chapter, except that the 
certificate must be signed under penalties of perjury and need not refer 
to Form 637 or include a registration number.
    (b) References to Sec. 145.4052-1(a)(2) of this chapter. References 
to Sec. 145.4052-1(a)(2) of this chapter appearing in Sec. 145.4052-1 
of this chapter apply also to paragraph (a) of this section.
    (c) Effective date. This section is applicable after June 30, 1998. 
In addition, tax is not imposed on a sale occurring after December 31, 
1997, and before July 1, 1998, if the conditions of paragraph (a) of 
this section are satisfied.

[T.D. 8879, 65 FR 17155, Mar. 31, 2000]



Sec. 48.4061(a)  [Reserved]



Sec. 48.4061(a)-1  Imposition of tax; exclusion for light-duty trucks, etc.

    (a) Imposition of tax--(1) In general. Section 4061(a)(1) imposes a 
tax on the sale by the manufacturer, producer, or importer of the 
following articles (including in each case parts and accessories 
therefor sold on or in connection therewith or with the sale thereof):
    (i) Automobile truck and bus chassis and bodies;
    (ii) Truck and bus trailer and semitrailer chassis and bodies; and
    (iii) Tractors of the kind chiefly used for highway transportation 
in combination with a trailer or semitrailer.

For purposes of this section, a sale of an automobile truck or bus, or a 
truck or bus trailer or semitrailer, shall be considered to be a sale of 
a chassis and of a body enumerated in this paragraph (a)(1).
    (2) Special rule applicable to chassis and bodies. A chassis or body 
enumerated in paragraph (a)(1) of this section is taxable under section 
4061(a)(1) only if such chassis or body is, within the meaning of 
paragraph (e) of this section, sold for use as a component part of a 
highway vehicle (as defined in paragraph (d) of this section), which is 
an automobile truck or bus, a truck or bus trailer or semitrailer, or a 
tractor of the kind chiefly used for highway transportation in 
combination with a trailer or semitrailer. Furthermore, a

[[Page 84]]

chassis or body which is not enumerated in paragraph (a)(1) of this 
section is not taxable under section 4061(a)(1) even though such chassis 
or body is used as a component part of a highway vehicle (e.g., a 
chassis or body of a passenger automobile).
    (3) Equipment installed on chassis or bodies. (i) For purposes of 
the tax imposed by section 4061(a)(1), equipment or machinery installed 
on a taxable chassis or body is considered to be an integral part of the 
taxable chassis or body if the machinery or equipment contributes toward 
the highway transportation function of the chassis or body, regardless 
of whether separate sales of the machinery or equipment would be subject 
to the tax on automotive parts or accessories imposed by section 
4061(b). Therefore, the amount of the sale price of a taxable chassis or 
body that is attributable to such machinery or equipment must be 
included in the tax base when computing the tax due on a manufacturer's 
or importer's sale or use of a taxable chassis or body. Examples of the 
type of machinery or equipment that contribute to the highway 
transportation function of a chassis or body are the following: Loading 
and unloading equipment; towing winches; and all other machinery or 
equipment contributing to either the maintenance or safety of the 
vehicle, the preservation of cargo (other than refrigeration units), or 
the comfort or nvenience of the driver or passengers.
    (ii) Amounts charged for machinery or equipment that is installed on 
a taxable chassis or body are not part of the taxable sale price of the 
chassis or body if (A) such machinery or equipment does not contribute 
toward the highway transportation function of the chassis or body and 
(B) the reasonableness of the charge for the machinery or equipment is 
supportable by adequate records. Examples of such machinery or equipment 
are the following: equipment designed to spread materials on the 
highway; machinery or equipment used solely in the operation of mobile 
amusement rides; television equipment mounted in a mobile television 
studio; machine shop equipment mounted in a mobile machine shop; and car 
crushing equipment mounted on the chassis of a mobile car crusher.
    (4) Passenger automobile chassis and bodies, motorcycles, etc. No 
tax is imposed under section 4061(a) on the sale of a motorcycle or, in 
the case of a sale made after December 10, 1971, on the sale of 
automobile chassis and bodies not enumerated in paragraph (a)(1) of this 
section, or of trailer and semitrailer chassis and bodies suitable for 
use in combination with passenger automobiles. For tax on certain sales 
made after December 31, 1958, and before December 11, 1971, see 
paragraph (b)(4) of this section.
    (5) Cross references. For additional rules relating to the sale of a 
chassis or body enumerated in this paragraph for use as a component part 
of a highway vehicle, see paragraph (e) of this section. For exclusion 
of certain light-duty highway vehicles, see paragraph (f) of this 
section. For provisions relating to the tax-free sale of bodies to 
certain manufacturers, see section 4063(b) and the regulations 
thereunder. For other exemptions from the tax imposed under section 
4061(a), see sections 4063 and 4221 and the regulations thereunder. For 
special rules relating to the sale by a manufacturer of a vehicle 
consisting of a tax-paid chassis and a body manufactured by him, see 
Sec. 48.4061(a)-5.
    (b) Rate and computation of tax--(1) In general. With respect to the 
articles enumerated in paragraph (a)(1) of this section, the rate of tax 
imposed by section 4061(a)(1) is:

 
                                                                Percent
 
(i) For articles sold during the period beginning on January          10
 1, 1959, and ending on September 30, 1979...................
(ii) For articles sold on or after October 1, 1979...........          5
 

    (2) Determination of price subject to tax. The tax is computed by 
applying to the price for which the article is sold the rate in effect 
at the time of the sale. For definition of the term ``price'' and for 
application of the tax to leases of articles, see sections 4216 and 
4217, respectively, and the regulations thereunder. If an article 
subject to tax under section 4061(a) has equipment mounted thereon to 
perform functions other than in connection with the transportation of 
persons or property, no tax under section 4061(a) attaches to that

[[Page 85]]

part of the selling price of the completed unit which is reasonably 
attributable to such equipment provided such part of the selling price 
is billed separately on the invoice to the customer or can otherwise be 
established by adequate records. For other rules relating to the sale of 
parts or accessories in connection with the sale of a chassis, body, or 
completed unit, see Sec. 48.4061(a)-4. For special rules relating to 
the determination of selling price when equipment or machinery is 
permanently installed on a taxable chassis or body, see paragraph (a)(3) 
of this section.
    (3) Tax on trailers sold before December 11, 1971. With respect to 
sales made after December 31, 1958, and before December 11, 1971, the 
rate of tax imposed under section 4061(a) on a trailer or semitrailer 
chassis or body that is a highway vehicle within the meaning of 
paragraph (d) of this section depends upon a classification of the 
article. The sale during this period of a trailer or semitrailer chassis 
or body (other than a house trailer) suitable for use in combination 
with passenger automobiles is subject ot tax as set forth in paragraph 
(b)(4) of this section. A trailer suitable for use in combination with a 
passenger automobile which is designed for purposes other than living or 
sleeping, commonly referred to as a ``utility trailer'', is an example 
of a trailer taxable at the 7 percent rate set forth in paragraph (b)(4) 
of this section. The sale of a trailer or semitrailer chassis or body 
that is not suitable for use in combination with passenger automobiles 
is subject to tax as set forth in paragraph (b)(1) of this section.
    (4) Passenger automobile chassis and bodies and related articles 
sold before December 11, 1971. With respect to the sale after December 
31, 1958, and before December 11, 1971, of (i) automobile chassis and 
bodies not enumerated in paragraph (a)(1) of this section or (ii) 
trailer and semitrailer chassis and bodies suitable for use in 
combination with passenger automobiles, the tax imposed by section 
4016(a) is computed in accordance with paragraph (b)(2) of this section 
at the rate of 10 percent for sales prior to June 22, 1965, and at the 
rate of 7 percent thereafter.
    (c) Liability for tax. The tax imposed by section 4061(a) is payable 
by the manufacturer, producer, or importer making the sale.
    (d) Highway vehicle--(1) Definition. For purposes of this 
subchapter, the term ``highway vehicle'' means any self-propelled 
vehicle, or any trailer or semitrailer, designed to perform a function 
of transporting a load over public highways, whether or not also 
designed to perform other functins, but does not include a vehicle 
described in paragraph (d)(2) of this section. For purposes of this 
definition, a vehicle consists of a chassis, or a chassis and a body if 
the vehicle has a body, but does not include the vehicle's load. 
Therefore, in determining whether a vehicle is a ``highway vehicle'', it 
is immaterial that the vehicle is designed to perform a highway 
transportation function for only a particular kind of load, such as 
passengers, furnishings and personal effects (as in a house, office, or 
utility trailer), a special type of cargo, goods, supplies, or 
materials, or, except to the extent otherwise provided in paragraph 
(d)(2)(i) of this section, machinery or equipment specially designed to 
perform some off-highway task unrelated to highway transportation. In 
the case of specially designed machinery or equipment, it is also 
immaterial, except as provided in paragraph (d)(2)(i) of this section, 
that such machinery or equipment is permanently mounted on the vehicle. 
For purposes of paragraph (d) of this section, the term ``transport'' 
includes the term ``tow'', and the term ``public highway'' includes any 
road (whether a Federal highway, State highway, city street, or 
otherwise) in the United States which is not a private roadway. A 
vehicle which is not a highway vehicle within the meaning of this 
paragraph shall be treated as a nonhighway vehicle for purposes of this 
subchapter. Examples of vehicles that are designed to perform a function 
of transporting a load over the public highways are passenger 
automobiles, motorcycles, buses, and highway-type trucks, truck 
tractors, trailers, and semi-trailers.
    (2) Exceptions--(i) Certain specially designed mobile machinery for 
nontransportation functions. A self-propelled vehicle, or trailer or 
semi-trailer, is not a

[[Page 86]]

highway vehicle if it (A) consists of a chassis to which there has been 
permanently mounted (by welding, bolting, riveting, or other means) 
machinery or equipment to perform a construction, manufacturing, 
processing, farming, mining, drilling, timbering, or operation similar 
to any one of the foregoing enumerated operations if the operation of 
the machinery or equipment or equipment is unrelated to transportation 
on or off the public highways, (B) the chassis has been specially 
designed to serve only as a mobile carriage and mount (and a power 
source, where applicable) for the particular machinery or equipment 
involved, whether or not such machinery or equipment is in operation, 
and (C) by reason of such special design, such chassis could not, 
without substantial structural modification, be used as a component of a 
vehicle designed to perform a function of transporting any load other 
than that particular machinery or equipment or similar machinery or 
equipment requiring such a specially designed chassis.
    (ii) Certain vehicles specially designed for offhighway 
transportation. A self-propelled vehicle, or a trailer or semitrailer, 
is not a highway vehicle if it is (A) specially designed for the primary 
function of transporting a particular type of load other than over the 
public highway in connection with a construction, manufacturing, 
processing, farming, mining, drilling, timbering, or operation similar 
to any one of the foregoing enumerated operations, and (B) if by reason 
of such special design, the use of such vehicle to transport such load 
over the public highways is substantially limited or substantially 
impaired. For purposes of applying the rule of (B) of this subdivision, 
account may be taken of whether the vehicle may travel at regular 
highway speeds, requires a special permit for highway use, is 
overweight, overheight or overwidth for regular use, and any other 
relevant considerations. Soley for purposes of determinations under this 
paragraph (d)(2)(ii), where there is affixed to the vehicle equiplment 
used for loading, unloading, storing, vending, handling, processing, 
preserving, or otherwise caring for a load transported by the vehicle 
over the public highways, the functions are related to the 
transportation of a load over the public highways even though such 
functions may be performed off the public highways.
    (iii) Certain trailers and semi-trailers specially designed to 
perform non-transportation functions off the public highways. A trailer 
or semi-trailer is not a highway vehicle if it is specially designed to 
serve no purpose other than providing an enclosed stationary shelter for 
the carrying on of a function which is directly connected with and 
necessary to, and at the off-highway site of, a construction, 
manufacturing, processing, mining, drilling, farming, timbering, or 
operation similar to any one of the foregoing enumerated operations such 
as a trailer specially designed to serve as an office for such an 
operation.
    (3) Optional application. For purposes of this subchapter, if any 
rules existing immediately prior to January 13, 1977 would, if 
applicable, unequivocally resolve an issue involving the definition of a 
highway vehicle with respect to a period prior to such date, at the 
option of the taxpayer, such rules existing prior to such date shall be 
applied to resolve the issue for all periods prior to such date, and the 
rules of paragraphs (d) (1) and (2) of this section, which define the 
term ``highway vehicle'', shall not apply with respect to such issue for 
all periods prior to such date.
    (4) Highway vehicles not subject to section 4061 tax. Although for 
purposes of this paragraph (d) passenger automobiles, automobile 
trailers and semitrailers, motor homes, motorcycles, light-duty trucks, 
etc., will be considered to be highway vehicles because they are 
designed to perform a function of transporting a load over public 
highways, the tax imposed under section 4061(a) does not apply to the 
sale of such vehicles because they either are not articles subject to 
tax under such section or are excluded from tax under section 4061 
(a)(2). See also paragraphs (a)(4) and (f) of this section. Despite the 
fact that passenger automobiles, passenger automobile trailers and semi-
trailers, motor homes, motorcycles, light-duty trucks,

[[Page 87]]

etc., are not subject to the manufacturers excise tax on highway 
vehicles imposed by section 4061(a), the fact that they are nevertheless 
considered highway vehicles for purposes of this subchapter can be of 
material significance in determining the applicability of such excise 
taxes as the tax imposed by section 4041 (relating to diesel and special 
motor fuels), the tax imposed by section 4071(a)(1) (relating to tires 
of the type used on highway vehicles), or the tax imposed by section 
4481 (relating to highway use tax on highway motor vehicles). In 
addition, the definition of the term ``highway vehicle'' is material in 
determining the credits or refunds provided by section 6416(b)(2)(I) 
(relating to diesel fuel used in certain highway vehicles), section 
6421(a) (relating to gasoline used for a nonhighway purpose), section 
6424 (relating to lubricating oil used otherwise than in a highway motor 
vehicle), and section 6427(a) (relating to diesel or special motor fuel 
not used for a taxable purpose).
    (e) Sale of a chassis or body for use as a component of a vehicle 
other than a highway vehicle--(1) In general. Except as otherwise 
provided in paragraphs (a)(4), (e)(2), or (f) of this section, the sale 
of a chassis or body shall be deemed to be a sale of a chassis or body 
enumerated in paragraph (a)(1) of this section if such chassis or body 
is, in any sense, reasonably suitable for use as a component part of a 
highway vehicle that is either an automobile truck or bus, a truck or 
bus trailer or semitrailer, or a tractor of the kind chiefly used for 
highway transportation in combination with a trailer or semitrailer.
    (2) Exceptions based on unitary concept--(i) Completed vehicles not 
qualifying as highway vehicles. With respect to the sale of a vehicle 
after January 13, 1977 which would otherwise be treated under paragraph 
(e)(1) of this section as a sale of a chassis or body enumerated in 
paragraph (a)(1) of this section, the tax imposed under section 4061(a) 
shall not apply to such sale if the vehicle (considered as a completed 
unit) is not considered to be a highway vehicle within the meaning of 
paragraph (d) of this section.
    (ii) Tax-free sales of chassis and bodies. With respect to the sale 
after January 13, 1977 of a chassis or body (not including the sale of a 
completed vehicle described in paragraph (e)(2)(i) of this section) 
which would otherwise be treated under paragraph (e)(1) of this section 
as a sale of a chassis or body enumerated in paragraph (a)(1) of this 
section, the tax imposed under section 4061(a) shall not apply to such 
sale if the chassis or body is actually sold for use, or for resale for 
use, as a component part of a vehicle that is not a highway vehicle 
within the meaning of paragraph (d) of this section. For purposes of 
determining the liability of the manufacturer or reseller for the tax 
imposed under section 4061(a), the test of the preceding sentence will 
be considered to be met if (A) the purchaser furnishes the statement set 
forth in paragraph (e)(2)(iv) of this section to the seller before the 
manufacturer files a return covering excise taxes for the period in 
which the sale was made, and (B) the manufacturer or reseller complies 
with the requirements set forth in paragraph (e)(2)(iii) of this 
section. However, even though the purchaser and manufacturer (or 
reseller) have complied with the foregoing, the tax imposed under 
section 4061(a), shall apply to such sale if the manufacturer or 
reseller has received a written notification (applicable with respect to 
such sale) from the Internal Revenue Service that sales of a specified 
type or types of chassis or bodies may not be made tax free pursuant to 
this paragraph (e)(2)(ii) until further notification. Any such 
notification issued by the Internal Revenue Service shall be effective 
only with respect to sales after the manufacturer has received such 
notification.
    (iii) Requirements to be met. In order for a manufacturer or 
reseller to sell free of tax under paragraph (e)(2)(ii) of this section 
an otherwise taxable chassis or body, the manufacturer or reseller must:
    (A) Retain in his possession the statement required to be furnished 
by the purchaser and such other evidence as may be furnished by the 
purchaser to support the tax-free sale. Such evidence shall be retained 
for at least 3 years from the due date of the tax that

[[Page 88]]

would be due if the transaction in question had been a taxable sale; and
    (B) Indicate on the invoice with respect to the sale of the chassis 
or body that the sale of such article is made free of tax under 
paragraph (e)(2)(ii) of this section.
    (iv) Form of statement. In order for an otherwise taxable chassis or 
body to be sold free of tax under paragraph (e)(2)(ii) of this section, 
the purchaser must execute and furnish to the manufacturer or reseller a 
statement that substantially complies with the following form:
                                      --------------------------, 19----

    Under the penalty of perjury, the undersigned certifies that he, or 
the ----------------------------, (Name of purchaser if other than the 
undersigned) of which he is ------------------ (Title), is in the 
business of ---------------------- (State nature of business), and that 
the chassis and/or bodies covered by the accompanying order or contract 
for purchase from -------------------- (Name and address of seller) are 
purchased for (check One) ---- [ballot] use, or for [ballot] resale for 
use, as components of the following type or types of nonhighway 
vehicles:

1.______________________________________________________________________
2.______________________________________________________________________
3.______________________________________________________________________

    The undersigned understands that he must be prepared to establish by 
satisfactory evidence the actual use or disposition of such chassis or 
bodies and that, upon their use or disposition other than use as 
components of a nonhighway vehicle, he consents to be treated as the 
manufacturer of any such chassis or body purchased by him free of the 
tax imposed by section 4061(a).
    The undersigned also understands that he and all guilty parties 
will, for use of this statement to willfully attempt to evade or defeat 
the tax imposed under section 4061, be subject, under section 7201, to a 
fine of not more than $10,000, or imprisonment for not more than 5 
years, or both, together with the costs of prosecution.
    The undersigned agrees to retain in his possession a copy of this 
statement for at least 3 years from its date.

________________________________________________________________________
                                                             (Signature)
________________________________________________________________________
                                                               (Address)

    (v) Refund or credit of overpayment. If a purchaser furnished the 
manufacturer with the statement described in paragraph (e)(2)(iv) of 
this section after the time the manufacturer has filed a return covering 
excise taxes for the period in which the sale was made, the manufacturer 
must include the tax on the sale in his return for the period. However, 
in such case, if the conditions prescribed in paragraph (e)(2)(iii) of 
this section are met, a claim for refund of the tax paid on such sale 
may be filed by the manufacturer on Form 843, or a credit taken on a 
subsequent return, in accordance with the provisions of sections 6402(a) 
and 6416(a) and Sec. 48.6416(a)-1.
    (vi) Cross reference. For special rules relating to the sale by a 
manufacturer of a vehicle consisting of a tax-paid chassis and a body 
manufactured by him, see Sec. 48.4061(a)-5.
    (f) Exclusion of light-duty trucks, buses, and related articles from 
tax--(1) In general. (i) No tax is imposed by section 4061(a)(1) on the 
sale after December 10, 1971, of the following articles, if suitable for 
use with a vehicle having a gross vehicle weight of 10,000 pounds or 
less (as determined under paragraph (f)(3) of this section):
    (A) Automobile truck and bus chassis and bodies, and
    (B) Truck trailer and semitrailer chassis and bodies, suitable for 
use with a trailer or semitrailer having a gross vehicle weight of 
10,000 pounds or less (as so determined).
    (ii) For purposes of this part, a chassis or body is suitable for 
use with a vehicle having a gross vehicle weight of 10,000 pounds or 
less (hereafter referred to in this paragraph (f) as a ``light-duty 
vehicle'') if such chassis or body is commonly used with such a vehicle 
or possesses actual, practical, and commercial fitness for such use. A 
truck or bus chassis, sold after December 10, 1971, which is suitable 
for use with a light-duty vehicle, is not subject to the tax imposed by 
section 4061(a)(1) regardless of the body actually mounted thereon. 
Similarly, a truck trailer or semitrailer chassis sold after such date, 
suitable for use with a trailer or semitrailer having a gross vehicle 
weight of 10,000 pounds or less, which trailer or semitrailer is 
suitable for use in connection with a light-duty towing vehicle, is not 
subject to such tax regardless of the body actually mounted thereon. A 
truck or bus body, sold after such date, which is suitable for use

[[Page 89]]

with a light-duty vehicle, is not subject to such tax even though it may 
also be suitable for use with (and is actually a component of) a vehicle 
having a gross vehicle weight in excess of 10,000 pounds. Similarly, a 
truck trailer or semitrailer body sold after such date, suitable for use 
with a trailer or semitrailer having a gross vehicle weight of 10,000 
pounds or less, which trailer or semitrailer is suitable for use with a 
light-duty towing vehicle, is not subject to such tax even though it may 
also be suitable for use with (and is actually a component of) a trailer 
or semitrailer having a gross vehicle weight of more than 10,000 pounds, 
or is used in connection with a vehicle having a gross vehicle weight of 
more than 10,000 pounds.
    (iii) Where an exempt body is mounted on a taxable chassis, or a 
taxable body is mounted on an exempt chassis, the taxable chassis or 
taxable body, as the case may be, nevertheless remains subject to such 
tax, if the resulting vehicle is a highway vehicle as defined in 
paragraph (d) of this section.
    (iv) Where the modification of an article, exempt from tax when sold 
by the original manufacturer, constitutes further manufacture after the 
original manufacturer's sale, a tax may be imposed on the subsequent 
manufacturer's sale or use of the modified article.
    (2) Parts and accessories. (i) The sale of a part or accessory 
which, if sold on December 10, 1971, would be subject to the tax imposed 
by section 4061(a)(1) as in effect at such time, is not subject to the 
tax imposed by section 4061(a)(1) as in effect after such date if:
    (A) It is sold by the manufacturer on or in connection therewith, or 
with the sale of, a vehicle enumerated in paragraph (f)(1)(i) of this 
section which is not subject to such tax, and
    (B) It is not a replacement part (as defined in paragraph (f)(2)(ii) 
of this section).
    (ii) For purposes of this paragraph (f)(2), a part or accessory is 
considered sold with a vehicle if, as of the time the article is sold by 
the manufacturer, the part or accessory has been ordered from such 
manufacturer for use with the vehicle. Thus, for example, original 
equipment sold after December 10, 1971, with a light-duty vehicle, 
consisting of parts and accessories which are ordered from the 
manufacturer of the vehicle not later than the time at which such 
vehicle is sold by him (whether or not installed as of such time) are 
not subject to such tax. For purposes of this paragraph (f)(2), a part 
is a replacement part, regardless of when ordered,if its use with a 
vehicle is as a replacement for a part of such vehicle. Therefore, spare 
parts or accessories sold separately or ordered with a light-duty truck 
are subject to the tax imposed on sales of parts or accessories by 
section 4061(b)(1), unless they are excluded from tax as articles used 
interchangeably between truck and passenger vehicles under the 
provisions of section 4061(b)(2).
    (3) Gross vehicle weight. (i) For purposes of paragraph (f)(1) of 
this section gross vehicle weight means the maximum total weight of a 
loaded vehicle. Except as otherwise provided in this paragraph (f)(3), 
such maximum total weight shall be the gross vehicle weight rating of 
the article (as manufactured) as secified or established by the 
manufacturer of the completed article, unless such rating is 
unreasonable in light of the facts and circumstances in a particular 
case.
    (ii) A manufacturer must specify or establish a weight rating for 
each chassis, body, or vehicle sold by him after September 22, 1971, if 
such article requires no additional manufacture other than (A) the 
addition of readily attachable articles, such as tire or rim assemblies 
or minor accessories, (B) the performance of minor finishing operations, 
such as painting, or (C) in the case of a chassis, the addition of a 
body. If an article is specially manufactured to the purchaser's 
specifications, such specifications may be used to establish the gross 
vehicle weight of the article.
    (iii) A manufacturer shall maintian a record of the gross vehicle 
weight rating of each truck, bus, trailer, and semitrailer sold by him 
and excluded from the tax imposed by section 4061(a)(1) by reason of 
section 4061(a)(2) and this paragraph (f). For this purpose, a record of 
the serial number of each such article shall be treated as a

[[Page 90]]

record of the gross vehicle weight rating of the article if such rating 
is indicated by the serial number.
    (iv) If (A) the manufacturer's rating indicated in a label or 
identifying device affixed to an article, (B) the rating set forth in 
his sales invoice or warranty agreement, and (C) his advertised rating 
for that article (or two or more identical articles) are inconsistent, 
the highest of such ratings will be considered to be the manufacturer's 
gross vehicle weight rating specified or established for purposes of the 
tax imposed by section 4061(a)(1).
    (v) With respect to articles sold after January 31, 1972, the 
manufacturer's gross vehicle weight rating must take into account the 
strength of the chassis frame, the axle capacity and placement, and the 
spring, brake, rim, and tire capacities. The component with the lowest 
weight rating ordinarily shall be considered determinative of the gross 
vehicle weight. If the capacity of any of the readily attachable 
components (springs, brakes, rims, or tires) would otherwise be 
determinative of a gross vehicle weight rating of 10,000 pounds or less, 
no readily attachable component will be taken into account in 
determining such rating unless the rating determined solely on the basis 
of the chassis frame or the total of the axle ratings is 12,000 pounds 
or less.
    (vi) For purposes of paragraph (f)(3)(v) of ths section, the term 
``total of the axle ratings'' means the sum of the maximum load carrying 
capability (capacity and placement) of the axles (without regard to 
springs, brakes, rims, and tires) and, in the case of a trailer or 
semitrailer, the weight, if any, that is to be borne by a vehicle used 
in combination with the trailer or semitrailer for which gross vehicle 
weight is determined.

[T.D. 7461, 42 FR 2672, Jan. 13, 1977, as amended by T.D. 7461, 42 FR 
5695, Jan. 31, 1977; T.D. 7566, 43 FR 41389, Sept. 18, 1978]



Sec. 48.4061(a)-2  Bonding of importers.

    (a) Authority for requiring bond. Section 623 of the Tariff Act of 
1930, as amended (19 U.S.C. 1623), provides as follows:

    Sec. 623. Bonds and other security. (a) In any case in which bond or 
other security is not specifically required by law, the Secretary of the 
Treasury may by regulation or specific instruction require, or authorize 
collectors of customs to require, such bonds or other security as he, or 
they, may deem necessary for the protection of the revenue or to assure 
compliance with any provision of law, regulation, or instruction which 
the Secretary of the Treasury or the Customs Service may be authorized 
to enforce.
    (b) Whenever a bond is required or authorized by a law, regulation, 
or instruction which the Secretary of the Treasury or the Customs 
Service is authorized to enforce, the Secretary of the Treasury may--
    (1) Except as otherwise specifically provided by law, prescribe the 
conditions and form of such bond, and fix the amount of penalty thereof, 
whether for the payment of liquidated damages or of a penal sum: 
Provided, That when a consolidated bond authorized by paragraph 4 of 
this subsection is taken, the Secretary of the Treasury may fix the 
penalty of such bond without regard to any other provision of law, 
regulation, or instruction.
    (2) Provide for the approval of the sureties on such bond, without 
regard to any general provision of law.
    (3) Authorize the execution of a term bond the conditions of which 
shall extend to and cover similar cases of importations over such period 
of time, not to exceed one year, or such longer period as he may fix 
when in his opinion special circumstances existing in a particular 
instance require such longer period.
    (4) Authorize, to the extent that he may deem necessary, the taking 
of a consolidated bond (single entry on term), in lieu of separate bonds 
to assure compliance with two or more provisions of law, regulations, or 
instructions which the Secretary of the Treasury or the Customs Service 
is authorized to enforce. A consolidated bond taken pursuant to the 
authority contained in this subsection shall have the same force and 
effect in respect of every provision of law, regulation, or instruction 
for the purposes for which it is required as though separate bonds had 
been taken to assure compliance with each such provision.
    (c) The Secretary of the Treasury may authorize the cancellation of 
any bond provided for in this section, or of any charge that may have 
been made against such bond, in the event of a breach of any condition 
of the bond, upon the payment of such lesser amount or penalty or upon 
such other terms and conditions as he may deem sufficient.
    (d) No condition in any bond taken to assure compliance with any 
law, regulation, or instruction which the Secretary of the Treasury or 
the Customs Service is authorized to enforce shall be held invalid on 
the ground that such condition is not specified

[[Page 91]]

in the law, regulation, or instruction authorizing or requiring the 
taking of such bond.
    (e) The Secretary of the Treasury is authorized to permit the 
deposit of money or obligations of the United States, in such amount and 
upon such conditions as he may by regulation prescribe, in lieu of 
sureties on any bond required or authorized by a law, regulation, or 
instruction which the Secretary of the Treasury or the Customs Service 
is authorized to enforce.

    (b) Application for determination whether bond required--(1) 
Requirement of application--(i) In general. Except as otherwise provided 
in subparagraph (2) of this paragraph, every importer of articles 
taxable under section 4061(a) shall make application for a determination 
whether the importer is required to give bond in accordance with the 
provisions of paragraph (c) of this section. Such application shall be 
submitted in writing to the district director for the district in which 
the importer will file returns of any tax under section 4061(a) for 
which he may incur liability.
    (ii) Form of application. No form is prescribed for making the 
application required under subdivision (i) of this subparagraph, but 
such application shall include the following information:
    (a) The name of the person making the application and the address of 
his principal place of business, and, if the principal place of business 
of such person is outside the United States, the address of his 
principal place of business, office, or agency in the United States.
    (b) Information establishing that the person making the application 
is an importer of articles taxable under section 4061(a).
    (c) The kind and approximate number of automobiles, trucks, buses, 
etc., which the importer may be expected to import during an average 
calendar quarter and the approximate amount of tax under section 4061(a) 
for which the importer may be expected to incur liability in respect of 
such articles.
    (d) Whether the importer has filed returns of tax under chapter 31 
or chapter 32 within the 2-year period immediately preceding the date on 
which the application is filed, and, if so, the internal revenue 
district in which such returns were filed.
    (e) Facts pertaining to the importer's assets and liabilities which 
will aid the district director in determining whether a bond shall be 
required.
    (2) Exceptions. The provisions of subparagraph (1) of this paragraph 
shall have no application in any case where an article taxable under 
section 4061(a) is:
    (i) Incidentally imported by an individual for his personal use.
    (ii) Brought into the United States for export to a foreign country 
or possession of the United States.
    (iii) Admitted to the United States free of duty as an instrument of 
international traffic.
    (iv) Admitted to the United States free of duty as a temporary 
importation under bond.
    (v) Returned to the United States after having been sold in the 
United States and exported.
    (c) Requirement of bond--(1) In general. If the district director 
determines that a bond is necessary in order to insure payment of the 
tax under section 4061(a), and to assure compliance with all provisions 
of the Code and regulations thereunder, with respect to articles 
imported by any importer required to make application for a 
determination under paragraph (b) of this section, such bond shall be 
given by such importer. Such bond shall be submitted, in duplicate, to 
the district director for the district in which the importer will file 
returns of any tax under section 4061(a) for which he may incur 
liability.
    (2) Execution of bond--(i) In general. The bond required under this 
paragraph shall be executed with satisfactory surety. (For provisions as 
to what will be considered ``satisfactory surety'', see subparagraph (3) 
of this paragraph.) Such bond shall be conditioned that the principal 
shall not engage in any attempt, by himself or by collusion with others, 
to defraud the United States of any tax under section 4061(a); that he 
shall render truly and completely all returns, statements, and other 
documents required of him by law or regulations in respect of such tax; 
that he shall timely pay all such tax for which he is liable; and, in 
the case of any such tax in respect of an article released from customs 
custody by

[[Page 92]]

reason of such bond that he shall pay such tax whether the liability 
therefor is incurred by him or by some other person as the importer of 
the articles covered by the bond, unless such other person makes payment 
of such tax on or before the due date. The bond shall be in an amount 
which the district director believes to be sufficient to protect the 
interests of the United States with respect to all articles taxable 
under section 4061(a) which are released from customs custody by reason 
of such bond, but in no event shall the bond be in an amount less than 
the approximate amount of tax under section 4061(a) for which the 
principal may be expected to incur liability during an average calendar 
quarter. Such bond shall be signed by the individual, if the principal 
is an individual; the president, vice president, or other principal 
officer, if the principal is a corporation; a responsible and duly 
authorized member or officer having knowledge of its affairs, if the 
principal is a partnership or other unincorporated organization; or the 
fiduciary, if the principal is a trust or estate.
    (ii) Cancellation clause. The bond required under this paragraph may 
be accepted with a cancellation clause incorporated therein. Such 
cancellation clause shall provide that:
    (a) Any surety on the bond may at any time give notice to the 
principal and the district director that he desires to be relieved of 
liability under said bond after a date named, which shall be at least 60 
days after the receipt of notice by the district director.
    (b) If the notice is not withdrawn in writing prior to the date 
named in the notice, the rights of the principal as supported by said 
bond shall be terminated on such date (unless supported by another bond 
or bonds). The surety shall, however, remain liable with respect to any 
tax under section 4061(a) (plus penalties and interest) the liability 
for which is incurred in respect of articles released from customs 
custody by reason of the bond.
    (c) Said notice may not be given by an agent of the surety, unless 
it is accompanied by power of attorney duly executed by the surety 
authorizing the agent to give such notice or by a verified statement 
that such power of attorney is on file with the Treasury Department.
    (iii) Changes in bond. After filing of the bond required under this 
paragraph, no change may be made in the terms thereof except with the 
consent of the surety or sureties and subject to the approval of the 
district director.
    (3) Satisfactory surety--(i) Approved surety company or bonds or 
notes of the United States. For purposes of subparagraph (2) of this 
paragraph, a bond shall be considered executed with satisfactory surety 
if:
    (a) It is executed by a surety company holding a certificate of 
authority from the Secretary as an acceptable surety on Federal bonds; 
or
    (b) It is secured by bonds or notes of the United States as provided 
in 6 U.S.C. 15 (see 31 CFR Part 225).
    (ii) Other surety acceptable in discretion of district director. For 
purposes of subparagraph (2) of this paragraph, a bond may, in the 
discretion of the district director, be considered executed with 
satisfactory surety if, in lieu of being executed or secured as provided 
in subdivision (i) of this subparagraph, it is:
    (a) Executed by a corporate surety (other than a surety company), 
provided such corporate surety establishes that it is within its 
corporate powers to act as surety for another corporation or an 
individual;
    (b) Executed by two or more individual sureties, provided such 
individual sureties meet the conditions contained in subdivision (iii) 
of this subparagraph;
    (c) Secured by a mortgage on real or personal property;
    (d) Secured by a certified, cashier's, or treasurer's check drawn on 
any bank or trust company incorporated under the laws of the United 
States or any State, Territory, or possession of the United States, or 
by a United States postal, bank, express, or telegraph money order;
    (e) Secured by corporate bonds or stocks, or by bonds issued by a 
State or political subdivision thereof, of recognized stability; or
    (f) Secured by any other acceptable collateral. Collateral shall be 
deposited

[[Page 93]]

with the district director or, in his discretion, with a responsible 
financial institution acting as escrow agent.
    (iii) Conditions to be met by individual sureties. If a bond is 
executed by two or more individual sureties, the following conditions 
must be met by each such individual surety:
    (a) He must reside within the State in which the principal place of 
business or legal residence of the primary obligor is located;
    (b) He must have property subject to execution of a current market 
value, above all encumbrances, equal to at least the penalty of the 
bond;
    (c) All real property which he offers as security must be located in 
the State in which the principal place of business or legal residence of 
the primary obligor is located;
    (d) He must agree not to mortgage, or otherwise encumber, any 
property offered as security while the bond continues in effect without 
first securing the permission of the district director; and
    (e) He must file with the bond, and annually thereafter so long as 
the bond continues in effect, an affidavit as to the adequacy of his 
security, executed on the appropriate form furnished by the district 
director.

Partners may not act as sureties upon bonds of their partnership. 
Stockholders of a corporate principal may be accepted as sureties 
provided their qualifications as such are independent of their holdings 
of the stock of the corporation.
    (iv) Adequacy of surety. No surety or security shall be accepted if 
it does not adequately protect the interest of the United States.
    (4) New or additional bond. The district director may require a new 
or additional bond under this section in any case where he deems it 
necessary or desirable in order to protect the interests of the United 
States.
    (d) Termination of requirement--(1) Application for relief from 
requirement. Any importer who has given bond as required under paragraph 
(c) of this section may make application for relief from such 
requirement at any time after the last day of the first month following 
the close of the calendar quarter in which the bond was given. Any such 
application shall be submitted to the district director to whom the bond 
was furnished and shall set forth such facts as will be of assistance to 
the district director in determining whether the relief shall be 
granted.
    (2) Relief from requirement. In any case where the district director 
determines that the bond required under paragraph (c) of this section to 
be given by an importer is no longer necessary to insure payment of any 
tax under section 4061(a) for which liability may be incurred by such 
importer, such importer shall no longer be required to give such bond.
    (e) Evidence required for release of imported articles from customs 
custody--(1) In general. Each article taxable under section 4061(a) 
which arrives in the United States from any foreign country or 
possession of the United States on or after the first day of the first 
calendar quarter beginning more than 60 days after the date of 
publication of this Treasury decision in the Federal Register, and which 
is imported by any person required under paragraph (b) of this section 
to make application for a determination whether bond shall be given, 
shall not, if subject to customs examination and release, be released 
from customs custody until the evidence prescribed in subparagraph (2) 
(i) or (ii) of this paragraph has been furnished by such person to the 
collector of customs.
    (2) Form of evidence. The evidence required under subparagraph (1) 
of this paragraph shall be in the form of a statement, executed, signed, 
and dated by the district director. Such statement shall show the 
following:
    (i) Bond required. If the importer is required to give bond under 
this section the statement shall show:
    (a) The total number of articles in respect of which the statement 
is given.
    (b) The model number of each such article.
    (c) The name and address of the importer of such articles.
    (d) If the articles are to be released from customs custody to a 
person other than the importer, the name and address of such other 
person.
    (e) That the importer has given a bond which the district director 
finds sufficient to protect the interests of

[[Page 94]]

the United States with respect to any tax under section 4061(a) for 
which liability may be incurred in respect of such articles.

A statement under this subdivision shall be furnished to the importer by 
the district director, upon request of the importer, in every case where 
such importer furnishes the district director with information which 
establishes to the satisfaction of the district director that the 
importer has given bond in an amount sufficient to protect the interests 
of the United States with respect to any tax under section 4061(a) which 
may become due in respect of the articles to which the request relates, 
and with such other information as is required under this subdivision to 
be shown in the statement. Such request, together with such information, 
shall be submitted by the importer immediately upon receipt by him of 
notice that articles taxable under section 4061(a) have been exported to 
his order. A separate request shall be made in respect of each shipment. 
Each statement given under this subdivision shall be executed in 
duplicate. The original of such statement shall be furnished by the 
district director to the importer and the copy shall be retained by the 
district director.
    (ii) No bond required. If the importer is not required to give bond 
under this section, the statement shall show:
    (a) The name and address of the importer.
    (b) That bond under this section is not required of such importer.

A statement under this subdivision shall be furnished to the importer by 
the district director on the date on which the district director 
determines that the importer is not required to give a bond under this 
section. Such statement shall be executed in triplicate. The original of 
such statement and one signed copy shall be furnished by the district 
director to the importer, and one copy shall be retained by the district 
director. Additional signed copies of such statement will be furnished 
by the district director to the importer upon request of the importer. 
However, once such statement, or a signed copy thereof, has been 
furnished by the importer to a collector of customs, the requirements 
imposed by subparagraph (1) of this paragraph are deemed to be satisfied 
in respect of all articles taxable under section 4061(a) which 
thereafter arrive in the United States for release to or for the 
importer in a port under the jurisdiction of such collector of customs, 
until such time, if any, as such collector of customs receives written 
notification from the district director or the Commissioner of Customs 
that such statement has been withdrawn.

(46 Stat. 759; 19 U.S.C. 1623)

[T.D. 6499, 25 FR 10347, Oct. 28, 1960, as amended by T.D. 7517, 42 FR 
58935, Nov. 14, 1977]



Sec. 48.4061(a)-3  Definitions.

    For purposes of the tax imposed by section 4061, unless otherwise 
expressly indicated:
    (a) Automobile truck. The term ``automobile truck'' includes 
automobile buses, and truck and bus trailers and semitrailers.
    (b) Other automobile. The term ``other automobile'' means all 
automobiles other than automobile trucks, and includes trailers and 
semitrailers suitable for use in connection with passenger automobiles, 
but does not include house trailers.
    (c) Tractor. The term ``tractor'' means any tractor chiefly used for 
highway transportation in combination with a trailer or semitrailer.



Sec. 48.4061(a)-4  Parts or accessories sold on or in connection with chasis, bodies, etc.

    (a) In general. The tax attaches in respect of parts or accessories 
for articles specified in section 4061(a) sold on or in connection 
therewith or with the sale thereof at the rate applicable to the sale of 
the basic article. The tax attaches in such case whether or not the 
parts or accessories are billed separately. For the tax applicable to 
parts or accessories which are not sold on or in connection with the 
sale of a taxable chassis, body, or tractor, see Sec. 48.4061(b)-1.
    (b) Essential equipment. If taxable chassis, bodies, or tractors are 
sold by the manufacturer, producer, or importer without parts or 
accessories which are considered equipment essential for the operation 
or appearance of

[[Page 95]]

such articles, the sale of such parts or accessories will be considered, 
in the absence of evidence to the contrary, to have been made in 
connection with the sale of the basic article even though they are 
shipped separately at the same time or on a different date. For example, 
if a manufacturer sells to any person a chassis and the bumpers for such 
chassis, or sells a taxable tractor and the fifth wheel and attachments, 
the tax applies to such parts or accessories at the same rate as on the 
chassis or tractor regardless of the method of billing or the time at 
which the shipments were made.



Sec. 48.4061(a)-5  Sale of automobile truck bodies and chassis.

    (a) Sale of completed vehicle. An automobile truck (as defined by 
Sec. 48.4061(a)-3(a)) for purposes of the tax imposed by section 
4061(a) consists of two parts, namely, a body and a chassis. Generally, 
the tax applies to the sale by the manufacturer of each. Thus, if the 
purchaser of a tax-paid chassis attaches to it a taxable body 
manufactured by him and sells the completed vehicle, he is liable for 
tax based on the sale price of the body only. However, in such a case, 
the tax attaches to the selling price of the entire vehicle unless 
adequate records are available to show the portion of the total selling 
price attributable to the body.
    (b) Cross references. For special rules relating to the sale of a 
chassis or body to a purchaser who will use it in the manufacture or 
assembly of a nonhighway vehicle, see Sec. 48.4061(a)-1(e). With 
respect to bodies sold to a chassis manufacturer, see also section 
4063(b) and the regulations thereunder.

[T.D. 7461, 42 FR 2675, Jan. 13, 1977]



Sec. 48.4061(b)  [Reserved]



Sec. 48.4061(b)-1  Imposition of tax.

    (a) In general. Section 4061(b) imposes a tax on the sale by the 
manufacturer, producer, or importer of parts or accessories (other than 
tires and inner tubes and other than automobile radio and television 
receiving sets) for any of the articles enumerated in section 4061 (a) 
(see paragraph (a) of Sec. 48.4061 (a)-1).
    (b) Rates of tax. Tax is imposed on the sale of parts or accessories 
for any of the articles enumerated in section 4061(a) at the rates 
specified below:

 
                                                                Percent
 
(1) Parts or accessories sold during the period January 1,             8
 1959, to June 30, 1965, inclusive...........................
(2) Parts or accessories sold on or after July 1, 1965.......          5
 


The tax is computed by applying to the price for which the part or 
accessory is sold the rate in effect at the time of the sale. For 
definition of the term ``price'' see section 4216 and the regulations 
thereunder contained in Subpart M of this part.
    (c) Liability for tax. The tax imposed by section 4061(b) is payable 
by the manufacturer, producer, or importer making the sale.

[T.D. 6648, 28 FR 3633, Apr. 13, 1963, as amended by T.D. 6753, 29 FR 
12717, Sept. 9, 1964]



Sec. 48.4061(b)-2  Definition of parts or accessories.

    (a) In general. The term ``parts or accessories'' includes (1) any 
article the primary use of which is to improve, repair, replace, or 
serve as a component part of an automobile truck or bus chasis or body, 
or other automobile chassis or body, or taxable tractor, (2) any article 
designed to be attached to or used in connection with such chassis, 
body, or tractor to add to its utility or ornamentation, and (3) any 
article the primary use of which is in connection with such chassis, 
body, or tractor, whether or not essential to its operation or use. The 
term ``parts or accessories'' includes all articles which have reached 
such a stage of manufacture as to be commonly known as parts or 
accessories whether or not fitting operations are required in connection 
with their installation. An article shall not be deemed to be a taxable 
part or accessory even though it is designed to be attached to the 
vehicle or to be primarily used in connection therewith if the article 
is in effect the load being transported and the primary function of the 
article is to serve a purpose unrelated to the vehicle as such. For 
example, a construction derrick attached to a truck is not a taxable 
part or accessory inasmuch as the derrick is the load of the truck and 
its use is in connection with construction work at a

[[Page 96]]

construction site rather than in connection with the transportation or 
loading or unloading function of the truck. On the other hand, an 
article such as a towing cradle or loading or unloading equipment 
designed to be attached to or to be primarily used in connection with a 
truck is a taxable part or accessory inasmuch as the articles 
contributes to the load-carrying function of the truck. The term ``parts 
or accessories'' does not include tires, inner tubes, or automobile 
radio or television receiving sets, since these articles are expressly 
exempted by section 4061(b) from the tax. However, the term ``parts or 
accessories'' includes tire valves designed for use on tires or tubes 
for articles taxable under section 4061(a).
    (b) Articles of a general use. The term ``parts or accessories'' 
does not include articles which are not used primarily in the 
manufacture, repair, etc., of automobile trucks, other automobiles, or 
tractors, but have a general use in the manufacture, repair, etc., of 
various articles. For example, commodities such as ball and roller 
bearings, bolts, nuts, washers, screws, nails, tacks, rivets, pins, 
studs, cotters, pipe fittings such as plugs, tees, ells, and elbows, 
drain cocks, grease cups, oilers, and similar articles are not of 
themselves parts or accessories unless so constructed as to be used 
primarily in the manufacture, repair, etc., of automobile trucks, other 
automobiles, or tractors. On the other hand, parts for automobile parts 
or accessories are in themselves taxable unless they are articles of a 
type not specifically designed for use primarily in the automobile 
field. For example, the tax applies to the sale of gears, flexible 
shafts and flexible housings designed as replacement parts for 
automotive speedometers; as well as replacement parts for automobile 
engines, transmissions, differentials, steering mechanisms, timers, 
windshild-wiper motors, and other automobile parts or accessories.
    (c) Materials of a general use--(1) General rule. The term ``parts 
or accessories'' also does not include material such as glass, cloth, 
leather, matting linoleum, and other materials sold in rolls or by the 
foot, such as brake lining, tape, binding, wire, cable, metal and rubber 
tubing, packing, conduit, and similar material. However, except as 
provided in subparagraph (2) of this paragraph, when any such material 
is cut or otherwise transformed by any person into an automobile part or 
accessory, tax attaches at the time such part or accessory is sold by 
such person.
    (2) Articles made for immediate installation or repair. If in 
connection with an immediate installation in an automobile truck, other 
automobile, or tractor an article is produced through the use of special 
machinery or as a result of specialized skills from lengths or rolls of 
material, the person producing such article is considered to have 
manufactured an automobile part or accessory and the tax applies to his 
sale of such part or accessory. For example, tax applies to the sale of 
automobile glass cut to size to replace broken glass, or automobile seat 
covers, automobile floor mats, or fitted truck top covers produced to 
replace worn seat covers, floor mats, or truck top covers. However, if 
an article of a minor nature is produced by simple operation from 
lengths or rolls of material for immediate use by a repairman in the 
repair of an automobile truck, other automobile, or tractor on which he 
is then working, the person producing such article is not considered to 
have manufactured an automobile part or accessory and tax does not apply 
on his sale of such article. For example, tax does not apply where a 
wire, hose, or board is cut to size in order to replace a damaged wire, 
hose, or board of an automobile truck, other automobile, or tractor.
    (d) Examples of articles taxable as parts or accessories. Examples 
of articles which are taxable as parts or accessories are: Automobile 
air conditioners; baby seats for automobiles; automobile beds; 
automobile hammocks; automobile clutches; bottle warmers and heating 
pads designed to operate from an automobile cigarette lighter; 
automobile radio antennae; automobile license plate frames; automobile 
clocks; automobile mirrors and mirror brackets; purses for carrying 
parking meter coins or cases for carrying registration cards when 
designed for attachment to an automobile; safes

[[Page 97]]

primarily designed for use in taxable motor vehicles; electric bulbs 
primarily designed and adapted for use on automobiles; automobile floor 
mats; jacks of the mechanical or hydraulic bumper, screw, ratchet, 
scissors, or other type primarily designed to be carried as accessories 
in automobiles as distinguished from jacks designed especially for use 
in garages and repair shops; dollies of the type commonly known as 
converter dollies which are used as connectors to convert semitrailers 
to full trailers; tool kits recommended for use with automobiles; 
automobile seat covers of any construction whether they are ready-made 
or custom fitted; fitted truck top covers; glass cut to size for 
installation in automobiles; and automobile bearings, such as automobile 
crankshaft or connecting rod bearings.
    (e) Effective date. This section shall be effective with respect to 
sales made on or after January 1, 1964. For the definition of parts or 
accessories applicable to sales thereof prior to such date, see Sec. 
40.4061(b)-2 of this chapter (Manufacturers and Retailers Excise Tax 
Regulations).
    (f) Cross references. For provisions relating to the tax imposed 
upon:
    (1) Tires and inner tubes, see section 4071 and the regulations 
thereunder contained in Subpart H of this part;
    (2) Automobile radio and television receiving sets, see section 4141 
and the regulations thereunder contained in Subpart J of this part; and
    (3) Fare registers and fare boxes for use on buses and automobiles, 
see section 4191 and the regulations thereunder contained in Subpart L 
of this part.

[T.D. 6648, 28 FR 3633, Apr. 13, 1963, as amended by T.D. 6655, 28 FR 
5235, May 25, 1963]



Sec. 48.4061(b)-3  Rebuilt, reconditioned, or repaired parts or accessories.

    (a) Rebuilt parts or accessories. Rebuilding of automobile parts or 
accessories, as distinguished from reconditioning or repairing, 
constitutes manufacturing, and the rebuilder of such parts or 
accessories is liable for the tax imposed by section 4061(b) with 
respect to his sales of such rebuilt parts or accessories. Reboring or 
other machining, rewinding, and comparable major operations constitute 
rebuilding. The person owning the part or accessory being rebuilt is the 
manufacturer of the article and is liable for the tax on his sale of the 
rebuilt part or accessory. The tax attaches whether the machining or 
other operation is performed by the rebuilder himself or by some other 
person in his behalf. For example, the tax attaches with respect to 
sales of (1) rebuilt batteries, (2) rebabbited or machined connecting 
rods, (3) reassembled clutches after operations such as the resurfacing 
of clutch plates, (4) rewound armatures, (5) reassembled generators with 
armatures rewound by or for the person reassembling the generator, (6) 
reground or remetalized crankshafts, and (7) engines in which blocks are 
machined (such as cylinders rebored or new sleeves inserted with or 
without cylinders being rebored) or new blocks installed. For provisions 
relating to the sale price of rebuilt parts or accessories, see Sec. 
48.4062(b)-1.
    (b) Reconditioned parts or accessories. The mere disassembling, 
cleaning, and reassembling (with any necessary replacements of worn 
parts) of automobile parts or accessories, such as fuel pumps, water 
pumps, carburetors, distributors, shock absorbers, windshield-wiper 
motors, brake shoes, clutch disks, voltage regulators, and other parts 
or accessories, are regarded as reconditioning operations rather than 
the manufacturing or production of rebuilt parts or accessories. The 
sale of a reconditioned part or accessory is not subject to tax if 
previous to the reconditioning there had been a prior sale of such part 
or accessory in the United States. Any new taxable parts or accessories 
produced, or purchased tax free for use in further manufacture, and used 
as replacements in reconditioning such units are subject to tax when 
used by the reconditioner.
    (c) Repaired parts or accessories. The tax does not apply to the 
amount paid for the repair of automobile parts or accessories for the 
owner thereof. Repairing consists of the restoration, whether by 
rebuilding or reconditioning, of an owner's part or accessory to usable 
condition for his own use rather than for sale. The person who performs 
the repairing must retain in

[[Page 98]]

his possession evidence or documents from which the nontaxable nature of 
the operation can be ascertained. Any person engaged in rebuilding parts 
or accessories for purposes of sale incurs liability for tax with 
respect to his own use of any part or accessory rebuilt by him for sale.



Sec. 48.4061-1  Temporary regulations with respect to floor stock refunds or credits on cement mixers.

    (a) In general--(1) Refund or credit. Pub. L. 91-678 (84 Stat. 2062, 
Jan. 12, 1971) provides that if:
    (i) A manufacturer, producer, or importer paid the tax imposed by 
section 4061 (relating to imposition of tax on motor vehicles) on the 
sale of a cement mixer after June 30, 1968, and before January 1, 1970, 
and
    (ii) Such cement mixer was held by a dealer on January 1, 1970, for 
purposes of resale and was not used,

the manufacturer, producer, or importer is entitled to a credit or 
refund (without interest) of the amount of tax he paid on his sale of 
such cement mixer.
    (2) Time for filing claim. The manufacturer, producer, or importer 
entitled to a credit or refund under subparagraph (1) of this paragraph 
shall file his claim for credit or refund on or before October 31, 1971, 
based upon a request submitted to the manufacturer, producer, or 
importer on or before July 31, 1971, by the dealer who held the cement 
mixer in respect of which the credit or refund is claimed. Before he 
files his claim for credit or refund, the manufacturer, producer, or 
importer shall either reimburse the dealer for the amount of tax he is 
claiming with respect to the cement mixer or obtain written consent from 
the dealer to claim such tax.
    (3) Other provisions applicable. All provisions of law, including 
penalties, applicable in respect of the taxes imposed by section 4061 of 
such Code shall, insofar as applicable and not inconsistent with Pub. L. 
91-678 apply in respect of the credits and refunds provided for in this 
section to the same extent as if the credits or refunds constituted 
overpayments of the taxes.
    (b) Definitions. For purposes of this section:
    (1) Cement mixer. The term ``cement mixer'' means:
    (i) Any article designed to be placed or mounted on an automobile 
truck chassis or truck trailer or semitrailer chassis and to be used to 
process or prepare concrete, and
    (ii) Parts or accessories designed primarily for use on or in 
connection with an article described in subdivision (i) of this 
subparagraph.
    (2) Dealer. The term ``dealer'' includes a wholesaler, jobber, 
distributor, or retailer.
    (3) Held by a dealer. A cement mixer shall be considered as ``held 
by a dealer'' if title thereto has passed to the dealer (whether or not 
delivery to him has been made), and if for purposes of consumption title 
to the cement mixer or possession thereof had not at any time prior to 
January 1, 1970, been transferred to any person other than a dealer. For 
purposes of paragraph (a) of this section and notwithstanding the 
preceding sentence, a cement mixer shall be considered as ``held by a 
dealer'' and not to have been used, although possession of such cement 
mixer has been transferred to another person, if such cement mixer is 
returned to the dealer in a transaction under which any amount paid or 
deposited by the transferee for such cement mixer is refunded to him 
(other than amounts retained by the dealer to cover damage to the cement 
mixer). Moreover, such a cement mixer shall be considered as held by a 
dealer on January 1, 1970, even though it was in the possession of the 
transferee on such day, if it was returned to the dealer (in a 
transaction described in the preceding sentence) before January 31, 
1970. The determination as to the time title passes or possession is 
obtained for purposes of consumption shall be made under applicable 
local law. (See subdivisions (iii), (iv), and (v) of paragraph (b)(4) of 
Sec. 145.2-1 of this subchapter for examples illustrating the 
provisions of this subparagraph.)
    (c) Other requirements. All the requirements of paragraph (c) 
(relating to participation of dealers), paragraph (d) (relating to claim 
for credit or refund), paragraph (e) (relating to evidence to be 
retained), and paragraph (f) (relating to effect on other claims for

[[Page 99]]

refund or credit) of Sec. 48.6412-1 are applicable (to the extent they 
are not inconsistent with section 4061 and Pub. L. 91-678) with respect 
to a claim for credit or refund under this section. With respect to 
claims for credit or refund under this section, the term ``dealer 
request limitation date'' and ``claim limitation date'' used in 
paragraphs (c) and (d) of Sec. 48.6412-1 means July 31, 1971, and 
October 31, 1971, respectively.

[T.D. 7090, 36 FR 3893, Mar. 2, 1971]



Sec. 48.4062(a)  [Reserved]



Sec. 48.4062(a)-1  Specific parts or accessories.

    Spark plugs, storage batteries, leaf springs, coils, timers, and 
tire chains, which are suitable for use on or in connection with, or as 
component parts of, automobile trucks, other automobiles, tractors, or 
other vehicles enumerated in section 4061(a), are considered parts of, 
or accessories for, such articles whether or not primarily designed or 
adapted for such use.



Sec. 48.4062(b)  [Reserved]



Sec. 48.4062(b)-1  Rebuilt parts or accessories sold on an exchange basis.

    The sale price of a rebuilt part or accessory on which the tax is to 
be computed shall not include the value of a like part or accessory 
accepted in exchange. The total amount charged in excess of the amount 
allowed for a like article accepted in an exchange will be the basis for 
tax. For example, if a rebuilt automobile engine is sold for $100, plus 
another automobile engine, the tax on the rebuilt engine will be 
computed on the basis of $100.



Sec. 48.4063-1  Tax-free sales of bodies to chassis manufacturers.

    Under the provisions of section 4063(b), the tax imposed by section 
4061(a) shall not apply to bodies sold by the manufacturer thereof to a 
manufacturer (but not an importer) of automobile trucks (as defined by 
Sec. 48.4061(a)-3(a)) to be sold by the purchaser. Thus, a manufacturer 
of automobile truck bodies is permitted to sell such bodies tax free to 
manufacturers of automobile truck chassis. This section does not apply 
with respect to the sale of an automobile truck chassis to manufacturers 
of automobile truck bodies. However, see Sec. 48.4061(a)-1(e) with 
respect to the sale of an automobile truck chassis for use in the 
manufacture or assembly of a nonhighway vehicle (within the meaning of 
Sec. 48.4061(a)-1(d)). In order to effect a tax-free sale of a body as 
provided in this section, both the seller and purchaser must comply with 
the registration and other requirements of section 4222 and the 
regulations thereunder. A chassis manufacturer who purchases a body tax 
free as provided in this section shall, for purposes of application of 
the tax imposed by section 4061(a), be considered the manufacturer of 
such body.

[T.D. 7461, 42 FR 2675, Jan. 13, 1977]



Sec. 48.4063-2  Tax-free sales of parts or accessories sold for resale

on or in connection with the first retail sale of a light-duty truck.

    (a) In general. Under section 4063(e), the 8-percent manufacturers 
excise tax imposed by section 4061(b) on the sale of truck parts or 
accessories does not apply to the sale by the manufacturer, producer, or 
importer of any parts which are to be resold by the purchaser on or in 
connection with the first retail sale of a light-duty truck as defined 
in section 4061(a)(2), or which are to be resold by the purchaser to a 
second purchaser for resale by the second purchaser on or in connection 
with the first retail sale of a light-duty truck. A tax-free sale is 
also allowed under section 4063(e) if an ultimate purchaser makes a 
direct purchase from a manufacturer of a part or accessory for use on or 
in connection with a substantially contemporaneous purchase of a new 
light-duty truck.
    (b) Evidence required for tax-free sales of light-duty truck parts 
and accessories--(1) In general. The provisions of section 4063(e) do 
not apply with respect to any sale unless the manufacturer, the first 
purchaser, and the second purchaser, if any, are all registered as 
required under section 4222, and unless they comply with all the 
requirements under that section relating to tax-free sales. To 
effectuate a tax-free sale directly from the manufacturer, first or

[[Page 100]]

second purchaser to an ultimate purchaser, the ultimate purchaser must, 
in every case, satisfy the provisions of paragraphs (b)(3)(i), (ii) and 
(iii) of this section. Persons not required to be registered under 
section 4222(b) may purchase articles tax free by following the same 
procedures that apply to them in the case of other tax-free sales. See 
Sec. 48.4222(b)-1.
    (2) Revocation or suspension of registration or right to use 
exemption certificate. A person's registration and right to sell or 
purchase articles tax free through the use of an exemption certificate 
may be revoked or suspended. See Sec. 48.4222(c)-1. Such a revocation 
or suspension shall be in addition to any other penalties that may 
apply. Any person who purchases articles tax free and who sells or uses 
them for a non-exempt purpose shall notify its vendor of the taxable 
sale or use.
    (3) Exemption certificate. (i) To establish exemption from tax under 
section 4061(b) in those instances where a sale is made directly to an 
ultimate purchaser, the manufacturer, first, or second purchaser must 
obtain (prior to or at the time of sale) from the ultimate purchaser and 
retain in its possession a properly executed exemption certificate in 
the form prescribed in paragraph (b)(3)(iii) of this section.
    (ii) Where only occasional sales are made, a separate exemption 
certificate shall be furnished for each order. However, where sales are 
regularly or frequently made to a purchaser for such exempt use, a 
certificate covering all sales for a specified period not to exceed 12 
calendar quarters will be acceptable. Such certificates and proper 
records of invoices, orders, etc. relative to tax-free sales must be 
kept for inspection by the district director as provided in section 6001 
and the regulations thereunder.
    (iii) The following form of exemption certificate will be acceptable 
for purposes of this section and must be adhered to in substance.

                          Exemption Certificate

    (For use by ultimate purchaser who purchase parts or accessories 
from a manufacturer, producer, importer, first or second purchaser for 
use on or in connection with the first retail sale of a light-duty 
truck. (Section 4063 of the Internal Revenue Code.))

    (Date) ---------------------- 19----.

    1. I, the undersigned, certify that I am, or the (Name of company --
---------------- of which I am (Position held ----------, is purchasing 
from the manufacturer, producer, importer, first or second purchaser the 
parts or accessories specified in section 2 below (or in the purchase 
order or invoice attached hereto) for use on or in connection with a 
substantially contemporaneous purchase of a new light-duty truck 
specified in section 3 below. I also certify that (check applicable type 
of certificate) ------ the article or articles specified in the 
accompanying order, as described below, or ---------- all orders placed 
by the purchaser for the period commencing (Date) ------ and ending 
(Date) ------ (period not to exceed 12 calendar quarters), will be used 
only for the above stated tax-exempt purposes and will not be used as a 
replacement part.
    I understand that the willful use of this exemption certificate to 
evade or defeat the manufacturers excise tax otherwise applicable to 
these parts or accessories will subject me to a fine of not more than 
$10,000 or imprisonment for not more than 5 years, or both, together 
with cost of prosecution.
(Signature) --------------------.

(Address) --------------------.
    2. Description of parts and accessories

------------------------------------------------------------------------
                  Type                    Quantity    Price      Total
------------------------------------------------------------------------
                                         .........  .........  .........
                                         .........  .........  .........
------------------------------------------------------------------------

    3. Description of new light-duty truck
    (a) Type: (b) Quantity, (c) Serial Number.
    (d) GVWR: (e) Date of Sale, (f) Invoice Number.
    (g) Name and Address of Vendor of Vehicle.

    (c) Information; records--(1) Information to be furnished to vendee. 
A vendor (including the manufacturer) selling light-duty truck parts and 
accessories tax free under section 4063(e) shall indicate to its vendee 
that the vendee is obtaining the parts or accessories tax free for the 
purpose of resale (or use) on or in connection with the first retail 
sale of a light-duty truck. This information may be transmitted by any 
convenient means, such as coding of sales invoices, provided that the 
information is presented with sufficient particularity so that the 
purchaser is informed that the purchaser has obtained the light-duty 
truck parts or accessories tax free.
    (2) Records of vendor. A manufacturer or vendor selling light-duty 
truck parts or accessories tax free under section 4063(e) shall maintain 
in its records the

[[Page 101]]

identity of the purchaser, a signed statement of the exempt purpose for 
purchasing the light-duty truck parts or accessories, and the quantity 
of light-duty truck parts or accessories sold tax free to each 
purchaser.
    (3) Records of vendee. A person purchasing light-duty truck parts or 
accessories tax free under section 4063(e) must maintain sufficient 
records to establish that the parts or accessories purchased tax free 
have actually been resold (or used) on or in connection with the first 
retail sale of a light-duty truck or have been resold to a second 
purchaser for such a resale by the second purchaser.
    (d) Duty of selling manufacturer to ascertain validity of tax-free 
sale. The selling manufacturer of light-duty truck parts is not relieved 
of liability under the provisions of section 4063(e) by reason of 
section 4221(c) for the tax imposed by section 4061(b) if at the time of 
sale the selling manufacturer has knowledge or reason to believe that 
the light-duty truck parts or accessories sold by it to the purchaser 
are not intended for resale (or use) on or in connection with the first 
retail sale of a light-duty truck. The selling manufacturer is also not 
relieved of liability if it has knowledge or reason to believe that the 
purchaser has failed to register, refused to execute an exemption 
certificate, or that its registration or its right to purchase tax free 
through the use of an exemption certificate has been revoked or 
suspended.
    (e) Cross reference. For credit or refund, see section 6416(b)(2).
    (f) Effective date. Section 4063(e) (relating to light-duty truck 
parts and accessories) applies to sales on or after December 1, 1978. 
Light-duty truck parts or accessories sold prior to that date are not 
exempt from tax under section 4061(b) by reason of section 4063(e).

[T.D. 7834, 47 FR 42344, Sept. 27, 1982]



Sec. 48.4063-3  Other tax-free sales.

    For provisions relating to tax-free sales of articles referred to in 
section 4061, see:
    (a) Section 4221, relating to certain tax-free sales;
    (b) Section 4222, relating to registration; and
    (c) Section 4223, relating to special rules pertaining to further 
manufacture;

and the regulations thereunder contained in Subpart N of this part.

[T.D. 7727, 28 FR 3633, Apr. 13, 1963. Redesignated by T.D. 7834, 47 FR 
42344, Sept. 27, 1982]



Sec. 48.4064-1  Gas guzzler tax.

    (a) General rule--(1) In general. Section 4064 imposes on the sale 
by the manufacturer of an automobile a tax determined in accordance with 
the tables in section 4064(a) (1) through (7), and in paragraph (a)(2) 
of this section. The tax is applicable to model types of 1980 and later 
model year automobiles that have a fuel economy level below the 
applicable tax-free fuel economy level. Paragraph (b) of this section 
defines the following terms: sale, manufacturer, automobile, model year, 
model type, fuel economy, and fuel. Paragraph (c) of this section 
contains rules relating to the determination of fuel economy. Paragraph 
(d) of this section contains a special rule for certain small 
manufacturers. Paragraph (e) of this section contains rules relating to 
the tax-free sales of emergency vehicles.
    (2) Tables. (i) In the case of a 1980 model year automobile:

    If the fuel economy of the model type in which the automobile falls 
is:

 
                                                                 The tax
                                                                  is--
 
Miles per gallon:
    At least 15...............................................         0
    At least 14 but less than 15..............................      $200
    At least 13 but less than 14..............................       300
    Less than 13..............................................       550
 


    (ii) In the case of a 1981 model year automobile:

    If the fuel economy of the model type in which the automobile falls 
is:

 
                                                                 The tax
                                                                  is--
 
Miles per gallon:
    At least 17...............................................         0
    At least 16 but less than 17..............................      $200
    At least 15 but less than 16..............................       350
    At least 14 but less than 15..............................       450
    At least 13 but less than 14..............................       550
    Less than 13..............................................       650
 


    (iii) In the case of a 1982 model year automobile:


[[Page 102]]


    If the fuel economy of the model type in which the automobile falls 
is:

 
                                                                 The tax
                                                                  is--
 
Miles per gallon:
    At least 18.5.............................................         0
    At least 17.5 but less than 18.5..........................      $200
    At least 16.5 but less than 17.5..........................       350
    At least 15.5 but less than 16.5..........................       450
    At least 14.5 but less than 15.5..........................       600
    At least 13.5 but less than 14.5..........................       750
    At least 12.5 but less than 13.5..........................       950
    Less than 12.5............................................     1,200
 


    (iv) In the case of a 1983 model year automobile:

    If the fuel economy of the model type in which the automobile falls 
is:

 
                                                                 The tax
                                                                  is--
 
Miles per gallon:
    At least 19...............................................         0
    At least 18 but less than 19..............................      $350
    At least 17 but less than 18..............................       500
    At least 16 but less than 17..............................       650
    At least 15 but less than 16..............................       800
    At least 14 but less than 15..............................     1,000
    At least 13 but less than 14..............................     1,250
    Less than 13..............................................     1,550
 


    (v) In the case of a 1984 model year automobile:

    If the fuel economy of the model type in which the automobile falls 
is:

 
                                                                 The tax
                                                                  is--
 
Miles per gallon:
    At least 19.5.............................................         0
    At least 18.5 but less than 19.5..........................      $450
    At least 17.5 but less than 18.5..........................       600
    At least 16.5 but less than 17.5..........................       750
    At least 15.5 but less than 16.5..........................       950
    At least 14.5 but less than 15.5..........................     1,150
    At least 13.5 but less than 14.5..........................     1,450
    At least 12.5 but less than 13.5..........................     1,750
    Less than 12.5............................................     2,150
 


    (vi) In the case of a 1985 model year automobile:

    If the fuel economy of the model type in which the automobile falls 
is:

 
                                                                 The tax
                                                                  is--
 
Miles per gallon:
    At least 21...............................................         0
    At least 20 but less than 21..............................      $500
    At least 19 but less than 20..............................       600
    At least 18 but less than 19..............................       800
    At least 17 but less than 18..............................     1,000
    At least 16 but less than 17..............................     1,200
    At least 15 but less than 16..............................     1,500
    At least 14 but less than 15..............................     1,800
    At least 13 but less than 14..............................     2,200
    Less than 13..............................................     2,650
 


    (vii) In the case of a 1986 or later model year automobile:

    If the fuel economy of the model type in which the automobile falls 
is:

 
                                                                 The tax
                                                                  is--
 
Miles per gallon:
    At least 22.5.............................................         0
    At least 21.5 but less than 22.5..........................      $500
    At least 20.5 but less than 21.5..........................       650
    At least 19.5 but less than 20.5..........................       850
    At least 18.5 but less than 19.5..........................     1,050
    At least 17.5 but less than 18.5..........................     1,300
    At least 16.5 but less than 17.5..........................     1,500
    At least 15.5 but less than 16.5..........................     1,850
    At least 14.5 but less than 15.5..........................     2,250
    At least 13.5 but less than 14.5..........................     2,700
    At least 12.5 but less than 13.5..........................     3,200
    Less than 12.5............................................     3,850
 


    (3) Liability for tax. The tax imposed by section 4064 is payable by 
the manufacturer making the sale. An automobile sold before the time a 
determination of fuel economy is made for the model type (as defined in 
paragraph (b)(6) of this section) is subject to tax if it is 
subsequently determined that the fuel economy level of that model type 
of automobile is within the taxable range (see paragraph (a)(1) of this 
section).
    (b) Definitions--(1) Sale. Sale includes the use (within the meaning 
of section 4218) or the first lease (within the meaning of section 
4217(e)) of an automobile by the manufacturer.
    (2) Manufacturer. The term ``manufacturer'' has the same meaning 
assigned to such term under Sec. 48.0-2(a)(4). The term 
``manufacturer'' includes a producer or importer. An importer is a 
person who imports an automobile whether or not in connection with a 
trade or business.
    (3) Automobile. The term ``automobile'' means any four-wheeled 
vehicle--
    (i) Propelled by an engine powered by fuel;
    (ii) Manufactured primarily for use on public streets, roads, and 
highways (except any vehicle operated exclusively on a rail or rails);
    (iii) Rated at 6,000 pounds gross vehicle weight or less; and
    (iv) Requiring no further manufacturing operations to perform its 
intended function, other than the addition of readily attachable 
components,

[[Page 103]]

such as mirrors or tire and rim assemblies, or minor finishing 
operations, such as painting. For this purpose, gross vehicle weight 
means the value specified by the manufacturer as the maximum design 
loaded weight of a single vehicle. An automobile does not include a 
nonpassenger automobile as defined in regulations in effect on November 
9, 1978 (49 CFR 523.5 (1978)), which were prescribed by the Secretary of 
Transportation for section 501 of the Motor Vehicle Information and Cost 
Savings Act (15 U.S.C. 2001). In addition, an automobile does not 
include the following: any vehicle sold for use and used primarily as an 
ambulance or combination ambulance-hearse; any vehicle sold for use and 
used by the United States or by a State or local government primarily 
for police or other law enforcement purposes; or any vehicle sold for 
use and used primarily for firefighting purposes.
    (4) Model year. The term ``model year'' means the manufacturer's 
annual production period (as determined by the Administrator of the 
Environmental Protection Agency) which includes January 1 of any 
particular calendar year. If the manufacturer has no annual production 
year, the model year is the calendar year.
    (5) Model type. The term ``model type'' means a particular class of 
automobile, as determined by regulations in effect on November 9, 1978 
(40 CFR 600.002-79(a)(19) (1978)), which were prescribed by the 
Administrator of the Environmental Protection Agency.
    (6) Fuel economy. The term ``fuel economy'' means the average number 
of miles traveled by an automobile per gallon of fuel consumed, rounded 
to the nearest .1 mile per gallon. The fuel economy for any model type 
is determined by the Environmental Protection Agency (as determined in 
accordance with the procedures provided in paragraph (c) of this 
section). For this purpose, the fuel economy is a combined (urban-
highway weighted average) mileage figure estimated in connection with 
the determination (or redetermination) of general label value (fuel 
economy information displayed on a sticker that is affixed to new 
automobiles) mandated under section 506 of the Motor Vehicle Information 
and Cost Savings Act (15 U.S.C. 2006) and regulations thereunder (40 CFR 
Part 600).
    (7) Fuel. The term ``fuel'' means gasoline and diesel fuel.
    (c) Determination of fuel economy. For purposes of this section, the 
fuel economy for any model type is determined (or redetermined) in 
accordance with the testing and calculation procedures utilized by the 
Environmental Protection Agency Administrator for model year 1975 
(weighted 55 percent urban cycle and 45 percent highway cycle), or any 
other procedures (yielding comparable results) established by the 
Administrator. The Environmental Protection Agency's determination (or 
redetermination) of a model type's fuel economy is made at the time the 
general label fuel economy value is calculated (or recalculated). This 
determination (or redetermination) is conclusive for purposes of this 
section. A redetermination of a model type's fuel economy value shall be 
effective only with respect to those automobiles for which the 
manufacturer is required (or is permitted and chooses) under 
Environmental Protection Agency regulations to affix labels with the 
recalculated general label fuel economy value.
    (d) Special rule for small manufacturers--(1) In general. A small 
manufacturer (as defined in subparagraph (2)(i) of this paragraph) may 
apply for a determination that it is not feasible for that manufacturer 
to meet the statutory tax-free fuel economy level for the model year, 
with respect to all automobiles produced by that manufacturer, or with 
respect to a particular model type. For this purpose, the Commissioner 
(or his delegate) will make a determination of maximum feasible fuel 
economy level with respect to the automobiles that are the subject of 
the determination, but only after consultation with the Secretary of 
Energy, the Secretary of Transportation, and the Administrator of the 
Environmental Protection Agency (or their delegates) to obtain their 
views. A finding that it is not feasible for the manufacturer to meet 
the statutory tax-free fuel economy level will be made by the Internal 
Revenue Service if the maximum feasible fuel economy level (as defined 
in

[[Page 104]]

subparagraph (3)(i) of this paragraph) of the automobiles that are the 
subject of the determination is lower than the statutory tax-free fuel 
economy level for those automobiles. If it is determined that it is not 
feasible for a small manufacturer to meet the statutory tax-free fuel 
economy level, the Secretary (or his delegate) has the discretion to 
grant to the manufacturer the alternate rate schedule prescribed in 
paragraph (d)(3)(iii) of this section in lieu of the applicable 
statutory tax table prescribed in section 4064(a). The decision whether 
to grant the alternate rate schedule shall be based on the consideration 
set forth in paragraph (d)(3)(ii) of this section. If a small 
manufacturer for which an alternate rate schedule under this paragraph 
(d) is applicable sells an automobile to an importer, the alternate rate 
schedule applies to the sale by the importer of such automobile if such 
automobile is of the model year and type to which such alternate 
schedule applies.
    (2) Definitions--(i) Small manufacturer. A small manufacturer is any 
manufacturer who produced (whether or not in the United States) fewer 
than 10,000 automobiles in the second model year preceding the affected 
model year (the model year for which the determination under this 
paragraph is being made), and who can reasonably be expected to produce 
(whether or not in the United States) fewer than 10,000 automobiles in 
the affected model year.
    (ii) Manufacturer. For purposes of this paragraph, the term 
``manufacturer'' does not include a person who is only an importer, but 
does include a producer of automobiles outside the United States who is 
also an importer.
    (iii) Members of a controlled group. For purposes of this paragraph, 
persons who are members of a controlled group of corporations (as 
defined in section 1563(a) of the Internal Revenue Code, except that 
``more than 50 percent'' is substituted for ``at least 80 percent'' each 
place it appears in section 1563(a)) are treated as one manufacturer.
    (3) Basis for determination--(i) Maximum feasible fuel economy 
level. For purposes of this paragraph, the maximum feasible fuel economy 
level is determined by taking into account the same factors used in 
determining the maximum feasible fuel economy level under section 502(e) 
of the Motor Vehicle Information and Cost Savings Act (as amended) and 
the regulations thereunder in effect on November 9, 1978. (Those 
regulations for small manufacturers are prescribed in 49 CFR Part 525 
(1978).) In making this determination, the Commissioner (or his 
delegate) will consult with the National Highway Traffic Safety 
Administration of the Department of Transportation.
    (ii) Decision to grant alternate rate schedule. In deciding whether 
to grant an alternate rate schedule, the Secretary (or his delegate) 
will consider whether the use (in the United States) of the automobile 
serves an important public policy (e.g., providing public transportation 
or transportation for the handicapped) that overrides the United States' 
need to conserve energy. The manufacturer has the burden of 
demonstrating that the public policy consideration involved overrides 
the United States' need to conserve energy. The Commissioner (or his 
delegate), after consultation with the Secretary of Energy, the 
Secretary of Transportation, and the Administratior of the Environmental 
Protection Agency (or their delegates), will review the information 
submitted by the manufacturer and report findings and recommendations to 
the Secretary (or his delegate).
    (iii) Alternate rate schedule and tax. If an alternate rate schedule 
is granted, the maximum feasible fuel economy level shall be deemed to 
be the statutory tax-free fuel economy level. Accordingly, a tax is 
imposed only on automobiles sold that fail to meet the deemed tax-free 
fuel economy level. The alternate rate schedule shall be determined by 
substituting the maximum feasible fuel economy level for the tax-free 
fuel economy level in the applicable statutory tax table set forth in 
section 4064(a), and by substituting for the miles per gallon amount 
prescribed in that applicable table an amount that is the tax-free level 
decreased by one mile per gallon increments, while keeping the same 
corresponding tax amount prescribed in the applicable table. The rule 
for determining an alternate rate

[[Page 105]]

schedule may be illustrated by the following example:

    Example. Manufacturer X, a small manufacturer of automobiles 
specifically designed to accommodate disabled passengers, applied for a 
determination that it is not feasible for X to meet the statutory tax-
free fuel economy level for a particular model type of X's 1982 model 
year automobiles. It was determined that the maximum feasible fuel 
economy level for that model type was 15 miles per gallon. The Secretary 
decided to grant X an alternate rate schedule. The alternate rate 
schedule for the model type would be as follows:
    If the fuel economy of the automobile is:

 
                                                                 The tax
                                                                  is--
 
Miles per gallon:
    At least 15...............................................         0
    At least 14 but less than 15..............................      $200
    At least 13 but less than 14..............................       350
    At least 12 but less than 13..............................       450
    At least 11 but less than 12..............................       600
    At least 10 but less than 11..............................       750
    At least 9 but less than 10...............................       950
    Less than 9...............................................     1,200
 


Thus, if X's 1982 automobiles of that model year and type attain only 12 
miles per gallon (because X fails to modify them to reach the maximum 
feasible fuel economy level before they are sold), the tax imposed upon 
the sale of each automobile is $450 (instead of the $1,200 tax (see the 
applicable statutory tax table set forth in section 4064(a)(3)), which 
would have been imposed had no alternate rate schedule been prescribed).

    (4) Duration of determination. A determination under this paragraph 
does not apply to more than three model years.
    (5) Requirements for application. Each application for a 
determination under this section must--
    (i) Identify the model year or years, and particular model type or 
types for which a determination is requested;
    (ii) (A) In the case of an application for model year 1980, be 
submitted not later than May 8, 1980;
    (B) In case of an application for model year 1981, be submitted not 
later than 9 months before the beginning of that model year or March 10, 
1980, whichever is later;
    (C) In the case of an application for model year 1982 or any 
subsequent model year, be submitted not later than 9 months before that 
model year;
    (iii) Be submitted in three copies to: Commissioner of Internal 
Revenue, Attention: Associate Chief Counsel (Technical), 1111 
Constitution Avenue, NW., Washington, DC 20224;
    (iv) Be written in the English language;
    (v) Set forth the full name, address, and title of the official 
responsible for preparing the application;
    (vi) State whether the applicant is a member of a controlled group 
of corporations (as defined in paragraph (d) (2) (iii) of this section);
    (vii) State the total number of automobiles manufactured (whether or 
not in the United States) by the applicant (or the controlled group of 
corporations in the case where the applicant is a member of the group) 
in the second model year immediately preceding each affected model year 
and the total number of automobiles likely to be manufactured in the 
affected model year;
    (viii) Set forth the same information required by an application 
pursuant to section 502 (c) of the Motor Vehicle Information and Cost 
Savings Act (as amended) and the regulations thereunder (see 49 CFR Part 
525 (1978)) and state whether or not the applicant under this paragraph 
has also made an application pursuant to such Act; and
    (ix) Set forth the reasons why an alternate rate schedule should be 
granted under paragraph (d) (3) (ii) of this section.
    (6) Update of application. A manufacturer making an application 
under this section must update the application when a material change of 
circumstances occurs or material information not available at the time 
of applying becomes available. The manufacturer must also furnish any 
further information that may be required by the Internal Revenue 
Service.
    (7) Processing of applications. If a manufacturer's application is 
found not to contain the information required by this paragraph, the 
applicant will be informed of the areas of insufficiency. The 
application will not receive further consideration until the required 
information is submitted. Each applicant will be informed in writing 
whether an application has been granted or denied.
    (e) Tax-free sales of emergency vehicles--(1) In general. The tax 
imposed by

[[Page 106]]

section 4064 (a) shall not apply to vehicles sold by a manufacturer for 
use and used (i) primarily as an ambulance or combination ambulance-
hearse, (ii) by the United States or by a State or local government 
primarily for police or other law enforcement purposes, or (iii) 
primarily for fire-fighting purposes. A vehicle may be sold tax-free by 
the manufacturer under this paragraph only in those cases where the sale 
is made directly to a purchaser for an emergency use prescribed in this 
subparagraph. In order to effect a tax-free sale, the requirements of 
section 4222 and the regulations thereunder must be met.
    (2) Credit or refund. Where tax is paid on the sale of a vehicle, 
but the vehicle is used or resold for an emergency use prescribed in 
subparagraph (1) of this paragraph, a claim for refund of the tax paid 
on such sale may be filed by the manufacturer on Form 8849 (or on such 
other form as the Commissioner may designate), or a credit may be taken 
on a subsequent return, in accordance with the provisions of sections 
6402 (a) and 6416 (a) and Sec. 48.6416 (a)-1.

[T.D. 8036, 50 FR 29960, July 23, 1985, as amended by T.D. 8659, 61 FR 
10453, Mar. 14, 1996]

                     Tires, Tubes, and Tread Rubber



Sec. 48.4071-1  Imposition and rates of tax.

    (a) Imposition of tax--(1) Imposition of tax before January 1, 1984. 
Section 4071 imposes a tax at the rates set forth in paragraph (b)(1) of 
this section on tires made wholly or in part of rubber, inner tubes (for 
tires) made wholly or in part of rubber and tread rubber which are sold 
by the manufacturer thereof before January 1, 1984.
    (2) Imposition of tax after December 31, 1983. Section 4071 imposes 
a tax at the rates set forth in paragraph (b)(2) of this section on 
tires of the type used on highway vehicles and made wholly or in part of 
rubber which are sold by the manufacturer thereof after December 31, 
1983.
    (3) Definitions. For definitions of the terms ``tires,'' ``inner 
tubes,'' ``tread rubber,'' ``rubber'' and ``manufacturer,'' see Sec. 
48.4072-1 of the regulations.
    (b) Rates and computation of tax--(1) Rates of tax before January 1, 
1984--(i) Tires:
    (A) Of the type used on highway vehicles:
    (1) For the period July 1, 1965 to December 31, 1980, inclusive--10 
cents per pound.
    (2) For the period January 1, 1981 to December 31, 1983, inclusive--
9.75 cents per pound.
    (B) Of the type used on other than highway vehicles:
    (1) For the period July 1, 1965, to December 31, 1980, inclusive--5 
cents per pound.
    (2) For the period January 1, 1981 to December 31, 1983, inclusive--
4.875 cents per pound.
    (C) Laminated tires for the period July 1, 1965 to December 31, 
1983, inclusive--1 cent per pound.
    (ii) Inner tubes:
    For the period July 1, 1965 to December 31, 1983, inclusive--10 
cents per pound.
    (iii) Tread Rubber:
    For the period July 1, 1965 to December 31, 1983, inclusive--5 cents 
per pound.
    (2) Rates of tax on or after January 1, 1984. Tires of the type used 
on highway vehicles:
    (i) Tires weighing not more than 40 pounds--0 cents.
    (ii) Tires weighing more than 40 pounds but not more than 70 
pounds--15 cents for each pound in excess of 40 pounds.
    (iii) Tires weighing more than 70 pounds but not more than 90 
pounds--$4.50 plus 30 cents for each pound in excess of 70 pounds.
    (iv) Tires weighing more than 90 pounds--$10.50 plus 50 cents for 
each pound in excess of 90 pounds.
    (3) Computation of tax. The tax on tires, inner tubes, and tread 
rubber is computed by applying to the total weight (including a 
fractional part of a pound) of the article the rate in effect at the 
time the article is sold. See Sec. 48.4071-2, relating to determination 
of weight.
    (c) Liability for tax. The tax imposed by section 4071 is payable by 
the manufacturer when the manufacturer makes a sale of a taxable 
article, or as provided in section 4071 (b) and Sec. 48.4071-3

[[Page 107]]

for a manufacturer who sells at retail, when the manufacturer delivers a 
taxable article to a retail store, or to a retail outlet, of the 
manufacturer.
    (d) Recapped or retreaded tires. The recapping or retreading of a 
tire, whether from shoulder-to-shoulder or bead-to-bead, does not 
constitute manufacture of a taxable tire. The tax on tires imposed by 
section 4071 does not apply to the sale of a recapped or retreaded tire, 
except that a used tire or carcass not previously sold in the United 
States that is recapped or retreaded from shoulder-to-shoulder or bead-
to-bead in a foreign country and imported into the United States is 
subject to the tax imposed by section 4071 when such tire is sold or 
used by the importer. This paragraph (d) is effective for recapped and 
retreaded tires sold on or after January 1, 1984.

(Secs. 4071(b), 4071(c), 4073(c), and 7805, Internal Revenue Code of 
1954. (80 Stat. 331, 26 U.S.C. 4071(b); 68A Stat. 482, 26 U.S.C. 
4071(c); 70 Stat. 389, 26 U.S.C. 4073(c); 68A Stat. 917, 26 U.S.C. 
7805))

[T.D. 7809, 47 FR 6005, Feb. 10, 1982, as amended by T.D. 8057, 50 FR 
41491, Oct. 11, 1985; T.D. 8152, 52 FR 31618, Aug. 21, 1987]



Sec. 48.4071-2  Determination of weight.

    (a) In general--(1) Tires. (i) Metal rims or rim bases are not to be 
included in determining the total weight of a tire. However, the wire, 
staples, darts, clips, and other material or fastening devices which 
form a part of the tire or are required for its use must be included in 
determining the total weight of the tire. Studs are considered to be 
part of a tire and are to be included when determining the weight of a 
tire. In the case of a tubeless tire, the total weight includes the 
weight of the air valve and stem or any other mechanism that functions 
as a part of the tire and is used in connection with inflating the tire 
or maintaining its air pressure.
    (ii) When tires are sold with metal rims or rim bases attached, the 
manufacturer must maintain records that will establish what portion of 
the total weight of the finished product represents the tire exclusive 
of the metal rim or rim base.
    (2) Inner tubes. The total weight of an inner tube includes the 
weight of the air valve and stem or any other mechanism attached to the 
inner tube that is used in connection with inflating the tube or 
maintaining its air pressure.
    (b) Alternative method of determining weight of tires after December 
31, 1983. A manufacturer who has received permission from the 
Commissioner may, subject to such conditions as the Commissioner may 
prescribe, determine total weight of tires manufactured and sold by the 
manufacturer on the basis of the average weight for each type, size, 
grade, and classification. The average weights must be established in 
accordance with the method approved by the Commissioner and apply for 
such periods as the Commissioner may prescribe. The Commissioner may 
terminate the approval granted any manufacturer. In the case of the 
termination of the approval granted any manufacturer, the termination 
becomes effective 10 days from the date of the receipt by the 
manufacturer of the notice of termination. A manufacturer may effect 
termination, as of a specified date, of the privilege to determine total 
weight in accordance with provisions of this paragraph by giving no less 
than 10 days written notice of such intention to the Commissioner. The 
termination of the approval given a manufacturer does not affect a 
manufacturer's tax liability for tires sold prior to the effective date 
of the notice of termination.

(Secs. 4071(b), 4071(c), 4073(c), and 7805, Internal Revenue Code of 
1954. (80 Stat. 331, 26 U.S.C. 4071(b); 68A Stat. 482, 26 U.S.C. 
4071(c); 70 Stat. 389, 26 U.S.C. 4073(c); 68A Stat. 917, 26 U.S.C. 
7805))

[T.D. 7809, 47 FR 6005, Feb. 10, 1982, as amended by T.D. 8152, 52 FR 
31618, Aug. 21, 1987]



Sec. 48.4071-3  Imposition of tax on tires and tubes delivered to manufacturer's retail outlet.

    (a) General rule. If, on or after October 1, 1966, a tire or inner 
tube is delivered by the manufacturer thereof to a retail outlet of the 
manufacturer, the manufacturer is liable for tax in respect of the tire 
or tube at the rate set forth in section 4071 in the same manner as if 
the tire or tube had been sold at the time it was delivered to the 
retail outlet. The amount of tax payable shall be computed in accordance 
with

[[Page 108]]

the provisions of paragraph (b)(2) of Sec. 48.4071-1, and of Sec. 
48.4071-2.
    (b) Definition of retail outlet. For purposes of this section, the 
term ``retail outlet'' includes the term ``retail store.'' A retail 
outlet is a facility maintained by a manufacturer for selling tires or 
tubes at retail. A facility may be a retail outlet even though some 
sales are made at wholesale at such facility; see paragraph (d)(1) of 
this section. A facility may also be considered to a retail outlet for 
the purposes of this section notwithstanding that its main activity is 
in another area than selling tires or inner tubes. For example, if a 
manufacturer operates a facility for both automotive repair and the 
selling of tires at retail, the facility is considered a retail outlet 
for the purposes of this section even if the primary activity of the 
facility is automotive repair. No facility is considered a retail outlet 
for the purposes of this section if it is determined that less than 15 
percent of the taxable tires and inner tubes removed from such facility 
are sold at retail by such facility. The determination described in the 
preceding sentence is made on the basis of the experience of a 
representative period, of at least 12 consecutive calendar months during 
the 2-year period immediately preceding the first day included in the 
return period for which tax under section 4071(b) is reported. If a 
facility has not been in existence during such a 12-month period, the 
determination is made on the basis of the available experience of the 
manufacturer. See also paragraph (c)(3) of this section, relating to 
imposition of tax where a retail outlet is maintained as an adjunct to a 
production facility or distribution center.
    (c) Delivery--(1) In general. A manufacturer of tires or inner tubes 
may, at its option, treat either of the following events as constituting 
delivery to a retail outlet:
    (i) Delivery of tires or inner tubes to a common carrier (or, where 
the tires or tubes are transported by the manufacturer, the placing of 
the tires or tubes into the manufacturer's over-the-road vehicle) for 
shipment from the plant in which the tires or tubes are manufactured, or 
from a regional distribution center of tires and inner tubes, to a 
retail outlet or to a location in the immediate vicinity of a retail 
outlet primarily for future delivery to the retail outlet.
    (ii) Arrival of the tires or tubes at the retail outlet, or, where 
shipment is to a location in the immediate vicinity of a retail outlet 
primarily for future delivery to the retail outlet, the arrival of the 
tires or tubes at such location.

In its excise tax return for the first return period beginning after 
September 30, 1966, a manufacturer of tires or inner tubes must elect to 
determine the date of delivery to retail outlets in accordance with one 
of the two subdivisions of this paragraph (c)(1) and must determine the 
dates of all deliveries made to all retail outlets in accordance with 
the subdivision which the manufacturer has elected to apply. The 
election may be made in a statement attached to the return for such 
period. Having elected to treat one of the events listed in subdivision 
(i) or (ii) of this paragraph (c)(1) as constituting delivery to a 
retail outlet for purposes of its return for the first return period 
after September 30, 1966, the manufacturer may not use a different 
criterion for a subsequent return period unless permission of the 
district director is obtained in advance.
    (2) Deliveries made in the immediate vicinity of a retail outlet 
primarily for future delivery to the retail outlet. (i) For purposes of 
this section, any delivery which is made in the immediate vicinity of a 
retail outlet primarily for future delivery to the retail outlet is 
deemed to be a delivery to the retail outlet. For the purpose of the 
preceding sentence, a location is considered to be in the immediate 
vicinity of a retail outlet if the distance between the location and the 
retail outlet is sufficiently small so that it is feasible to transport 
tires and inner tubes between the location and the retail outlet by 
means of dollies, fork lift trucks, pushcarts, and similar vehicles of 
the type normally used around the premises of factories and similar 
establishments, as opposed to highway motor vehicles. For the purpose of 
the preceding sentence, it is immaterial that a public thoroughfare must 
be used in order to transport tires or inner tubes

[[Page 109]]

to a retail outlet from another location. Tires and inner tubes 
delivered to a location in the immediate vicinity of a retail outlet are 
considered to be delivered to the location ``primarily for future 
delivery'' to the retail outlet if it is determined that a majority (by 
number) of the tires and tubes removed from the location are delivered 
to the retail outlet. The determination described in the preceding 
sentence is made on the basis of the experience of a representative 
period of at least 12 consecutive calendar months during the 2-year 
period immediately preceding the first day included in the return period 
for which tax under section 4071(b) is reported. If a facility has not 
been in existence during such a 12-month period, the determination is 
made on the basis of the available experience of the manufacturer. If it 
is determined that the majority of all tires and inner tubes removed 
from a given location are delivered to a retail outlet of the 
manufacturer in the immediate vicinity of the location, tax is imposed 
upon all tires and tubes delivered by the manufacturer to the location, 
even though all or part of the tires or tubes comprising a particular 
shipment to the location may be intended for further transportation to a 
location other than the retail outlet. If it is determined that a 
majority of all tires and inner tubes removed from a given location are 
not delivered to a retail outlet of the manufacturer in the immediate 
vicinity of the location, tax is imposed upon the removal of a tire or 
inner tube from the location to the premises of the retail outlet. See 
also paragraph (d)(2) of this section, relating to sales by the 
manufacturer at facilities other than retail outlets.
    (ii) The provisions of this paragraph (c)(2) may be illustrated by 
the following examples.

    Example. A manufacturer of tires and tubes whose plant is located in 
City X operates two facilities in City Y; Warehouse A and Store Q. Store 
Q is a retail outlet within the meaning of paragraph (b) of this 
section, and Warehouse A is in the immediate vicinity of Store Q. During 
the 12-month period ending September 30, 1966, 60 percent of the tires 
and inner tubes removed from Warehouse A were delivered to Store Q. All 
tires or inner tubes delivered by the manufacturer to Warehouse A are 
subject to a tax under section 4071(b) and this section (unless, before 
such delivery, tax was imposed on the same tires and tubes).

    (3) Retail outlet maintained as adjunct of production or 
distribution facility. If a retail outlet is maintained as an adjunct to 
and in the immediate vicinity of a facility which is not a retail outlet 
(as, for example, a production plant or a regional distribution center), 
delivery to the retail outlet is deemed to occur at the earlier of:
    (i) The date when a tire or inner tube is removed from the general 
storage facilities in the facility which is not a retail outlet for 
transfer to the premises of the retail outlet, or
    (ii) The date when a tire or inner tube is designated to be sold by 
or at the retail outlet.
    (d) Special rules--(1) Retail outlets which also sell at wholesale. 
Tax applies to all shipments of tires and inner tubes delivered to a 
retail outlet as defined in paragraph (b)(2) of this section. Thus, for 
the purposes of section 4071(b) and this section, it is immaterial that 
all or part of the tires or inner tubes of a particular delivery to a 
retail outlet are intended for sale at wholesale. See also paragraph 
(d)(3) of this section.
    (2) Sales by manufacturer at facilities other than retail outlets. 
Sales by the manufacturer of tires and inner tubes at facilities other 
than retail outlets are subject to tax under section 4071(a).
    (3) Deliveries of tires or tubes on which tax has been previously 
imposed. (i) Tax is not imposed under section 4071(b) and this section 
on any tire or inner tube in respect of which there was previously 
imposed a tax under section 4071(a). Similarly, a tire or inner tube is 
taxed only once under section 4071(b) and this section.
    (ii) The provisions of this paragraph (d)(3) may be illustrated by 
the following example:

    Example. A manufacturer has two selling facilities, Store No. 1 and 
Store No. 2. Only retail sales are made at Store No. 2, which obtains 
its merchandise from Store No. 1. Assume that, although wholesaling and 
distribution activities are conducted at Store No. 1, the sale of tires 
and tubes at retail is conducted at Store No. 1 to the extent that Store 
No. 1 is a retail outlet within the meaning of paragraph (b) of this 
section, with the result that tax is imposed on deliveries by the 
manufacturer of tires and tubes

[[Page 110]]

to Store No. 1. Tax is not imposed on a delivery of tires or inner tubes 
from Store No. 1 to Store No. 2.

(Secs. 4071(b), 4071(c), 4073(c), and 7805, Internal Revenue Code of 
1954. (80 Stat. 331, 26 U.S.C. 4071(b); 68A Stat. 482, 26 U.S.C. 
4071(c); 70 Stat. 389, 26 U.S.C. 4073(c); 68A Stat. 917, 26 U.S.C. 
7805))

[T.D. 7809, 47 FR 6005, Feb. 10, 1982]



Sec. 48.4071-4  Original equipment tires on imported articles.

    The tax imposed by section 4071(a) applies with respect to tires and 
inner tubes (other than bicycle tires and inner tubes) that are original 
equipment for an imported article upon which no tax is imposed under 
section 4061 if the article is sold on or after December 11, 1971. In 
such a case, the importer of the article is treated as the manufacturer 
and vendor of the tires and inner tubes with which the article is 
equipped. However, the tax imposed by section 4071(a) is not imposed 
with respect to tires and inner tubes if the imported article is an 
automobile bus chassis or an automobile bus body. Solely for purposes of 
this section, the provisions of section 4218 (relating to use by a 
manufacturer or importer considered a sale) do not apply in cases where 
an individual imports an article having original equipment tires and 
tubes and on which article no tax is imposed under section 4061 if the 
article is imported solely for the individual's personal use and is so 
used.

(Secs. 4071(b), 4071(c), 4073(c), and 7805, Internal Revenue Code of 
1954. (80 Stat. 331, 26 U.S.C. 4071(b); 68A Stat. 482, 26 U.S.C. 
4071(c); 70 Stat. 389, 26 U.S.C. 4073(c); 68A Stat. 917, 26 U.S.C. 
7805))

[T.D. 7809, 47 FR 6006, Feb. 10, 1982]



Sec. 48.4072-1  Definitions.

    For purposes of the regulations in this part, unless otherwise 
expressly indicated:
    (a) Rubber. The term ``rubber'' includes synthetic and substitute 
rubber.
    (b) Tread rubber. The term ``tread rubber'' means any material (1) 
which is commonly or commercially known as tread rubber or camelback, or 
(2) which is a substitute for any material commonly or commercially 
known as tread rubber or camelback and is of a type used in recapping or 
retreading tires. The term includes, for example, strips of material, 
wholly or partially of rubber, natural or synthetic, intended to be 
vulcanized or otherwise affixed to a tire casing to form the outside 
perimeter of the tire, smooth or treaded. It also includes treading 
material produced by reprocessing scrap, salvage, or junk rubber and a 
continuous rubber ribbon produced through an extrusion process for 
direct application in recapping or retreading a tire casing. The term 
does not include rubber in various forms such as strip, slab, pellet, 
etc. which is used as raw material for the extrusion process. Tread 
rubber loses its identity as such when it has been used in the recapping 
or retreading of a tire of a type used on a highway vehicle (without 
regard to the actual use ultimately made of the tire) or has 
deteriorated in quality to the point where it is no longer suitable for 
use in recapping or retreading of a tire. (In the case of such 
deterioration, see section 6416(b)(2) and Sec. 48.6416(b)-2 to secure a 
refund or credit of the tax paid.)
    (c) Tires of the type used on highway vehicles. (1) The term ``tires 
of the type used on highway vehicles'', for purposes of Sec. Sec. 
48.4071-1 through 48.4073-3 means tires of the type used on:
    (i) Motor vehicles that are highway vehicles (within the meaning of 
Sec. 48.4061(a)-1(d)), or
    (ii) Vehicles of the type used in connection with motor vehicles 
that are highway vehicles (within the meaning of Sec. 48.4061(a)-1(d)).

The term ``tires of the type used on highway vehicles'' does not include 
bicycle tires. Bicycle tires, however, are included in the term ``other 
tires'' as used in section 4071(a)(2).
    (2) For purposes of paragraph (c)(1)(i) of this section, tires of 
the type used on motor vehicles that are highway vehicles include tires 
used on motor trucks, buses, passenger automobiles, motor homes, highway 
tractors, trolley buses or coaches, and motorcycles.
    (3) For purposes of paragraph (c)(1)(ii) of this section, tires of 
the type used on vehicles of the type used in connection with motor 
vehicles that are highway vehicles include tires used on truck or bus 
trailers, truck semitrailers, mobile homes, housetrailers, or utility 
trailers.

[[Page 111]]

    (d) Inner tubes. The term ``inner tubes'' includes air containers of 
all types made wholly or in part of rubber and designed and manufactured 
for use in pneumatic tires.
    (e) Tires. The term ``tires'' includes rubber casings, hoops, and 
strips or bands of all kinds designed and shaped or built to form the 
tread of or to fit a vehicle wheel. Tires of either the pneumatic or 
solid type which fit or form the tread for wheels of any article which 
is capable of use as a means of transporting a person or burden are 
taxable as tires. Examples of articles which may be equipped with 
taxable tires are motor scooters, minibikes, industrial trucks, farm 
tractors, wheelbarrows, and similar articles. See section 4073(a) and 
Sec. 48.4073-1 with respect to the exemption of tires of certain sizes, 
and section 4073(b) and Sec. 48.4073-2 with respect to the exemption 
for tires with internal wire fastening.
    (f) Laminated tires. For purposes of the tax imposed by section 
4071, the term ``laminated tires'' means tires (1) which are not ``tires 
of the type used on highway vehicles'' within the meaning of paragraph 
(c) of this section, and (2) which consist wholly of scrap rubber from 
used tire casings with an internal metal fastening agent.
    (g) Manufacturer. The term ``manufacturer'' means manufacturer, 
producer, or importer. A person who converts, by any process, a new tire 
taxable under section 4071 at one rate of tax into a tire taxable under 
section 4071 at a different rate (as for example, an off highway-type 
tire converted into a highway-type tire) is considered to be a 
manufacturer of the converted tire. If a conversion results in a reduced 
rate of tax for the converted tire, see section 6416(b)(2) and Sec. 
48.6416(b)-2 to secure a credit or refund of part of the tax paid. The 
term ``manufactured'' includes ``produced'' and ``imported''.
    (h) Cross references. For other definitions, see Sec. 48.0-2.

(Secs. 4071(b), 4071(c), 4073(c), and 7805, Internal Revenue Code of 
1954. (80 Stat. 331, 26 U.S.C. 4071(b); 68A Stat. 482, 26 U.S.C. 
4071(c); 70 Stat. 389, 26 U.S.C. 4073(c); 68A Stat. 917, 26 U.S.C. 
7805))

[T.D. 7809, 47 FR 6007, Feb. 10, 1982]



Sec. 48.4073  [Reserved]



Sec. 48.4073-1  Exemption of tires of certain sizes.

    The tax does not apply to sales of tires of all-rubber construction 
(whether hollow center or solid) if they have no fabric or metal 
reinforcement and do not exceed either of these measurements: (a) 20 
inches in diameter measured to the outside circumferences, and (b) 1\3/
4\ inches in cross-section. The exemption provided by section 4073(a) is 
to be determined solely on the measurements of the tire and not on the 
purpose for which it is designed or used.

(Secs. 4071(b), 4071(c), 4073(c), and 7805, Internal Revenue Code of 
1954. (80 Stat. 331, 26 U.S.C. 4071(b); 68A Stat. 482, 26 U.S.C. 
4071(c); 70 Stat. 389, 26 U.S.C. 4073(c); 68A Stat. 917, 26 U.S.C. 
7805))

[T.D. 7809, 47 FR 6007, Feb. 10, 1982]



Sec. 48.4073-2  Exemption of tires with internal wire fastening.

    The tax does not apply to sales of tires of any size or dimension 
manufactured from extruded tiring that is fastened or held together by 
means of internal wire or other metallic material.

(Secs. 4071(b), 4071(c), 4073(c), and 7805, Internal Revenue Code of 
1954. (80 Stat. 331, 26 U.S.C. 4071(b); 68A Stat. 482, 26 U.S.C. 
4071(c); 70 Stat. 389, 26 U.S.C. 4073(c); 68A Stat. 917, 26 U.S.C. 
7805))

[T.D. 7809, 47 FR 6007, Feb. 10, 1982]



Sec. 48.4073-3  Exemption of tread rubber used for recapping nonhighway tires.

    (a) Sold direct by manufacturer for nontaxable use. The tax does not 
apply to the sale of tread rubber by the manufacturer to any person for 
use by that person otherwise than in the recapping or retreading of 
tires of the type used on highway vehicles. In determining whether tread 
rubber is sold for a taxable or nontaxable use, the type of vehicle on 
which the recapped or retreaded tire is to be used, or the actual or 
intended use of the recapped or retreaded tire, is immaterial. The 
controlling factor is whether the tire resulting from the recapping or 
retreading is of a type that is used otherwise

[[Page 112]]

than on a highway vehicle. For definition of ``tires of the type used on 
highway vehicles'', see paragraph (c) of Sec. 48.4072-1.
    (b) Sales for resale for nontaxable use. No sale of tread rubber may 
be made tax free for resale even though it is known at the time of the 
sale that the tread rubber will be resold for use otherwise than in the 
recapping or retreading of tires of the type used on highway vehicles. 
However, where the tread rubber is resold for such use, the manufacturer 
who paid the tax on a sale of the tread rubber may secure a refund or 
credit in accordance with the provisions of section 6416(b)(2) and Sec. 
48.6416(b)-2.
    (c) Evidence required to establish exemption. (1) To establish the 
right to sell tread rubber tax free under section 4073(c), the 
manufacturer must obtain from the purchaser and retain in its possession 
a properly executed exemption certificate.
    (2) Where only occasional sales of tread rubber for exempt use are 
made to a purchaser, a separate exemption certificate should be 
furnished for each order. However, where sales are regularly and 
frequently made to a purchaser for exempt use, a certificate covering 
all purchases during the period not to exceed 12 calendar quarters is 
acceptable. The certificates and proper records of invoices, orders, 
etc., relative to tax-free sales must be kept for inspection by the 
district director as provided in section 6001 and the regulations in 
Subpart Q.
    (d) Acceptable form of exemption certificate. The following form of 
exemption certificate is acceptable for the purposes of this section and 
must be adhered to in substance:

                          Exemption Certificate

    (For use by persons who purchase tread rubber from the manufacturer, 
producer, or importer thereof for use otherwise than in recapping or 
retreading tires of the type used on highway vehicles (section 4073(c) 
of the Internal Revenue Code).)

(Date) ------------------------, 19----

    I, the undersigned, certify that I am the purchaser, or the (Title) 
------ of (Name of purchaser if other than the undersigned) ---------- 
who is the purchaser of: ---- The tread rubber specified in the 
accompanying order or contract, or ---- All tread rubber specified in 
contracts or orders entered into or placed with (Name of seller) ------ 
for the period commencing ------ and ending ------ (period not to exceed 
12 calendar quarters), and that such tread rubber will not be used in 
the recapping or retreading of tires of the type used on highway 
vehicles, but will be used for the following purposes:

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

    The undersigned understands that if the tread rubber is used for the 
recapping or retreading of tires of the type used on highway vehicles, 
or is sold or otherwise disposed of, such fact must be promptly reported 
to the manufacturer. The undersigned also understands that the 
fraudulent use of this certificate for the purpose of securing this 
exemption will subject the undersigned or any other party making such 
fraudulent use to a fine of not more than $10,000, or to imprisonment 
for not more than 5 years, or both, together with costs of prosecution. 
The purchaser also understands that the purchaser must be prepared to 
establish by satisfactory evidence the purpose for which the tread 
rubber was used.

(Signature)_____________________________________________________________
(Address)_______________________________________________________________

    (e) Exemption certificate not obtained prior to filing of 
manufacturer's excise tax return. If the sale is otherwise exempt but 
the exemption certificate is not obtained prior to the time the 
manufacturer files a return covering taxes due for the period during 
which the sale was made, the manufacturer must include the tax on the 
sale in its return for that period. However, if the certificate is later 
obtained, a claim for refund of the tax paid on the sale may be filed, 
or a credit for the amount may be taken upon a subsequent return, as 
provided by section 6416(b)(2) and Sec. 48.6416(b)-2.

(Secs. 4071(b), 4071(c), 4073(c), and 7805, Internal Revenue Code of 
1954. (80 Stat. 331, 26 U.S.C. 4071(b); 68A Stat. 482, 26 U.S.C. 
4071(c); 70 Stat. 389, 26 U.S.C. 4073(c); 68A Stat. 917, 26 U.S.C. 
7805))

[T.D. 7809, 47 FR 6007, Feb. 10, 1982]



Sec. 48.4073-4  Other tax-free sales.

    (a) Cross references. For provisions relating to tax-free sales of 
articles referred to in section 4071, see:
    (1) Section 4221, relating to certain tax-free sales, and the 
regulations thereunder in Subpart H;

[[Page 113]]

    (2) Section 4222, relating to registration, and the regulations 
thereunder in Subpart H;
    (3) Section 4223, relating to special rules pertaining to further 
manufacture, and the regulations thereunder in Subpart H; and
    (4) 28 FR 348, January 12, 1963, relating to the authorization of an 
exemption from the tax imposed by section 4071 by the Secretary of the 
Treasury under section 4293 for sales of certain tires and inner tubes 
sold to the American Red Cross on or after March 1, 1963.

(Secs. 4071(b), 4071(c), 4073(c), and 7805, Internal Revenue Code of 
1954; 80 Stat. 331, 26 U.S.C. 4071(b); 68A Stat. 482, 26 U.S.C. 4071(c); 
70 Stat. 389, 26 U.S.C. 4073(c); 68A Stat. 917, 26 U.S.C. 7805)

[T.D. 7809, 47 FR 6008, Feb. 10, 1982]

                              Taxable Fuel

    Source: T.D. 8421, 57 FR 32424, July 22, 1992, unless otherwise 
noted.



Sec. 48.4081-1  Taxable fuel; definitions.

    (a) Overview. This section provides definitions for purposes of the 
tax on taxable fuel imposed by section 4081.
    (b) Definitions.
    Approved terminal or refinery means a terminal or refinery that is 
operated, respectively, by a taxable fuel registrant that is a terminal 
operator, or by a taxable fuel registrant that is a refiner.
    Aviation gasoline means all special grades of gasoline that are 
suitable for use in aviation reciprocating engines and covered by ASTM 
specification D 910 or military specification MIL-G-5572. For 
availability of ASTM and military specifications, see paragraph (d) of 
this section.
    Blender means any person that produces blended taxable fuel.
    Bulk transfer means any transfer of taxable fuel by pipeline or 
vessel.
    Bulk transfer/terminal system means the taxable fuel distribution 
system consisting of refineries, pipelines, vessels, and terminals. 
Thus, taxable fuel in a refinery, pipeline, vessel, or terminal is in 
the bulk transfer/terminal system. Taxable fuel in the fuel supply tank 
of any engine, or in any tank car, rail car, trailer, truck, or other 
equipment suitable for ground transportation is not in the bulk 
transfer/terminal system.
    Bus means automobile bus.
    Diesel-powered bus means any bus that is propelled by a diesel-
powered engine.
    Diesel-powered highway vehicle means a highway vehicle, as defined 
in Sec. 48.4061(a)-1(d), that is propelled by a diesel-powered engine.
    Diesel-powered train means any diesel-powered equipment or machinery 
that rides on rails. Thus, for example, the term includes a locomotive, 
work train, switching engine, and track maintenance machine.
    Enterer generally means the importer of record (under customs law) 
with respect to the taxable fuel, except that--
    (1) If the importer of record is a customs broker engaged by the 
owner of the taxable fuel, the person for whom the broker is acting is 
the enterer; and
    (2) If there is no importer of record for taxable fuel entered into 
the United States, the owner of the taxable fuel at the time it is 
brought into the United States is the enterer.
    Entry of taxable fuel into the United States occurs when--
    (1) The taxable fuel is brought into the United States and 
applicable customs law requires that the taxable fuel be entered into 
the United States for consumption, use, or warehousing; or
    (2) The taxable fuel is brought into the United States from Puerto 
Rico and applicable customs law would require that the taxable fuel be 
entered into the United States for consumption, use, or warehousing if 
the taxable fuel were brought into the United States from somewhere 
other than Puerto Rico.
    Excluded liquid means any liquid that--
    (1) Contains less than four percent normal paraffins; or
    (2) Has a--
    (i) Distillation range of 125 [deg]F. or less;
    (ii) Sulfur content of 10 ppm or less; and
    (iii) Minimum color of +27 Saybolt.
    Finished gasoline means all products (including gasohol (as defined 
in Sec. 48.4081-6(b)(2))) that are commonly or

[[Page 114]]

commercially known or sold as gasoline and are suitable for use as a 
motor fuel, other than products that have an ASTM octane number of less 
than 75 as determined by the motor method.
    Gasoline means finished gasoline and gasoline blendstocks.
    Industrial user means any person that receives gasoline blendstocks 
by bulk transfer for its own use in the manufacture of any product other 
than finished gasoline.
    Kerosene means any liquid that meets the specifications for kerosene 
or would meet those specifications but for the presence in the liquid of 
a dye of the type described in Sec. 48.4082-1(b). A liquid meets the 
specifications for kerosene if it is one of the two grades of kerosene 
(No. 1-K and No. 2-K) covered by ASTM specification D 3699, or kerosene-
type jet fuel covered by ASTM specification D 1655 or military 
specification MIL-DTL-5624T (Grade JP-5) or MIL-DTL-83133E (Grade JP-8). 
For availability of ASTM and military specifications, see paragraph (d) 
of this section. However, the term does not include excluded liquid.
    Position holder means, with respect to taxable fuel in a terminal, 
the person that holds the inventory position in the taxable fuel, as 
reflected on the records of the terminal operator. A person holds the 
inventory position in taxable fuel when that person has a contractual 
agreement with the terminal operator for the use of storage facilities 
and terminaling services at a terminal with respect to the taxable fuel. 
The term also includes a terminal operator that owns taxable fuel in its 
terminal.
    Rack means a mechanism capable of delivering taxable fuel into a 
means of transport other than a pipeline or vessel.
    Refiner means any person that owns, operates, or otherwise controls 
a refinery.
    Refinery means a facility used to produce taxable fuel and from 
which taxable fuel may be removed by pipeline, by vessel, or at a rack. 
However, the term does not include a facility where only blended fuel or 
gasohol (as defined in Sec. 48.4081-6(b)(2)), and no other type of 
taxable fuel, is produced. For this purpose blended fuel is any mixture 
that, if produced outside the bulk transfer/terminal system, would be 
blended taxable fuel.
    Removal means any physical transfer of taxable fuel, and any use of 
taxable fuel other than as a material in the production of taxable fuel 
or special fuels. However, taxable fuel is not removed when it 
evaporates or is otherwise lost or destroyed.
    Sale means--
    (1) The transfer of title to, or substantial incidents of ownership 
in, taxable fuel (other than taxable fuel in a terminal) to the buyer 
for a consideration, which may consist of money, services, or other 
property; or
    (2) The transfer of the inventory position in the taxable fuel in a 
terminal if the transferee becomes the position holder with respect to 
the taxable fuel.
    State includes any State, any political subdivision of a State, the 
District of Columbia, the American Red Cross, and, to the extent 
provided by section 7871, any Indian tribal government.
    Taxable fuel means gasoline, diesel fuel, and kerosene.
    Taxable fuel registrant means an enterer, industrial user, refiner, 
terminal operator, or throughputter that is registered as such under 
section 4101.
    Terminal means a taxable fuel storage and distribution facility that 
is supplied by pipeline or vessel and from which taxable fuel may be 
removed at a rack. However, the term does not include any facility at 
which gasoline blendstocks are used in the manufacture of products other 
than finished gasoline and from which no gasoline is removed. Also, 
effective January 2, 1998, the term does not include any facility where 
finished gasoline, undyed diesel fuel, or undyed kerosene is stored if 
the facility is operated by a taxable fuel registrant and all such 
taxable fuel stored at the facility has been previously taxed under 
section 4081 upon removal from a refinery or terminal.
    Terminal operator means any person that owns, operates, or otherwise 
controls a terminal.
    Throughputter means any person that--
    (1) Owns taxable fuel within the bulk transfer/terminal system 
(other than in a terminal); or

[[Page 115]]

    (2) Is a position holder.
    Vessel means a waterborne taxable fuel transporting vessel.
    (c) Blended taxable fuel, diesel fuel, and gasoline blendstocks; 
definitions--(1) Blended taxable fuel--(i) In general. Except as 
provided in paragraphs (c)(1)(ii) and (c)(1)(iii) of this section, 
blended taxable fuel means any taxable fuel that is produced outside the 
bulk transfer/terminal system by mixing--
    (A) Taxable fuel with respect to which tax has been imposed under 
section 4041(a)(1) or 4081(a) (other than taxable fuel for which a 
credit or payment has been allowed); and
    (B) Any other liquid on which tax has not been imposed under section 
4081.
    (ii) Exclusion; minor blending. A mixture described in paragraph 
(c)(1)(i) of this section is not blended taxable fuel if, during the 
calendar quarter in which the blender removes or sells the mixture, all 
such mixtures removed or sold by the blender contain, in the aggregate, 
less than 400 gallons of liquid described in paragraph (c)(1)(i)(B) of 
this section.
    (iii) Exclusion; gasohol. Blended taxable fuel does not include any 
gasohol (as defined in Sec. 48.4081-6(b)(2)) if, disregarding the 
alcohol, the gasohol is not blended taxable fuel and contains, in 
addition to permitted amounts of liquids described in paragraph 
(c)(1)(i)(B) of this section, only gasoline with respect to which--
    (A) Tax was imposed under section 4081(a) at a rate described in 
Sec. 48.4081-6(e) (relating to the gasohol production tax rate and the 
gasohol tax rate); or
    (B) A valid claim is made under section 6427(f).
    (2) Diesel fuel--(i) In general. Except as provided in paragraph 
(c)(2)(ii) of this section, diesel fuel means any liquid that, without 
further processing or blending, is suitable for use as a fuel in a 
diesel-powered highway vehicle or diesel-powered train. A liquid is 
suitable for this use if the liquid has practical and commercial fitness 
for use in the propulsion engine of a diesel-powered highway vehicle or 
diesel-powered train. A liquid may possess this practical and commercial 
fitness even though the specified use is not the liquid's predominant 
use. However, a liquid does not possess this practical and commercial 
fitness solely by reason of its possible or rare use as a fuel in the 
propulsion engine of a diesel-powered highway vehicle or diesel-powered 
train.
    (ii) Exclusion. Diesel fuel does not include gasoline, kerosene, 
excluded liquid, No. 5 and No. 6 fuel oils covered by ASTM specification 
D 396, or F-76 (Fuel Naval Distillate) covered by military specification 
MIL-F-16884. For availability of ASTM and military specifications, see 
paragraph (d) of this section.
    (3) Gasoline blendstocks--(i) In general. Except as provided in 
paragraph (c)(3)(ii) of this section, gasoline blendstocks means--
    (A) Alkylate;
    (B) Butane;
    (C) Butene;
    (D) Catalytically cracked gasoline;
    (E) Coker gasoline;
    (F) Ethyl tertiary butyl ether (ETBE);
    (G) Hexane;
    (H) Hydrocrackate;
    (I) Isomerate;
    (J) Methyl tertiary butyl ether (MTBE);
    (K) Mixed xylene (not including any separated isomer of xylene);
    (L) Natural gasoline;
    (M) Pentane;
    (N) Pentane mixture;
    (O) Polymer gasoline;
    (P) Raffinate;
    (Q) Reformate;
    (R) Straight-run gasoline;
    (S) Straight-run naphtha;
    (T) Tertiary amyl methyl ether (TAME);
    (U) Tertiary butyl alcohol (gasoline grade) (TBA);
    (V) Thermally cracked gasoline;
    (W) Toluene; and
    (X) Transmix containing gasoline.

    (ii) Exclusion. Gasoline blendstocks does not include any product 
that cannot, without further processing, be used in the production of 
finished gasoline. For example, a mixed hydrocarbon stream that is 
produced in a natural gas processing plant is not a gasoline blendstock 
if the stream cannot be used to produce finished gasoline without 
further processing.
    (d) ASTM and military specifications. ASTM specifications may be 
obtained from the American Society for Testing

[[Page 116]]

and Materials, 100 Barr Harbor Drive, West Conshohocken, PA 19428. 
Military specifications may be obtained from the Standardization 
Document Order Desk, Building 4, Section D, 700 Robbins Avenue, 
Philadelphia, PA 19111.
    (e) Other definitions. For other definitions relating to taxable 
fuel, see Sec. Sec. 48.4081-6(b), 48.4082-5(b), 48.4082-6(b), 48.4082-
7(b), 48.4101-1(b), 48.6427-9(b), 48.6427-10(b), and 48.6427-11(b).
    (f) Effective date. (1) Except as provided in paragraph (f)(2) of 
this section, this section is applicable after December 31, 1993.
    (2) In paragraph (b) of this section the definition of aviation 
gasoline and the third sentence in the definition of terminal are 
applicable after January 1, 1998, the definition of kerosene, excluded 
liquid, and taxable fuel are applicable after June 30, 1998, and the 
definition of enterer is applicable to entries of taxable fuel after 
September 27, 2004. Paragraph (c)(2) of this section is applicable after 
December 31, 1997.

[T.D. 8659, 61 FR 10453, Mar. 14, 1996, as amended by T.D. 8748, 63 FR 
25, Jan. 2, 1998; T.D. 8879, 65 FR 17155, Mar. 31, 2000; T.D. 9051, 68 
FR 15940, Apr. 2, 2003; T.D. 9145, 69 FR 45588, July 30, 2004; T.D. 
9346, 72 FR 41223, July 27, 2007]



Sec. 48.4081-2  Taxable fuel; tax on removal at a terminal rack.

    (a) Overview. This section provides the general rule that all 
removals of taxable fuel at a terminal rack are subject to tax and the 
position holder with respect to the fuel is liable for the tax.
    (b) Imposition of tax. Tax is imposed on the removal of taxable fuel 
from a terminal if the taxable fuel is removed at the rack.
    (c) Liability for tax--(1) In general. The position holder with 
respect to the taxable fuel is liable for the tax imposed under 
paragraph (b) of this section.
    (2) Joint and several liability of terminal operator; unregistered 
position holder--(i) In general. The terminal operator is jointly and 
severally liable for the tax imposed under paragraph (b) of this section 
if--
    (A) The position holder with respect to the taxable fuel is a person 
other than the terminal operator and is not a taxable fuel registrant; 
and
    (B) The terminal operator has not met the conditions of paragraph 
(c)(2)(ii) of this section.
    (ii) Conditions for avoidance of liability. A terminal operator is 
not liable for tax under this paragraph (c)(2) if, at the time of the 
removal, the terminal operator--
    (A) Is a taxable fuel registrant;
    (B) Has an unexpired notification certificate (as described in Sec. 
48.4081-5) from the position holder; and
    (C) Has no reason to believe that any information in the 
notification certificate is false.
    (3) Joint and several liability of terminal operator; incorrect 
information provided. The terminal operator is jointly and severally 
liable for the tax imposed under paragraph (b) of this section if, in 
connection with the removal of diesel fuel or kerosene that is not dyed 
and marked in accordance with Sec. 48.4082-1, the terminal operator 
provides any person (including the position holder with respect to the 
fuel) with any bill of lading, shipping paper, record, or similar 
document indicating that the diesel fuel or kerosene is dyed and marked 
in accordance with Sec. 48.4082-1.
    (4) Example. The following example illustrates this paragraph (c) 
and Sec. 48.4082-1:

    Example. (i) TO is a terminal operator and PH is the position holder 
with respect to, and owner of, 8,000 gallons of diesel fuel stored in 
TO's terminal. TO and PH are taxable fuel registrants. When the fuel is 
removed from the terminal at the rack, the fuel is not dyed and marked 
in accordance with Sec. 48.4082-1, and TO does not provide any person 
with any paperwork indicating that the fuel is dyed and marked. After 
the removal from the terminal, PH sells the fuel to individuals for use 
as heating oil, a nontaxable use.
    (ii) Because PH is the position holder of the fuel at the time of 
the removal from the terminal, PH is liable for the tax imposed by 
section 4081. The removal is subject to tax because the fuel is not dyed 
and marked in accordance with Sec. 48.4082-1, and later use of the fuel 
in a nontaxable use does not make the removal from the terminal exempt 
from tax.
    (iii) Because PH is a taxable fuel registrant and TO did not provide 
any person with any paperwork indicating that the fuel is dyed and 
marked, TO is not jointly and severally liable for tax under paragraph 
(c) (2) or (3) of this section.


[[Page 117]]


    (d) Rate of tax. For the rate of tax generally, see section 4081(a). 
For the rate of tax on gasohol and on gasoline removed for gasohol 
production, see Sec. 48.4081-6.
    (e) Exemptions. For exemptions from the tax imposed under this 
section, see Sec. Sec. 48.4081-4 (relating to gasoline blendstocks), 
48.4082-1 (relating to dyed diesel fuel and dyed kerosene), 48.4082-5 
(relating to diesel fuel and kerosene used in Alaska), 48.4082-6 
(relating to aviation-grade kerosene), and 48.4082-7 (relating to 
kerosene used for a feedstock purpose).
    (f) Effective date. This section is applicable after December 31, 
1993.

[T.D. 8659, 61 FR 10455, Mar. 14, 1996, as amended by T.D. 8879, 65 FR 
17156, Mar. 31, 2000]



Sec. 48.4081-3  Taxable fuel; taxable events other than removal at the terminal rack.

    (a) Overview. Although tax is imposed when taxable fuel is removed 
from the terminal at the rack, tax also is imposed in certain other 
situations described in this section.
    (b) Tax on removal from a refinery--(1) Imposition of tax. Tax is 
imposed on the following removals from a refinery:
    (i) A removal of taxable fuel by bulk transfer if the refiner or the 
owner of the taxable fuel immediately before the removal is not a 
taxable fuel registrant.
    (ii) A removal of taxable fuel at the rack.
    (iii) After September 30, 1995, a removal of a batch of gasohol from 
an approved refinery by bulk transfer if the refiner treats itself with 
respect to the removal as a person that is not registered under section 
4101. See Sec. 48.4101-1(a). For the rule providing that no deposit is 
required in the case of the tax imposed under this paragraph 
(b)(1)(iii), see Sec. 40.6302(c)-1(f)(4) of this chapter. For the rule 
allowing inspections of facilities where gasohol is produced, see 
section 4083.
    (2) Exception for certain refineries. The tax imposed under 
paragraph (b)(1)(ii) of this section does not apply to a removal of 
taxable fuel if--
    (i) The taxable fuel is removed from an approved refinery that is 
not served by pipeline (other than a pipeline for the receipt of crude 
oil) or vessel;
    (ii) The taxable fuel is received at a facility that is operated by 
a taxable fuel registrant and is located within the bulk transfer/
terminal system;
    (iii) The removal from the refinery is by--
    (A) Rail car; or
    (B) In the case of diesel fuel, a trailer or semi-trailer that is 
used exclusively for the transport service described in paragraphs 
(b)(2)(i) and (b)(2)(ii) of this section;
    (iv) In the case of taxable fuel removed by rail car, the facility 
at which the fuel is received is operated by the same person that 
operates the refinery from which the fuel was removed; and
    (v) In the case of diesel fuel removed by a trailer or semi-trailer, 
the facility at which the fuel is received is less than 20 miles from 
the refinery from which the diesel fuel was removed.
    (3) Liability for tax. The refiner is liable for the tax imposed 
under paragraph (b)(1) of this section.
    (c) Tax on entry into the United States--(1) Imposition of tax. Tax 
is imposed on the entry of taxable fuel into the United States if--
    (i) The entry is by bulk transfer and the enterer is not a taxable 
fuel registrant; or
    (ii) The entry is not by bulk transfer.
    (2) Liability for tax--(i) In general. The enterer is liable for the 
tax imposed under paragraph (c)(1) of this section.
    (ii) Joint and several liability of the importer of record. The 
importer of record with respect to the taxable fuel is jointly and 
severally liable with the enterer for the tax imposed under paragraph 
(c)(1) of this section if--
    (A) The importer of record is not the enterer of the taxable fuel; 
and
    (B) The enterer is not a taxable fuel registrant.
    (iii) Conditions for avoidance of liability. The importer of record 
is not liable for the tax under paragraph (c)(2)(ii) of this section if, 
at the time of the entry, the importer of record--
    (A) Has an unexpired notification certificate (as described in Sec. 
48.4081-5) from the enterer; and
    (B) Has no reason to believe that any information in the 
notification certificate is false.

[[Page 118]]

    (iv) Customs bond. The Customs bond posted with respect to the 
importation of the fuel will not be charged for the tax imposed on the 
entry of the fuel if the enterer is a taxable fuel registrant. A Customs 
bond will not be charged for the tax imposed on the entry of the fuel 
covered by the bond, if at the time of entry, the surety--
    (A) Has an unexpired notification certificate (as described in Sec. 
48.4081-5) from the enterer; and
    (B) Has no reason to believe that any information in the 
notification certificate is false.
    (d) Tax on bulk transfers from a terminal by an unregistered 
position holder--(1) Imposition of tax. Tax is imposed on the removal by 
bulk transfer of taxable fuel from a terminal if the position holder 
with respect to the taxable fuel is not a taxable fuel registrant.
    (2) Liability for tax--(i) In general. The position holder with 
respect to the taxable fuel is liable for the tax imposed under 
paragraph (d)(1) of this section.
    (ii) Joint and several liability of terminal operator. The terminal 
operator is jointly and severally liable for the tax imposed under 
paragraph (d)(1) of this section if--
    (A) The position holder with respect to the taxable fuel is a person 
other than the terminal operator; and
    (B) The terminal operator has not met the conditions of paragraph 
(d)(2)(iii) of this section.
    (iii) Conditions for avoidance of liability. A terminal operator is 
not liable for tax under this paragraph (d)(2) if, at the time of the 
bulk transfer, the terminal operator--
    (A) Is a taxable fuel registrant;
    (B) Has an unexpired notification certificate (described in Sec. 
48.4081-5) from the position holder; and
    (C) Has no reason to believe that any information in the 
notification certificate is false.
    (e) Tax on bulk transfers not received at an approved terminal or 
refinery--(1) Imposition of tax. Tax on taxable fuel is imposed if--
    (i) Taxable fuel is removed by bulk transfer from a refinery or 
terminal, or entered by bulk transfer into the United States;
    (ii) No tax was imposed on such removal or entry under paragraph 
(b), (c), or (d) of this section; and
    (iii) Upon removal from the pipeline or vessel, the taxable fuel is 
not received at an approved terminal or refinery (or at another pipeline 
or vessel).
    (2) Liability for tax--(i) In general. The owner of the taxable fuel 
when it is removed from the pipeline or vessel is liable for the tax 
imposed under paragraph (e)(1) of this section if the owner has not met 
the conditions of paragraph (e)(2)(ii) of this section.
    (ii) Conditions for avoidance of liability. An owner of taxable fuel 
is not liable for tax under paragraph (e)(2)(i) of this section if, at 
the time the taxable fuel is removed from the pipeline or vessel, the 
owner of the taxable fuel--
    (A) Is a taxable fuel registrant;
    (B) Has an unexpired notification certificate (described in Sec. 
48.4081-5) from the operator of the terminal or refinery where the 
taxable fuel is received; and
    (C) Has no reason to believe that any information in the 
notification certificate is false.
    (iii) Liability of the operator of the facility where the taxable 
fuel is received. The operator of the facility where the taxable fuel is 
received is liable for the tax imposed under paragraph (e)(1) of this 
section if the owner of the taxable fuel has met the conditions of 
paragraph (e)(2)(ii) of this section and is jointly and severally liable 
for the tax if the owner has not met such conditions.
    (f) Tax on sales within the bulk transfer/terminal system--(1) 
Imposition of tax. Tax is imposed on the sale of taxable fuel located 
within the bulk transfer/terminal system if the sale is to a person that 
is not a taxable fuel registrant and tax has not been imposed on such 
taxable fuel under Sec. 48.4081-2, or paragraph (b), (c), (d), or (e) 
of this section.
    (2) Exception for certain sales of taxable fuel for export. The tax 
imposed under paragraph (f)(1) of this section does not apply to a sale 
of taxable fuel if--
    (i) The buyer's principal place of business is not within the United 
States;
    (ii) The sale of the fuel occurs as the fuel is delivered into a 
transport vessel;

[[Page 119]]

    (iii) The vessel has a capacity of at least 20,000 barrels of fuel;
    (iv) The seller is a taxable fuel registrant and the exporter of 
record of the fuel; and
    (v) The fuel was exported in due course.
    (3) Liability for tax--(i) In general. The seller of the taxable 
fuel is liable for the tax imposed under paragraph (f)(1) of this 
section if the seller has not met the conditions of paragraph (f)(3)(ii) 
of this section.
    (ii) Conditions for avoidance of liability. A seller is not liable 
for tax under paragraph (f)(3)(i) of this section if, at the time of the 
sale, the seller--
    (A) Is a taxable fuel registrant;
    (B) Has an unexpired notification certificate (described in Sec. 
48.4081-5) from the buyer; and
    (C) Has no reason to believe that any information in the certificate 
is false.
    (iii) Liability of the buyer. The buyer of the taxable fuel is 
liable for the tax imposed under paragraph (f)(1) of this section if the 
seller of the taxable fuel has met the conditions of paragraph 
(f)(3)(ii) of this section and is jointly and severally liable for the 
tax if the seller has not met such conditions.
    (4) Example. The following example illustrates this paragraph (f) 
and the definition of the term sale in Sec. 48.4081-1:

    Example. PH owns one million gallons of untaxed gasoline that is 
stored in TO's terminal. PH also is the position holder with respect to 
the gasoline. While the gasoline remains stored in the terminal, PH 
transfers title to 200,000 gallons of the gasoline to A, a person that 
is not a taxable fuel registrant. PH continues to hold the inventory 
position on TO's records with respect to the one million gallons. 
Because PH continues as the position holder with respect to the 
gasoline, the transfer of title to the gasoline from PH to A is not a 
sale of gasoline. Because this transfer of title from PH to A is not a 
sale of gasoline, the tax imposed under paragraph (f) of this section 
does not apply to the transfer.

    (g) Tax on removal or sale of blended taxable fuel by the blender--
(1) Imposition of tax. A tax is imposed on the removal or sale of 
blended taxable fuel by the blender thereof. Tax is computed on the 
difference between the total number of gallons of blended taxable fuel 
removed or sold and the number of gallons of previously taxed taxable 
fuel used to produce the blended taxable fuel. For this purpose, the 
alcohol in gasohol is treated as previously taxed taxable fuel.
    (2) Liability for tax--(i) Liability of the blender. The blender is 
liable for the tax imposed under paragraph (g)(1) of this section.
    (ii) Liability of seller of untaxed liquid. On and after April 2, 
2003, a person that sells any liquid that is used to produce blended 
taxable fuel is jointly and severally liable for the tax imposed under 
paragraph (g)(1) of this section on the removal or sale of that blended 
taxable fuel if the liquid--
    (A) Is described in Sec. 48.4081-1(c)(1)(i)(B) (relating to liquids 
on which tax has not been imposed under section 4081); and
    (B) Is sold by that person as gasoline, diesel fuel, or kerosene 
that has been taxed under section 4081.
    (3) Examples. The following examples illustrate the provisions of 
this paragraph (g) and the definitions of blended taxable fuel and 
diesel fuel in Sec. 48.4081-1(c):

    Example 1. (i) Facts. W is a wholesale distributor of petroleum 
products and R is a retailer of petroleum products. W sells to R 1,000 
gallons of an untaxed liquid (a liquid described in Sec. 48.4081-
1(c)(1)(i)(B)) and delivers the liquid into a storage tank (tank) at R's 
retail facility. However, W's invoice to R states that the liquid is 
undyed diesel fuel. At the time of the delivery, the tank contains 4,000 
gallons of undyed diesel fuel, a taxable fuel that has been taxed under 
section 4081. The resulting 5,000 gallon mixture is suitable for use as 
a fuel in a diesel-powered highway vehicle because it has practical and 
commercial fitness for use in the propulsion engine of a diesel-powered 
highway vehicle. The mixture does not satisfy the dyeing requirements of 
Sec. 48.4082-1. R sells the mixture from the tank to a construction 
company for off-highway business use.
    (ii) Analysis--(A) Production of blended taxable fuel. R is a 
blender within the meaning of Sec. 48.4081-1 because R has produced 
blended taxable fuel, as defined in Sec. 48.4081-1, by mixing 1,000 
gallons of a liquid that has not been taxed under section 4081 with 
4,000 gallons of diesel fuel that has been taxed under section 4081. The 
mixing occurs outside of the bulk transfer/terminal system and the 
resulting product is diesel fuel because it is suitable for use as a 
fuel in a diesel-powered highway vehicle.
    (B) Imposition of tax. Under paragraph (g)(1) of this section, tax 
is imposed on R's sale of the 5,000 gallons of blended taxable fuel to 
the construction company. Even though the

[[Page 120]]

blended taxable fuel is sold for off-highway business use, which is a 
nontaxable use as defined in section 4082(b), the sale is not exempt 
from tax because the blended taxable fuel does not satisfy the dyeing 
requirements of Sec. 48.4082-1. Tax is computed on 1,000 gallons, which 
is the difference between the number of gallons of blended taxable fuel 
R sells (5,000) and the number of gallons of previously taxed taxable 
fuel used to produce the blended taxable fuel (4,000).
    (C) Liability for tax. R, as the blender, is liable for this tax 
under paragraph (g)(2)(i) of this section. W is jointly and severally 
liable for this tax under paragraph (g)(2)(ii) of this section because 
the blended taxable fuel is produced using an untaxed liquid that W sold 
as undyed diesel fuel (that is, as diesel fuel that was taxed under 
section 4081).
    Example 2. (i) Facts. W, a wholesale distributor of petroleum 
products, buys 7,000 gallons of diesel fuel at a terminal rack. The 
diesel fuel is delivered into a tank trailer. Tax is imposed on the 
diesel fuel under Sec. 48.4081-2 when the diesel fuel is removed at the 
rack. W then goes to another location where X, the operator of a 
chemical plant, sells W 1,000 gallons of an untaxed liquid (a liquid 
described in Sec. 48.4081-1(c)(1)(i)(B)). However, X's invoice to W 
states that the liquid is undyed diesel fuel. This liquid is delivered 
into the tank trailer already containing the 7,000 gallons of diesel 
fuel. The resulting 8,000 gallon mixture is suitable for use as a fuel 
in a diesel-powered highway vehicle because it has practical and 
commercial fitness for use in the propulsion engine of a diesel-powered 
highway vehicle. The mixture does not satisfy the dyeing requirements of 
Sec. 48.4082-1. W sells the mixture to R, a retailer of petroleum 
products, and delivers the mixture into a storage tank at R's retail 
facility. R sells the mixture to its customers.
    (ii) Analysis--(A) Production of blended taxable fuel. W is a 
blender within the meaning of Sec. 48.4081-1 because W has produced 
blended taxable fuel, as defined in Sec. 48.4081-1, by mixing 1,000 
gallons of a liquid that has not been taxed under section 4081 with 
7,000 gallons of diesel fuel that has been taxed under section 4081. The 
mixing occurs outside of the bulk transfer/terminal system and the 
resulting product is diesel fuel because it is suitable for use as a 
fuel in a diesel-powered highway vehicle. Thus, R has bought blended 
taxable fuel.
    (B) Imposition of tax. Under paragraph (g)(1) of this section, tax 
is imposed on W's sale of the 8,000 gallons of blended taxable fuel to 
R. Tax is computed on 1,000 gallons, which is the difference between the 
number of gallons of blended taxable fuel W sells (8,000) and the number 
of gallons of previously taxed taxable fuel used to produce the blended 
taxable fuel (7,000). No tax is imposed on R's subsequent sale of the 
blended taxable fuel because tax is imposed only with respect to a 
removal or sale by the blender.
    (C) Liability for tax. W, as the blender, is liable for this tax 
under paragraph (g)(2)(i) of this section. X is jointly and severally 
liable for this tax under paragraph (g)(2)(ii) of this section because 
the blended taxable fuel is produced using an untaxed liquid that X sold 
as undyed diesel fuel (that is, as diesel fuel that was taxed under 
section 4081). R has no liability for tax because R is not a blender and 
did not sell any untaxed liquid as a taxed taxable fuel. R only sold 
taxed taxable fuel, the blended taxable fuel bought from W.

    (h) Rate of tax. For the rate of tax generally imposed under this 
section, see section 4081(a). For the rate of tax on gasohol and on 
gasoline removed or entered for gasohol production, see Sec. 48.4081-6.
    (i) Exemptions. For exemptions from the taxes imposed under this 
section, see Sec. Sec. 48.4081-4 (relating to gasoline blendstocks), 
48.4082-1 (relating to dyed diesel fuel and dyed kerosene), 48.4082-5 
(relating to diesel fuel and kerosene used in Alaska), 48.4082-6 
(relating to aviation-grade kerosene), and 48.4082-7 (relating to 
kerosene used for a feedstock purpose).
    (j) Effective/applicability date: This section is applicable January 
1, 1994, except that paragraphs (c)(2)(ii) through (iv) of this section 
are applicable to entries of taxable fuel after September 27, 2004.

[T.D. 8659, 61 FR 10455, Mar. 14, 1996, as amended by T.D. 8879, 65 FR 
17156, Mar. 31, 2000; T.D. 9051, 68 FR 15941, Apr. 2, 2003; T.D. 9145, 
69 FR 45588, July 30, 2004; T.D. 9346, 72 FR 41223, July 27, 2007]



Sec. 48.4081-4  Gasoline; special rules for gasoline blendstocks.

    (a) Overview. This section provides rules exempting from tax certain 
removals, entries, and sales of gasoline blendstocks. Generally, under 
prescribed conditions, tax is not imposed on gasoline blendstocks that 
are not used to produce finished gasoline or that are received at an 
approved terminal or refinery.
    (b) Nonbulk removals and entries of gasoline blendstocks not used to 
produce gasoline--(1) Removals and entries not in connection with sales. 
Tax is not imposed under Sec. 48.4081-2(b), Sec. 48.4081-3(b)(1)(ii), 
or Sec. 48.4081-3(c)(1)(ii) on the removal or entry of gasoline

[[Page 121]]

blendstocks not in connection with a sale if--
    (i) The person otherwise liable for tax under Sec. 48.4081-2(c)(1) 
(the position holder), Sec. 48.4081-3(b)(3) (the refiner), or Sec. 
48.4081-3(c)(2) (the enterer) is a taxable fuel registrant; and
    (ii) Such person does not use the gasoline blendstocks to produce 
finished gasoline.
    (2) Removals and entries in connection with sales. Tax is not 
imposed under Sec. 48.4081-2(b), Sec. 48.4081-3(b)(1)(ii), or Sec. 
48.4081-3(c)(1)(ii) on the removal or entry of gasoline blendstocks in 
connection with a sale if--
    (i) The person otherwise liable for tax under Sec. 48.4081-2(c)(1) 
(the position holder), Sec. 48.4081-3(b)(3) (the refiner), or Sec. 
48.4081-3(c)(2) (the enterer) is a taxable fuel registrant; and
    (ii) At the time of the sale, such person has an unexpired 
certificate (described in paragraph (e) of this section) from the buyer 
and has no reason to believe any information in the certificate is 
false.
    (3) Tax on sales after certain nonbulk removals or entries--(i) In 
general. If paragraph (b) (1) or (2) of this section applies to the 
removal or entry of gasoline blendstocks, tax is imposed on any sale of 
such blendstocks unless, at the time of the sale, the seller--
    (A) Has an unexpired certificate (described in paragraph (e) of this 
section) from its buyer; and
    (B) Has no reason to believe any information in the certificate is 
false.
    (ii) Liability for tax. The seller is liable for the tax imposed 
under this paragraph (b)(3).
    (iii) Rate of tax. For the rate of tax, see section 4081.
    (c) Nonbulk removals and entries of gasoline blendstocks received at 
an approved terminal or refinery. Tax is not imposed under Sec. 
48.4081-2(b), Sec. 48.4081-3(b)(1)(ii), or Sec. 48.4081-3(c)(1)(ii) on 
the removal or entry of gasoline blendstocks that are received at a 
terminal or refinery if the person otherwise liable for tax under Sec. 
48.4081-2(c)(1) (the position holder), Sec. 48.4081-3(b)(3) (the 
refiner), or Sec. 48.4081-3(c)(2) (the enterer)--
    (1) Is a taxable fuel registrant;
    (2) Has an unexpired notification certificate (described in Sec. 
48.4081-5) from the operator of the terminal or refinery where the 
gasoline blendstocks are received; and
    (3) Has no reason to believe that any information in the certificate 
is false.
    (d) Bulk transfer to a registered industrial user. Tax is not 
imposed under Sec. 48.4081-3(e)(1) if, upon the removal of gasoline 
blendstocks from a pipeline or vessel, the gasoline blendstocks are 
received by a taxable fuel registrant that is an industrial user.
    (e) Certificate--(1) In general. The certificate to be provided by a 
buyer of gasoline blendstocks consists of a statement that is signed 
under penalties of perjury by a person with authority to bind the buyer, 
is in substantially the same form as the model certificate provided in 
paragraph (e)(3) of this section, and contains all information necessary 
to complete such model certificate. A new certificate must be given if 
any information in the current certificate changes. The certificate may 
be included as part of any business records normally used to document a 
sale. The certificate expires on the earliest of the following dates:
    (i) The date one year after the effective date of the certificate 
(which may be no earlier than the date it is signed).
    (ii) The date a new certificate is provided to the seller.
    (iii) The date the seller is notified by the Internal Revenue 
Service or the buyer that the buyer's right to provide a certificate has 
been withdrawn.
    (2) Withdrawal of right to provide certificate. The Internal Revenue 
Service may withdraw the right of a buyer of gasoline blendstocks to 
provide a certificate under this paragraph (e) if such buyer uses 
gasoline blendstocks to which a certificate applies in the production of 
finished gasoline or resells the gasoline blendstocks without obtaining 
a certificate from its buyer. The Internal Revenue Service may notify 
any seller to whom the buyer has provided a certificate that the buyer's 
right to provide a certificate has been withdrawn.
    (3) Model certificate.

Certificate of Person Buying Gasoline Blendstocks for use Other Than in 
                   the Production of Finished Gasoline

(To support tax-free sales under section 4081 of the Internal Revenue 
Code)
________________________________________________________________________

[[Page 122]]

________________________________________________________________________
    Name, address, and employer identification number of seller
    The undersigned buyer (``Buyer'') hereby certifies the following 
under penalties of perjury:
    The gasoline blendstocks to which this certificate relates will not 
be used to produce finished gasoline.
    This certificate applies to the following (complete as applicable):
    If this is a single purchase certificate, check here ------ and 
enter:
    1. Invoice or delivery ticket number ------
    2. ------ (number of gallons) of ------ (type of gasoline 
blendstocks)
    If this is a certificate covering all purchases under a specified 
account or order number, check here ------ and enter:
    1. Effective date ------
    2. Expiration date ------

(period not to exceed 1 year after the effective date)
    3. Type (or types) of gasoline blendstocks ------
    4. Buyer account or order number ------
    Buyer will not claim a credit or refund under section 6427(h) of the 
Internal Revenue Code for any gasoline blendstocks covered by this 
certificate.
    Buyer will provide a new certificate to the seller if any 
information in this certificate changes.
    If Buyer resells the gasoline blendstocks to which this certificate 
relates, Buyer will be liable for tax unless Buyer obtains a certificate 
from the purchaser stating that the gasoline blendstocks will not be 
used to produce finished gasoline and otherwise complies with the 
conditions of Sec. 48.4081-4(b)(3) of the Manufacturers and Retailers 
Excise Tax Regulations.
    Buyer understands that if Buyer violates the terms of this 
certificate, the Internal Revenue Service may withdraw Buyer's right to 
provide a certificate.
    Buyer has not been notified by the Internal Revenue Service that its 
right to provide a certificate has been withdrawn. In addition, the 
Internal Revenue Service has not notified Buyer that the right to 
provide a certificate has been withdrawn from a purchaser to which Buyer 
sells gasoline blendstocks tax free.
    Buyer understands that the fraudulent use of this certificate may 
subject Buyer and all parties making such fraudulent use of this 
certificate to a fine or imprisonment, or both, together with the costs 
of prosecution.
________________________________________________________________________
    Signature and date signed
________________________________________________________________________
    Printed or typed name of person signing
________________________________________________________________________
    Title of person signing
________________________________________________________________________
    Name of Buyer
________________________________________________________________________
    Employer identification number
________________________________________________________________________
    Address of Buyer

    (f) Effective date. This section is effective January 1, 1994.

[T.D. 8421, 57 FR 32424, July 22, 1992; 57 FR 39421, Aug. 31, 1992, as 
amended by T.D. 8659, 61 FR 10457, Mar. 14, 1996]



Sec. 48.4081-5  Taxable fuel; notification certificate of taxable fuel registrant.

    (a) Overview. This section sets forth requirements for the 
notification certificate under Sec. Sec. 48.4081-2(c)(2)(ii), 48.4081-
3(c)(2)(iii) and (iv), 48.4081-3(d)(2)(iii), 48.4081-3(e)(2)(iii), 
48.4081-3(f)(2)(ii), and 48.4081-4(c) to notify another person of the 
taxable fuel registrant's registration status.
    (b) Certificate--(1) In general. The certificate to be provided by a 
taxable fuel registrant consists of a statement that is signed under 
penalties of perjury by a person with authority to bind the registrant, 
is in substantially the same form as the model provided in paragraph 
(b)(2) of this section, and contains all information necessary to 
complete such model. A new certificate must be given if any information 
in the most recently provided certificate changes. The certificate may 
be included as part of any business records normally used to document a 
sale. The certificate expires on the earlier of the following dates:
    (i) The date the registrant provides a new certificate.
    (ii) The date the recipient of the certificate is notified by either 
the Internal Revenue Service or the registrant that the registrant's 
registration has been revoked or suspended.
    (2) Model certificate.

           Notification Certificate of Taxable Fuel Registrant

________________________________________________________________________
________________________________________________________________________

    Name, address, and employer identification number of person 
receiving certificate
    The undersigned taxable fuel registrant (``Registrant'') hereby 
certifies under penalties of perjury that Registrant is registered by 
the Internal Revenue Service with registration number ------ and that 
Registrant's registration has not been revoked or suspended by the 
Internal Revenue Service.

[[Page 123]]

    Registrant understands that the fraudulent use of this certificate 
may subject Registrant and all parties making such fraudulent use of 
this certificate to a fine or imprisonment, or both, together with the 
cost of prosecution.

________________________________________________________________________

Signature and date signed

________________________________________________________________________

Printed or typed name of person signing

________________________________________________________________________

Title of person signing

________________________________________________________________________

Name of registrant

________________________________________________________________________

Employer identification number

________________________________________________________________________

Address of registrant

    (3) Use of Form 637 or letter of registration as a notification 
certificate prohibited. A copy of the certificate of registry (Form 637) 
or letter of registration issued to a registrant by the Internal Revenue 
Service is not a notification certificate described in paragraph (b)(2) 
of this section.
    (c) Effective date. This section is effective January 1, 1994.

[T.D. 8421, 57 FR 32424, July 22, 1992; 57 FR 39422, Aug. 31, 1992, as 
amended by T.D. 8659, 61 FR 10457, Mar. 14, 1996; T.D. 9145, 69 FR 
45588, July 30, 2004; T.D. 9346, 72 FR 41224, July 27, 2007]



Sec. 48.4081-6  Gasoline; gasohol.

    (a) Overview. This section provides rules for determining the 
applicability of reduced rates of tax on a removal or entry of gasohol 
or of gasoline used to produce gasohol. Rules are also provided for the 
imposition of tax on the separation of gasoline from gasohol and the 
failure to use gasoline that has been taxed at a reduced rate to produce 
gasohol.
    (b) Explanation of terms--(1) Alcohol--(i) In general; source of the 
alcohol. Except as provided in paragraph (b)(1)(ii) of this section, 
alcohol means any alcohol that is not a derivative product of petroleum, 
natural gas, or coal (including peat). Thus, the term includes methanol 
and ethanol that are not derived from petroleum, natural gas, or coal 
(including peat). The term also includes alcohol produced either within 
or outside the United States.
    (ii) Proof and denaturants. Alcohol does not include alcohol with a 
proof of less than 190 degrees (determined without regard to added 
denaturants). If the alcohol added to a fuel/alcohol mixture (the added 
alcohol) includes impurities or denaturants, the volume of alcohol in 
the mixture is determined under the following rules:
    (A) The volume of alcohol in the mixture includes the volume of any 
impurities (other than added denaturants and any fuel with which the 
alcohol is mixed) that reduce the purity of the added alcohol to not 
less than 190 proof (determined without regard to added denaturants).
    (B) The volume of alcohol in the mixture includes the volume of any 
approved denaturants that reduce the purity of the added alcohol, but 
only to the extent that the volume of the approved denaturants does not 
exceed five percent of the volume of the added alcohol (including the 
approved denaturants). If the volume of the approved denaturants exceeds 
five percent of the volume of the added alcohol, the excess over five 
percent is considered part of the nonalcohol content of the mixture.
    (C) For purposes of this paragraph (b)(1)(ii), approved denaturants 
are any denaturants (including gasoline and nonalcohol fuel denaturants) 
that reduce the purity of the added alcohol and are added to such 
alcohol under a formula approved by the Secretary.
    (iii) Products derived from alcohol. If alcohol described in 
paragraphs (b)(1)(i) and (ii) of this section has been chemically 
transformed in producing another product (that is, the alcohol is no 
longer present as a separate chemical in the other product) and there is 
no significant loss in the energy content of the alcohol, any mixture 
containing the product includes the volume of alcohol used to produce 
the product. Thus, for example, a mixture of gasoline and ethyl tertiary 
butyl ether (ETBE), or of gasoline and methyl tertiary butyl ether 
(MTBE), includes any alcohol described in paragraphs (b)(1)(i) and (ii) 
of this section that is used to produce the ETBE or MTBE, respectively, 
in a chemical reaction in which there is no significant loss in the 
energy content of the alcohol.

[[Page 124]]

    (2) Gasohol--(i) In general--(A) Gasohol is a mixture of gasoline 
and alcohol that is 10 percent gasohol, 7.7 percent gasohol, or 5.7 
percent gasohol. The determination of whether a particular mixture is 10 
percent gasohol, 7.7 percent gasohol, or 5.7 percent gasohol is made on 
a batch-by-batch basis. A batch of gasohol is a discrete mixture of 
gasoline and alcohol.
    (B) If a particular mixture is produced within the bulk transfer/
terminal system (for example, at a refinery), the determination of 
whether the mixture is gasohol is made at the time of the taxable 
removal or entry of the mixture.
    (C) If a particular mixture is produced outside of the bulk 
transfer/terminal system (for example, by splash blending after the 
gasoline has been removed from the terminal at the rack), the 
determination of whether the mixture is gasohol is made immediately 
after the mixture is produced. In such a case, the contents of the batch 
typically correspond to a gasoline meter delivery ticket and an alcohol 
meter delivery ticket, each of which shows the number of gallons of 
liquid delivered into the mixture. The volume of each component in a 
batch (without adjustment for temperature) ordinarily is determined by 
the number of metered gallons shown on the delivery tickets for the 
gasoline and alcohol delivered. However, if metered gallons of gasoline 
and alcohol are added to a tank already containing more than a minor 
amount of liquid, the determination of whether a batch satisfies the 
alcohol-content requirement will be made by taking into account the 
amount of alcohol and non-alcohol fuel contained in the liquid already 
in the tank. Ordinarily, any amount in excess of 0.5 percent of the 
capacity of the tank will not be considered minor.
    (ii) 10 percent gasohol--(A) In general. A batch of gasoline/alcohol 
mixture is 10 percent gasohol if it contains at least 9.8 percent 
alcohol by volume, without rounding.
    (B) Batches containing less than 10 percent but at least 9.8 percent 
alcohol. If a batch of mixture contains less than 10 percent alcohol but 
at least 9.8 percent alcohol, without rounding, only a portion of the 
batch is considered to be 10 percent gasohol. That portion equals the 
number of gallons of alcohol in the batch multiplied by 10. Any 
remaining liquid in the mixture is excess liquid.
    (iii) 7.7 percent gasohol--(A) In general. A batch of gasoline/
alcohol mixture is 7.7 percent gasohol if it contains less than 9.8 
percent alcohol but at least 7.55 percent alcohol by volume, without 
rounding.
    (B) Batches containing less than 7.7 percent but at least 7.55 
percent alcohol. If a batch of mixture contains less than 7.7 percent 
alcohol but at least 7.55 percent alcohol, without rounding, only a 
portion of the batch is considered to be 7.7 percent gasohol. That 
portion equals the number of gallons of alcohol in the batch multiplied 
by 12.987. Any remaining liquid in the mixture is excess liquid.
    (iv) 5.7 percent gasohol--(A) In general. A batch of gasoline/
alcohol mixture is 5.7 percent gasohol if it contains less than 7.55 
percent alcohol but at least 5.59 percent alcohol by volume, without 
rounding.
    (B) Batches containing less than 5.7 percent but at least 5.59 
percent alcohol. If a batch of mixture contains less than 5.7 percent 
alcohol but at least 5.59 percent alcohol, without rounding, only a 
portion of the batch is considered to be 5.7 percent gasohol. That 
portion equals the number of gallons of alcohol in the batch multiplied 
by 17.544. Any remaining liquid in the mixture is excess liquid.
    (v) Tax on excess liquid. If tax was imposed on the excess liquid in 
any gasohol at the gasohol production tax rate (as defined in paragraph 
(e)(1) of this section), the excess liquid in the batch is considered to 
be gasoline with respect to which there is a failure to blend into 
gasohol for purposes of paragraph (f) of this section. If tax was 
imposed on the excess liquid at the rate of tax described in section 
4081(a), a credit or refund under section 6427(f) is not allowed with 
respect to the excess liquid.
    (vi) Examples. The following examples illustrate this paragraph 
(b)(2). In these examples, a gasohol blender creates a gasoline/alcohol 
mixture by pumping a specified amount of gasoline into an empty tank and 
then adding a specified amount of alcohol.


[[Page 125]]


    Example 1. Mixtures containing exactly 10 percent alcohol. The 
applicable delivery tickets show that the mixture is made with 7200 
metered gallons of gasoline and 800 metered gallons of alcohol. 
Accordingly, the mixture contains 10 percent alcohol (as determined 
based on the delivery tickets provided to the blender) and qualifies as 
10 percent gasohol.
    Example 2. Mixtures containing less than 10 percent alcohol but at 
least 9.8 percent alcohol. The applicable delivery tickets show that the 
mixture is made with 7205 metered gallons of gasoline and 795 metered 
gallons of alcohol. Because the mixture contains less than 10 percent 
alcohol, but more than 9.8 percent alcohol (as determined based on the 
delivery tickets provided to the blender), 7950 gallons of the mixture 
qualify as 10 percent gasohol. If tax was imposed on the gasoline in the 
mixture at the gasohol production rate applicable to 10 percent gasohol, 
the remaining 50 gallons of the mixture (the excess liquid) are treated 
as gasoline with respect to which there was a failure to blend into 
gasohol for purposes of paragraph (f) of this section. If tax was 
imposed on the gasoline in the mixture at the rate of tax described in 
section 4081(a), a credit or refund under section 6427(f) is allowed 
only with respect to 7155 gallons of gasoline.
    Example 3. Mixtures containing less than 5.59 percent alcohol. The 
applicable delivery tickets show that the mixture is made with 7568 
metered gallons of gasoline and 436 metered gallons of alcohol. Because 
the mixture contains only 5.45 percent alcohol (as determined based on 
the delivery tickets provided to the blender), the mixture does not 
qualify as gasohol.

    (3) Gasohol blender. Gasohol blender means any person that regularly 
produces gasohol outside of the bulk transfer/terminal system for sale 
or use in its trade or business.
    (4) Registered gasohol blender. Registered gasohol blender means a 
person that is registered under section 4101 as a gasohol blender.
    (c) Rate of tax on gasoline removed or entered for gasohol 
production--(1) In general. The rate of tax imposed on gasoline under 
Sec. 48.4081-2(b) (relating to tax imposed at the terminal rack), Sec. 
48.4081-3(b)(1) (relating to tax imposed at the refinery), or Sec. 
48.4081-3(c)(1) (relating to tax imposed on entries) is the gasohol 
production tax rate if--
    (i) The person liable for tax under Sec. 48.4081-2(c)(1) (the 
position holder), Sec. 48.4081-3(b)(3) (the refiner), or Sec. 48.4081-
3(c)(2) (the enterer) is a taxable fuel registrant and a registered 
gasohol blender, and such person produces gasohol with the gasoline 
within 24 hours after removing or entering the gasoline; or
    (ii) The gasoline is sold in connection with the removal or entry, 
the person liable for tax under Sec. 48.4081-2(c)(1) (the position 
holder), Sec. 48.4081-3(b)(3) (the refiner), or Sec. 48.4081-3(c)(2) 
(the enterer) is a taxable fuel registrant and the person, at the time 
of the sale,--
    (A) Has an unexpired certificate (as described in paragraph (c)(2) 
of this section) from the buyer; and
    (B) Has no reason to believe that any information in the certificate 
is false.
    (2) Certificate--(i) In general. The certificate referred to in 
paragraph (c)(1)(ii)(A) of this section is a statement that is to be 
provided by a registered gasohol blender that is signed under penalties 
of perjury by a person with authority to bind the registered gasohol 
blender, is in substantially the same form as the model certificate 
provided in paragraph (c)(2)(ii) of this section, and contains all 
information necessary to complete such model certificate. A new 
certificate must be given if any information in the current certificate 
changes. The certificate may be included as part of any business records 
normally used to document a sale. The certificate expires on the 
earliest of the following dates:
    (A) The date one year after the effective date of the certificate 
(which may be no earlier than the date it is signed).
    (B) The date the registered gasohol blender provides a new 
certificate to the seller.
    (C) The date the seller is notified by the Internal Revenue Service 
or the gasohol blender that the gasohol blender's registration has been 
revoked or suspended.
    (ii) Model certificate.

                Certificate of Registered Gasohol Blender

(To support sales of gasoline at the gasohol production tax rate under 
section 4081(c) of the Internal Revenue Code)

________________________________________________________________________

Name, address, and employer identification number of seller
    -------------------- (Buyer) certifies the following under penalties 
of perjury:
    Buyer is registered as a gasohol blender with registration number --
--------------.

[[Page 126]]

Buyer's registration has not been suspended or revoked by the Internal 
Revenue Service.
    The gasoline bought under this certificate will be used by Buyer to 
produce gasohol (as defined in Sec. 48.4081-6(b) of the Manufacturers 
and Retailers Excise Tax Regulations) within 24 hours after buying the 
gasoline.
    Type of gasohol Buyer will produce (check one only):

------ 10% gasohol
------ 7.7% gasohol
------ 5.7% gasohol

    If the gasohol the Buyer will produce will contain ethanol, check 
here: ------
    This certificate applies to the following (complete as applicable):
    If this is a single purchase certificate, check here ------ and 
enter:
    1. Account number ----------------
    2. Number of gallons ----------------
    If this is a certificate covering all purchases under a specified 
account or order number, check here ------ and enter:
    1. Effective date ----------------
    2. Expiration date ---------------- (period not to exceed 1 year 
after the effective date)
    3. Buyer account or order number ----------------
    Buyer will not claim a credit or refund under section 6427(f) of the 
Internal Revenue Code for any gasoline covered by this certificate.
    Buyer agrees to provide seller with a new certificate if any 
information on this certificate changes.
    Buyer understands that Buyer's registration may be revoked if the 
gasoline covered by this certificate is resold or is used other than in 
Buyer's production of the type of gasohol identified above.
    Buyer will reduce any alcohol mixture credit under section 40(b) by 
an amount equal to the benefit of the gasohol production tax rate under 
section 4081(c) for the gasohol to which this certificate relates.
    Buyer understands that the fraudulent use of this certificate may 
subject Buyer and all parties making any fraudulent use of this 
certificate to a fine or imprisonment, or both, together with the costs 
of prosecution.

________________________________________________________________________

Printed or typed name of person signing

________________________________________________________________________

Title of person signing

________________________________________________________________________

Employer identification number

________________________________________________________________________

Address of Buyer

________________________________________________________________________

Signature and date signed

    (iii) Use of Form 637 or letter of registration as a gasohol 
blender's certificate prohibited. A copy of the certificate of registry 
(Form 637) or letter of registration issued to a gasohol blender by the 
Internal Revenue Service is not a gasohol blender's certificate 
described in paragraph (c)(2)(ii) of this section.
    (d) Rate of tax on gasohol removed or entered. The rate of tax 
imposed on removals or entries of any gasohol under Sec. Sec. 48.4081-
2(b), 48.4081-3(b)(1), and 48.4081-3(c)(1) is the gasohol tax rate. The 
rate of tax imposed on removals and entries of excess liquid described 
in paragraph (b)(2) of this section is the rate of tax applicable to 
gasoline under section 4081(a).
    (e) Tax rates--(1) Gasohol production tax rate. The gasohol 
production tax rate is the applicable rate of tax determined under 
section 4081(c)(2)(A).
    (2) Gasohol tax rate. The gasohol tax rate is the applicable alcohol 
mixture rate determined under section 4081(c)(4)(A).
    (f) Later separation and failure to blend--(1) Later separation--(i) 
Imposition of tax. A tax is imposed on the removal or sale of gasoline 
separated from gasohol with respect to which tax was imposed at a rate 
described in paragraph (e) of this section or with respect to which a 
credit or payment was allowed or made by reason of section 6427(f)(1).
    (ii) Liability for tax. The person that owns the gasohol at the time 
gasoline is separated from the gasohol is liable for the tax imposed 
under paragraph (f)(1)(i) of this section.
    (iii) Rate of tax. The rate of tax imposed under paragraph (f)(1)(i) 
of this section is the difference between the rate of tax applicable to 
gasoline not described in this section and the applicable gasohol 
production tax rate.
    (2) Failure to blend--(i) Imposition of tax. Tax is imposed on the 
entry, removal, or sale of gasoline (including excess liquid described 
in paragraph (b)(2) of this section) with respect to which tax was 
imposed at a gasohol production tax rate if--
    (A) The gasoline was not blended into gasohol; or
    (B) The gasoline was blended into gasohol but the gasohol production 
tax rate applicable to the type of gasohol produced is greater than the 
rate of tax originally imposed on the gasoline.

[[Page 127]]

    (ii) Liability for tax. (A) In the case of gasoline with respect to 
which tax was imposed at the gasohol production tax rate under paragraph 
(c)(1)(i) of this section, the person liable for the tax imposed by 
paragraph (f)(2)(i) of this section is the person that was liable for 
tax on the entry or removal.
    (B) In the case of gasoline with respect to which tax was imposed at 
the gasohol production tax rate under paragraph (c)(1)(ii) of this 
section, the person that bought the gasoline in connection with the 
entry or removal is liable for the tax imposed under paragraph (f)(2)(i) 
of this section.
    (iii) Rate of tax. The rate of tax imposed on gasoline described in 
paragraph (f)(2)(i)(A) of this section is the difference between the 
rate of tax applicable to gasoline not described in this section and the 
rate of tax previously imposed on the gasoline. The rate of tax imposed 
on gasoline described in paragraph (f)(2)(i)(B) of this section is the 
difference between the gasohol production tax rate applicable to the 
type of gasohol produced and the rate of tax previously imposed on the 
gasoline.
    (iv) Example. The following example illustrates this paragraph 
(f)(2):

    Example. (i) A registered gasohol blender bought gasoline in 
connection with a removal described in paragraph (c)(1)(ii) of this 
section. Based on the blender's certification (described in paragraph 
(c)(2) of this section) that the blender would produce 10 percent 
gasohol with the gasoline, tax at the gasohol production tax rate 
applicable to 10 percent gasohol was imposed on the removal.
    (ii) The blender then produced a mixture by splash blending in a 
tank holding approximately 8000 gallons of mixture. The applicable 
delivery tickets show that the mixture was blended by first pumping 7220 
metered gallons of gasoline into the empty tank, and then pumping 780 
metered gallons of alcohol into the tank. Because the mixture contains 
9.75 percent alcohol (as determined based on the delivery tickets 
provided to the blender) the entire mixture qualifies as 7.7 percent 
gasohol, rather than 10 percent gasohol.
    (iii) Because the 7220 gallons of gasoline were taxed at the gasohol 
production tax rate applicable to 10 percent gasohol but the gasoline 
was blended into 7.7 percent gasohol, a failure to blend has occurred 
with respect to the gasoline. As the person that bought the gasoline in 
connection with the taxable removal, the blender is liable for the tax 
imposed under paragraph (f)(2)(i) of this section. The amount of tax 
imposed is the difference between--

    (A) 7220 gallons times the gasohol production tax rate applicable to 
7.7 percent gasohol; and

    (B) 7220 gallons times the gasohol production tax rate applicable to 
10 percent gasohol.

    (iv) Because the gasohol does not contain exactly 7.7 percent 
alcohol, the benefit of the gasohol production tax rate with respect to 
the alcohol is less than the amount of the alcohol mixture credit under 
section 40(b) (determined before the application of section 40(c)). 
Accordingly, the blender may be entitled to claim an alcohol mixture 
credit for the alcohol used in the gasohol. Under section 40(c), 
however, the amount of the alcohol mixture credit must be reduced to 
take into account the benefit provided with respect to the alcohol by 
the gasohol production tax rate.

    (g) Effective date. This section is effective August 7, 1995.

[T.D. 8609, 60 FR 40082, Aug. 7, 1995, as amended by T.D. 8659, 61 FR 
10457, Mar. 14, 1996; T.D. 8879, 65 FR 17157, Mar. 31, 2000]



Sec. 48.4081-7  Taxable fuel; conditions for refunds of taxable fuel tax under section 4081(e).

    (a) Overview. This section provides reporting requirements and other 
conditions that a person paying tax to the government under section 4081 
must satisfy to receive a refund (but not a credit) under section 
4081(e) with respect to taxable fuel on which a prior tax was paid to 
the government under section 4081. No credit against any tax imposed 
under the Internal Revenue Code is allowed under this section.
    (b) Conditions to allowance of refund. A claim for refund of tax 
imposed by section 4081 with respect to taxable fuel is allowed under 
section 4081(e) and this section only if--
    (1) A tax imposed by section 4081 with respect to the taxable fuel 
was paid to the government and not credited or refunded (the ``first 
tax'');
    (2) After imposition of the first tax, another tax was imposed by 
section 4081 with respect to the same taxable fuel and was also paid to 
the government (the ``second tax'');
    (3) The person that paid the second tax to the government has filed 
a timely claim for refund that contains the information required under 
paragraph (d) of this section; and

[[Page 128]]

    (4) The person that paid the first tax to the government has met the 
reporting requirements of paragraph (c) of this section.
    (c) Reporting requirements--(1) Reporting by persons paying the 
first tax. Except as provided in paragraph (c)(3) of this section, the 
person that paid the first tax under Sec. 48.4081-3 (the first 
taxpayer) must file a report that is in substantially the same form as 
the model report provided in paragraph (c)(2) of this section (or such 
other model report as the Commissioner may prescribe) and contains all 
information necessary to complete such model report (the first 
taxpayer's report). A first taxpayer's report must be filed with the 
return to which the report relates (or at such other time, or in such 
other manner, as prescribed by the Commissioner).
    (2) Model first taxpayer's report.

                         First Taxpayer's Report

1.______________________________________________________________________
________________________________________________________________________

First Taxpayer's name, address, and employer identification number

2.______________________________________________________________________
________________________________________________________________________

Name, address, and employer identification number of the buyer of the 
taxable fuel subject to tax

3.______________________________________________________________________

    Date and location of removal, entry, or sale

4.______________________________________________________________________

    Volume and type of taxable fuel removed, entered, or sold

5. Check type of taxable event:
    ---------- Removal from refinery
    ---------- Entry into United States
    ---------- Bulk transfer from terminal by unregistered position 
holder
    ---------- Bulk transfer not received at an approved terminal
    ---------- Sale within the bulk transfer/terminal system
    ---------- Removal at the terminal rack
    ---------- Removal or sale by the blender

6.______________________________________________________________________

    Amount of Federal excise tax paid on account of the removal, entry, 
or sale

    The undersigned taxpayer (the ``Taxpayer'') has not received, and 
will not claim, a credit with respect to, or a refund of, the tax on the 
taxable fuel to which this form relates.
    Under penalties of perjury, the Taxpayer declares that Taxpayer has 
examined this statement, including any accompanying schedules and 
statements, and, to the best of Taxpayer's knowledge and belief, they 
are true, correct and complete.

________________________________________________________________________

Signature and date signed

________________________________________________________________________

Printed or typed name of person signing this report

________________________________________________________________________

Title

    (3) Optional reporting for certain taxable events. Paragraph (c)(1) 
of this section does not apply with respect to a tax imposed under Sec. 
48.4081-2 (removal at a terminal rack), Sec. 48.4081-3(c)(1)(ii) 
(nonbulk entries into the United States), or Sec. 48.4081-3(g) 
(removals or sales by blenders). However, if the person liable for the 
tax expects that another tax will be imposed under section 4081 with 
respect to the taxable fuel, that person should (but is not required to) 
file a first taxpayer's report.
    (4) Information provided to subsequent owners, etc.--(i) By person 
required to file first taxpayer's report. A first taxpayer required to 
file a first taxpayer's report under paragraph (c)(1) of this section 
must give a copy of the report to--
    (A) The person to whom the first taxpayer sells (within the meaning 
of Sec. 48.4081-1)) the taxable fuel within the bulk transfer/terminal 
system; or
    (B) The owner of the taxable fuel immediately before the imposition 
of the first tax, if the first taxpayer is not the owner at that time.
    (ii) By person filing optional first taxpayer's report. A first 
taxpayer filing a first taxpayer's report under paragraph (c)(3) of this 
section should (but is not required to) give a copy of the report to--
    (A) The person to whom the first taxpayer sells the taxable fuel; or
    (B) The owner of the taxable fuel immediately before the imposition 
of the first tax, if the first taxpayer is not the owner at that time.
    (iii) By person receiving first taxpayer's report. A person that 
receives a copy of the first taxpayer's report and subsequently sells 
(within the meaning of Sec. 48.4081-1)) the taxable fuel within the 
bulk transfer/terminal system must give the copy and a statement that 
satisfies the requirements of paragraph (c)(4)(iv) of this section to 
the buyer. A

[[Page 129]]

person that receives a copy of the first taxpayer's report and 
subsequently sells the taxable fuel outside the bulk transfer/terminal 
system should (but is not required to) give the copy and a statement 
that satisfies the requirements of paragraph (c)(4)(iv) of this section 
to the buyer, if that person expects that another tax will be imposed 
under section 4081 with respect to the taxable fuel.
    (iv) Form of statement--(A) In general. A statement satisfies the 
requirements of this paragraph (c)(4)(iv) if it is provided at the 
bottom or on the back of the copy of the first taxpayer's report (or in 
an attached document). This statement must contain all information 
necessary to complete the model statement provided in paragraph 
(c)(4)(iv)(B) of this section (or such other model statement as the 
Commissioner may prescribe) but need not be in the same format.
    (B) Model statement describing subsequent sale.

                     Statement of Subsequent Seller

1.______________________________________________________________________

________________________________________________________________________

Name, address, and employer identification number of seller in 
subsequent sale

2.______________________________________________________________________

________________________________________________________________________

Name, address, and employer identification number of buyer in subsequent 
sale

3.______________________________________________________________________

Date and location of subsequent sale

4.______________________________________________________________________

Volume and type of taxable fuel sold
    The undersigned seller (the ``Seller'') has received the copy of the 
first taxpayer's report provided with this statement in connection with 
Seller's purchase of the taxable fuel described in this statement.
    Under penalties of perjury, Seller declares that Seller has examined 
this statement, including any accompanying schedules and statements, 
and, to the best of Seller's knowledge and belief, they are true, 
correct and complete.

________________________________________________________________________

Signature and date signed

________________________________________________________________________

Printed or typed name of person signing this statement

________________________________________________________________________

Title

    (v) Sale to multiple buyers. If the first taxpayer's report relates 
to taxable fuel divided among more than one buyer, multiple copies of 
the first taxpayer's report must be made at the stage that the taxable 
fuel is divided and each buyer must be given a copy of the report.
    (d) Form and content of claim--(1) In general. The following rules 
apply to claims for refund under section 4081(e):
    (i) The claim must be made by the person that paid the second tax to 
the government and must include all the information described in 
paragraph (d)(2) of this section.
    (ii) The claim must be made on Form 8849 (or such other form as the 
Commissioner may designate) in accordance with the instructions on the 
form. The form should be marked Section 4081(e) Claim at the top. 
Section 4081(e) claims must not be included with a claim for a refund 
under any other provision of the Internal Revenue Code.
    (2) Information to be included in the claim. Each claim for a refund 
under section 4081(e) must contain the following information with 
respect to the taxable fuel covered by the claim:
    (i) Volume and type of taxable fuel.
    (ii) Date on which the claimant incurred the tax liability to which 
this claim relates (the second tax).
    (iii) Amount of second tax that claimant paid to the government and 
a statement that claimant has not included the amount of this tax in the 
sales price of the taxable fuel to which this claim relates and has not 
collected that amount from the person that bought the taxable fuel from 
claimant.
    (iv) Name, address, and employer identification number of the person 
that paid the first tax to the government.
    (v) A copy of the first taxpayer's report that relates to the 
taxable fuel covered by the claim.
    (vi) If the taxable fuel covered by the claim was bought other than 
from the first taxpayer, a copy of the statement of subsequent seller 
that the claimant received with respect to that taxable fuel.
    (e) Time for filing claim. A claim for refund under section 4081(e) 
may be filed any time after the claimant has filed the return of the 
second tax and

[[Page 130]]

before the end of the period prescribed by section 6511 for the filing 
of a claim for a refund.
    (f) Examples. The following examples illustrate the provisions of 
this section.

    Example 1. (i) A is a taxable fuel registrant that owns 10,000 
gallons of gasoline, and on April 5, 1996, is transporting the gasoline 
by barge on a waterway in the United States. That day, A sells the 
gasoline to B, a person that is not a taxable fuel registrant. A is 
liable for tax on the sale under Sec. 48.4081-3(f). A pays this tax to 
the government and attaches to its return of the gasoline tax for the 
2nd quarter of 1996 the first taxpayer's report described in paragraph 
(c) of this section. A also gives a copy of this report to B.
    (ii) On April 9, 1996, B sells the gasoline to C, a taxable fuel 
registrant. B also gives C a copy of the first taxpayer's report and the 
statement of subsequent seller (required under paragraph (c)(4) of this 
section). On April 14, 1996, the gasoline is removed from a terminal at 
the rack. C is the position holder of the gasoline at the time of the 
removal and thus is liable for tax on the removal under Sec. 48.4081-
2(c)(1). C pays this tax to the government.
    (iii) After C has filed a return of the second tax and before the 
end of the period prescribed by section 6511 for filing a claim for a 
refund, C files a claim for a refund of the second tax. The claim is in 
the form prescribed in paragraph (d)(2) of this section. C includes with 
its claim a copy of the first taxpayer's report and statement of 
subsequent seller. Because the conditions to allowance of a refund under 
paragraph (b) of this section have been met, C is allowed a refund of 
the second tax.
    Example 2. The facts are the same as in Example 1 except that A does 
not pay the tax to the government. Because the first tax was not paid to 
the government as required by paragraph (b)(1) of this section, the 
conditions to allowance of a refund under paragraph (b) of this section 
have not been met. Therefore, C is not allowed a refund of the second 
tax.

    (g) Effective date. This section is effective in the case of taxable 
fuel with respect to which the first tax is imposed after September 30, 
1995.

[T.D. 8421, 57 FR 32424, July 22, 1992, as amended by T.D. 8609, 60 FR 
40086, Aug. 7, 1995; T.D. 8659, 61 FR 10457, Mar. 14, 1996; T.D. 8879, 
65 FR 17157, Mar. 31, 2000]



Sec. 48.4081-8  Taxable fuel; measurement.

    (a) In general. Volumes of taxable fuel may be measured on the basis 
of actual volumetric gallons or gallons adjusted to 60 degrees 
Fahrenheit.
    (b) Effective date. This section is applicable January 1, 1994.

[66 FR 27597, May 18, 2001]



Sec. 48.4082-1  Diesel fuel and kerosene; exemption for dyed fuel.

    (a) Exemption. Tax is not imposed by section 4081 on the removal, 
entry, or sale of any diesel fuel or kerosene if--
    (1) The person otherwise liable for tax is a taxable fuel 
registrant;
    (2) In the case of a removal from a terminal, the terminal is an 
approved terminal; and
    (3) The diesel fuel or kerosene satisfies the dyeing and marking 
requirements of paragraphs (b), (c), and (d) of this section.
    (b) Dyeing requirements. Diesel fuel or kerosene satisfies the 
dyeing requirement of this paragraph (b) only if the diesel fuel or 
kerosene contains--
    (1) The dye Solvent Red 164 (and no other dye) at a concentration 
spectrally equivalent to at least 3.9 pounds of the solid dye standard 
Solvent Red 26 per thousand barrels of diesel fuel or kerosene; or
    (2) Any dye of a type and in a concentration that has been approved 
by the Commissioner.
    (c) Marking requirements. [Reserved]
    (d) [Reserved]. For further guidance, see Sec. 48.4082-1T(d).
    (e) Effective date--(1) Except as provided in paragraph (e)(2) of 
this section, this section is applicable March 14, 1996.
    (2) [Reserved] For further guidance, see Sec. 48.4082-1T(e)(2).

[T.D. 8659, 61 FR 10457, Mar. 14, 1996, as amended by T.D. 8879, 65 FR 
17157, Mar. 31, 2000; T.D. 9199, 70 FR 21333, Apr. 26, 2005]



Sec. 48.4082-1T  Diesel fuel and kerosene; exemption for dyed fuel (temporary).

    (a) through (c) [Reserved]. For further guidance, see Sec. 48.4082-
1(a) through (c).
    (d) Time and method for adding dye--(1) In general. Except as 
provided by paragraph (d)(6) of this section, diesel fuel or kerosene 
satisfies the dyeing requirements of this paragraph (d) only if the dye 
required by Sec. 48.4082-1(b) is

[[Page 131]]

combined with the diesel fuel or kerosene by means of a mechanical 
injection system that is approved by the Commissioner for use at the 
facility where the dyeing occurs. Application for approval must be made 
in the form and manner required by the Commissioner. Rules similar to 
the rules of Sec. 48.4101-1(g) apply to the Commissioner's action on 
the applications.
    (2) Mechanical injection system; requirements. The Commissioner will 
approve a mechanical injection system only if--
    (i) The system has features that automatically inject an amount of 
dye that satisfies the concentration requirements of Sec. 48.4082-1(b) 
into diesel fuel or kerosene as the diesel fuel or kerosene is delivered 
from the bulk transfer/terminal system into the transport compartment of 
a truck, trailer, railroad car, or other means of nonbulk transfer;
    (ii) The system has calibrated devices that accurately measure and 
record the amount of dye and the amount of diesel fuel and kerosene that 
is dispensed for each removal;
    (iii) The system has automatic shut-off devices that prevent the 
removal of more than 100 gallons of undyed diesel fuel or kerosene in 
the case of a system malfunction;
    (iv) The system is secured by either--
    (A) Unbroken seals that are issued, installed, and maintained by the 
terminal operator and secure the measurement devices, shut-off devices, 
and other access points to the injection system; or
    (B) A secured container that controls access to the measurement 
devices, shut-off devices, and other access points and is secured by an 
unbroken seal issued, installed, and maintained by the terminal 
operator;
    (v) Each seal securing the system bears a unique identifying number 
or code and is produced in a manner that provides adequate assurance 
against duplication; and
    (vi) The operator of the facility has written procedures in place 
for complying with its duty, described in paragraph (d)(4) of this 
section, to maintain the system's security standards.
    (3) Mechanical injection system; basis for approval. In determining 
whether to approve a mechanical injection system, the Commissioner will 
take into account the individual circumstances of each facility, 
including local fire and safety codes, to ensure that the cost of 
acquiring and maintaining the appropriate levels of security are 
reasonable for that facility.
    (4) Mechanical injection system; duty of the operator of a 
mechanical injection system to maintain the system's security standards. 
Each operator of a mechanical injection system must--
    (i) Maintain a record for each seal, including its identifying 
number or code, the location of the seal, the date(s) on which the seal 
was issued and installed, and the reason for the installation;
    (ii) Visually inspect each installed seal not less than once during 
every 24 hour period to ascertain that each seal and lock mechanism, if 
applicable, has not been physically altered;
    (iii) Check the identifying number or code for each seal against the 
records maintained by the terminal operator no less frequently than once 
during each seven day period and record each inspection and 
verification;
    (iv) Promptly notify the Commissioner if inspection of a seal 
reveals any inconsistency in the records pertaining to that seal, or if 
the seal has been damaged or removed (other than a removal authorized by 
the operator for testing or maintenance);
    (v) Maintain a record of each seal that has been replaced to include 
the seal number or code, the date the seal was issued, the location of 
the seal, the date the seal was replaced, and the reason the seal was 
replaced;
    (vi) Promptly destroy and replace seals that have been removed from 
the system;
    (vii) Restrict access to unused seal inventory to individuals 
specifically designated by the operator and maintain a record of such 
individuals;
    (viii) Maintain a record of each installation, inspection, and 
destruction described in this paragraph (d)(4), including the name of 
the individual who conducts the installation, inspection, or 
destruction;
    (ix) Make available for the Commissioner's immediate inspection the 
seals

[[Page 132]]

and records described in this paragraph (d)(4); and
    (x) Promptly notify the Commissioner if, and when, the dye injection 
system is placed out of service.
    (5) Mechanical injection system; revocation or suspension of 
approval. The Commissioner may revoke or suspend its approval of a dye 
injection system if the Commissioner determines that the system does not 
meet the standards of paragraph (d)(2) of this section or if the 
operator of the system has not complied with the requirements of 
paragraph (d)(4) of this section.
    (6) Sales and entries. For purposes of determining whether tax is 
imposed by section 4081 on a sale or entry of diesel fuel or kerosene, 
such fuel satisfies the dyeing requirements of this paragraph (d) only 
if the dye required by Sec. 48.4082-1(b) is combined with the fuel 
before the sale or entry and the seller or enterer has in its records 
evidence (such as a certificate from the terminal operator providing the 
fuel) establishing that the dye was combined with the fuel by means of a 
mechanical injection system. Thus, for example, diesel fuel or kerosene 
that is entered into the United States by means of nonbulk transfer 
(such as a railroad car) does not satisfy the requirements of this 
paragraph (d) if the required dye and marker are combined with diesel 
fuel or kerosene after the diesel fuel or kerosene has been entered into 
the United States.
    (7) Cross reference. For the penalty relating to mechanical dye 
injection systems, see section 6715A.
    (e) and (e)(1) [Reserved]. For further guidance, see Sec. 48.4082-
1(e) and (e)(1).
    (2) This section is applicable on October 24, 2005.

[T.D. 9199, 70 FR 21333, Apr. 26, 2005]



Sec. 48.4082-2  Diesel fuel and kerosene; notice required for dyed fuel.

    (a) In general. A legible and conspicuous notice stating ``DYED 
DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE'' must be 
posted by a seller on any retail pump or other delivery facility where 
it sells dyed diesel fuel for use by its buyer. A legible and 
conspicuous notice stating ``DYED KEROSENE, NONTAXABLE USE ONLY, PENALTY 
FOR TAXABLE USE'' must be posted by a seller on any retail pump or other 
delivery facility where it sells dyed kerosene for use by its buyer. Any 
seller that fails to post the required notice on any retail pump or 
other delivery facility where it sells dyed fuel is, for purposes of the 
penalty imposed by section 6715, presumed to know that the fuel will not 
be used for a nontaxable use.
    (b) Cross reference; terminal operators. For the requirement that 
terminal operators provide a notice with respect to dyed fuel, see Sec. 
48.4101-1(h)(3) (relating to terms and conditions of registration for 
terminal operators).
    (c) Effective date. This section is applicable with respect to 
diesel fuel after December 31, 1993, and with respect to kerosene after 
June 30, 1998.

[T.D. 8879, 65 FR 17157, Mar. 31, 2000]



Sec. 48.4082-3  Diesel fuel and kerosene; visual inspection devices. [Reserved]



Sec. 48.4082-4  Diesel fuel and kerosene; back-up tax.

    (a) Imposition of tax--(1) In general. Tax is imposed by section 
4041 on the delivery into the fuel supply tank of the propulsion engine 
of a diesel-powered highway vehicle (other than a diesel-powered bus) 
of--
    (i) Any diesel fuel or kerosene on which tax has not been imposed by 
section 4081;
    (ii) Any diesel fuel or kerosene for which a credit or payment has 
been allowed under section 6427; or
    (iii) Any liquid (other than taxable fuel) for use as fuel.
    (2) Liability for tax--(i) In general. The operator of the highway 
vehicle into which the fuel is delivered is liable for the tax imposed 
under paragraph (a)(1) of this section.
    (ii) Joint and several liability of the seller. The seller of the 
fuel is jointly and severally liable for the tax imposed under paragraph 
(a)(1) of this section if the seller knows or has reason to know that 
the fuel will not be used in a nontaxable use.
    (3) Rate of tax. The rate of tax is the rate imposed on diesel fuel 
by section 4081(a).
    (b) Tax on diesel fuel and kerosene; buses and trains--(1) In 
general. Tax is

[[Page 133]]

imposed by section 4041 on the delivery into the fuel supply tank of the 
propulsion engine of a diesel-powered bus or a diesel-powered train of--
    (i) Any diesel fuel or kerosene on which tax has not been imposed by 
section 4081;
    (ii) Any diesel fuel or kerosene for which a credit or payment has 
been allowed under section 6427; or
    (iii) Any liquid (other than taxable fuel) for use as fuel.
    (2) Liability for tax--(i) In general. Except as provided in 
paragraph (b)(2)(ii) of this section, the operator of the bus or train 
into which the fuel is delivered is liable for the tax imposed under 
paragraph (b)(1) of this section.
    (ii) Special rule for certain train operators. The person that 
delivers the fuel into the fuel supply tank of a train, rather than the 
train operator, is liable for the tax imposed under paragraph (b)(1) of 
this section if, at the time of the delivery--
    (A) The deliverer of the fuel and the operator of the train are both 
registered as train operators under Sec. 48.4101-1; and
    (B) A written agreement between the deliverer of the fuel and the 
operator requires the deliverer to pay the tax imposed under paragraph 
(b)(1) of this section.
    (3) Rate of tax--(i) Buses--(A) In general. The rate of tax under 
paragraph (b)(1) of this section is the sum of the rates described in 
sections 4041(a)(1)(C)(iii)(I) and 4041(d)(1) (the bus rate) if the bus 
is used to furnish (for compensation) passenger land transportation 
available to the general public and either such transportation is 
scheduled and along regular routes or the seating capacity of the bus is 
at least 20 adults (not including the driver). A bus is available to the 
general public if the bus is available for hire to more than a limited 
number of persons, groups, or organizations.
    (B) Other uses. The rate of tax under paragraph (b)(1) of this 
section is the rate of tax imposed on diesel fuel by section 4081(a) if 
the bus is used for a purpose other than that described in paragraph 
(b)(3)(i)(A) of this section.
    (ii) Trains. The rate of tax under paragraph (b)(1) of this section 
is the rate prescribed in section 4041 for diesel fuel sold for use in a 
train (the train rate).
    (4) Cross reference. For the registration requirement relating to 
certain bus and train operators, see Sec. 48.4101-1(c)(2).
    (c) Exemptions. The taxes imposed under paragraphs (a) and (b) of 
this section do not apply to a delivery of any liquid for--
    (1) Use on a farm for farming purposes as that term and related 
terms are defined in Sec. 48.6420-4 (a) through (g);
    (2) The exclusive use of a State;
    (3) Use described in section 4041(h) (relating to use in a vehicle 
owned by an aircraft museum);
    (4) Use in a bus while the bus is engaged in the transportation of 
students and employees of schools (as defined in the last sentence of 
section 4221(d)(7)(C));
    (5) Use in a qualified local bus (as defined in section 
6427(b)(2)(D)) while the bus is engaged in furnishing (for compensation) 
intracity passenger land transportation that is available to the general 
public and is scheduled and along regular routes;
    (6) Use in a highway vehicle that--
    (i) Is not registered (and is not required to be registered) for 
highway use under the laws of any State or foreign country; and
    (ii) Is used in the operator's trade or business or in an activity 
of the operator described in section 212 (relating to the production of 
income);
    (7) The exclusive use of a nonprofit educational organization, as 
defined in Sec. 48.4221-6(b); or
    (8) Use in a highway vehicle that is owned by the United States and 
is not used on the highway.
    (d) Effective date. This section is applicable after December 31, 
1993, except that references to kerosene are applicable after June 30, 
1998.

[T.D. 8659, 61 FR 10458, Mar. 14, 1996, as amended by T.D. 8879, 65 FR 
17157, Mar. 31, 2000]



Sec. 48.4082-5  Diesel fuel and kerosene; Alaska.

    (a) Application. This section applies to diesel fuel or kerosene 
removed, entered, or sold in Alaska for ultimate sale or use in an 
exempt area of Alaska.

[[Page 134]]

    (b) Definitions.
    Exempt area of Alaska means the area of Alaska in which the sulfur 
content requirements for diesel fuel (see section 211(i) of the Clean 
Air Act (42 U.S.C. 7545(i))) do not apply because the Administrator of 
the Environmental Protection Agency has granted an exemption under 
section 211(i)(4) of that Act.
    Nontaxable use means a use described in section 4082(b).
    Qualified dealer means any person that holds a qualified dealer 
license from the state of Alaska or has been registered by the district 
director as a qualified retailer. The district director will register a 
person as a qualified retailer only if the district director--
    (1) Determines that the person, in the course of its trade or 
business, regularly sells diesel fuel or kerosene for use by its buyer 
in a nontaxable use; and
    (2) Is satisfied with the filing, deposit, payment, and claim 
history for all federal taxes of the person and any related person.
    (c) Tax-free removals and entries. Notwithstanding Sec. 48.4082-1, 
tax is not imposed by section 4081 on the removal or entry of any diesel 
fuel or kerosene in an exempt area of Alaska if--
    (1) The person that would be liable for tax under Sec. 48.4081-2 or 
48.4081-3 is a taxable fuel registrant and satisfies the requirements of 
paragraph (e) of this section;
    (2) In the case of a removal from a terminal, the terminal is an 
approved terminal; and
    (3) The owner of the diesel fuel or kerosene immediately after the 
removal or entry holds the fuel for its own use in a nontaxable use or 
is a qualified dealer.
    (d) Sales after removals and entries--(1) In general. Paragraph (c) 
of this section does not apply with respect to diesel fuel or kerosene 
that is subsequently sold by a qualified dealer unless--
    (i) The fuel is sold in an exempt area of Alaska;
    (ii) The buyer purchases the fuel for its own use in a nontaxable 
use or is a qualified dealer; and
    (iii) The seller satisfies the requirements of paragraph (e) of this 
section.
    (2) Tax imposed at time of sale; liability for tax. Notwithstanding 
Sec. Sec. 48.4081-2 and 48.4081-3, in any case in which paragraph (c) 
of this section does not apply with respect to diesel fuel or kerosene 
because of a subsequent sale by a qualified dealer, the tax with respect 
to that fuel is imposed at the time of the subsequent sale and the 
qualified dealer is liable for the tax.
    (3) Rate of tax. For the rate of tax, see section 4081.
    (e) Evidence of tax-free transactions. The requirements of section 
4082(c)(2) (relating to certification) and this paragraph (e) are 
satisfied if the person otherwise liable for tax is able to show the 
district director satisfactory evidence of the exempt nature of the 
transaction and has no reason to believe that the evidence is false. 
Satisfactory evidence may include copies of qualified dealer licenses or 
exemption certificates obtained for state tax purposes.
    (f) Registration. With respect to each person that has been 
registered as a qualified retailer by the district director, the rules 
of Sec. 48.4101-1(g), (h), and (i) apply.
    (g) Cross reference. For the tax on previously untaxed diesel fuel 
or kerosene that is used for a taxable purpose, see Sec. 48.4082-4.
    (h) Effective date. This section is applicable with respect to 
diesel fuel removed or entered after December 31, 1996, and with respect 
to kerosene removed or entered after June 30, 1998. A person registered 
by the district director as a qualified retailer before April 2, 1998 
may be treated, to the extent the district director determines 
appropriate, as a qualified dealer for the period before that date.

[T.D. 8693, 61 FR 66216, Dec. 17, 1996. Redesignated and amended by T.D. 
8748, 63 FR 25, Jan. 2, 1998; T.D. 8879, 65 FR 17157, Mar. 31, 2000]



Sec. 48.4082-6  Kerosene; exemption for aviation-grade kerosene.

    (a) Overview. This section prescribes the conditions under which tax 
does not apply to the removal or entry of aviation-grade kerosene that 
is destined for use as a fuel in an aircraft.
    (b) Definition. For purposes of this section, aviation-grade 
kerosene means

[[Page 135]]

kerosene-type jet fuel covered by ASTM specification D 1655 or military 
specification MIL-DTL-5624T (Grade JP-5) or MIL-DTL-83133E (Grade JP-8). 
For availability of ASTM and military specifications, see Sec. 48.4081-
1(d).
    (c) Exemption for certain removals and entries. Tax is not imposed 
under Sec. 48.4081-2(b), 48.4081-3(b)(1)(ii), or 48.4081-3(c)(1)(ii) on 
the removal or entry of aviation-grade kerosene if--
    (1) The person otherwise liable for tax is a taxable fuel 
registrant;
    (2) In the case of a removal from a terminal, the terminal is an 
approved terminal; and
    (3)(i) The person otherwise liable for tax delivers the kerosene 
into the fuel supply tank of an aircraft and this delivery is not in 
connection with a sale; or
    (ii) The kerosene is sold for use as a fuel in an aircraft and, at 
the time of the sale, the person otherwise liable for tax has an 
unexpired certificate (described in paragraph (e) of this section) from 
the buyer and has no reason to believe any information in the 
certificate is false.
    (d) Certain later sales--(1) In general. Paragraph (c) of this 
section does not apply with respect to kerosene that is sold as 
described in paragraph (c)(3)(ii) of this section if there is a later 
disqualifying sale of the kerosene. A later disqualifying sale is any 
later sale other than a later sale--
    (i) By a person that, at the time of the sale, has an unexpired 
certificate (described in paragraph (e) of this section) from the buyer 
and has no reason to believe that any information in the certificate is 
false; or
    (ii) In connection with the delivery of the kerosene into the fuel 
supply tank of an aircraft.
    (2) Imposition of tax; liability for tax. Notwithstanding Sec. Sec. 
48.4081-2 and 48.4081-3, in any case in which paragraph (d)(1) of this 
section applies, tax is imposed with respect to that kerosene at the 
time of the first later disqualifying sale and the seller in that sale 
is liable for the tax.
    (3) Rate of tax. For the rate of tax, see section 4081.
    (e) Certificate--(1) In general. The certificate described in this 
paragraph (e) is a statement by a buyer that is signed under penalties 
of perjury by a person with authority to bind the buyer, is in 
substantially the same form as the model certificate provided in 
paragraph (e)(3) of this section, and contains all information necessary 
to complete the model certificate. A new certificate or notice that the 
current certificate is invalid must be given if any information in the 
current certificate changes. The certificate may be included as part of 
any business records normally used to document a sale. The certificate 
expires on the earliest of the following dates:
    (i) The date one year after the effective date of the certificate 
(which may be no earlier than the date it is signed).
    (ii) The date the buyer provides the seller a new certificate or 
notice that the current certificate is invalid.
    (iii) The date the Internal Revenue Service or the buyer notifies 
the seller that the buyer's right to provide a certificate has been 
withdrawn.
    (2) Withdrawal of the right to provide a certificate. The Internal 
Revenue Service may withdraw the right of a buyer of aviation-grade 
kerosene to provide a certificate under this section if the buyer uses 
the aviation-grade kerosene to which a certificate relates other than as 
a fuel in an aircraft or sells the kerosene without first obtaining a 
certificate from its buyer. The Internal Revenue Service may notify any 
seller to whom the buyer has provided a certificate that the buyer's 
right to provide a certificate has been withdrawn.
    (3) Model certificate.

 CERTIFICATE OF PERSON BUYING AVIATION-GRADE KEROSENE FOR USE AS A FUEL 
                             IN AN AIRCRAFT

  (To support tax-free removals and entries of aviation-grade kerosene 
            under section 4082 of the Internal Revenue Code.)

----------(Buyer) certifies the following
Name of Buyer

    under penalties of perjury:
    The aviation-grade kerosene to which this certificate applies will 
be used by Buyer as a fuel in an aircraft or resold by Buyer for that 
use.
    This certificate applies to -------- percent of Buyer's purchases 
from ------------------------ (name, address, and employer 
identification number of seller) as follows (complete as applicable):
    1. A single purchase on invoice or delivery ticket number ----------
--.

[[Page 136]]

    2. All purchases between ------------ (effective date) and --------
---- (expiration date) (period not to exceed one year after the 
effective date) under account or order number(s) ------------. If this 
certificate applies only to Buyer's purchases for certain locations, 
check here -------- and list the locations.

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

    Buyer is buying the kerosene for (check either or both as 
applicable): ---- Buyer's use as a fuel in an aircraft. ---- Resale for 
use as a fuel in an aircraft.
    Buyer will provide a new certificate to the seller if any 
information in this certificate changes.
    If Buyer sells the aviation-grade kerosene to which this certificate 
relates and does not deliver it into the fuel supply tank of an 
aircraft, Buyer will be liable for tax unless Buyer obtains a 
certificate from its buyer stating that the aviation-grade kerosene will 
be used as a fuel in an aircraft.
    If Buyer violates the terms of this certificate, the Internal 
Revenue Service may withdraw Buyer's right to provide a certificate.
    Buyer has not been notified by the Internal Revenue Service that its 
right to provide a certificate has been withdrawn.
    The fraudulent use of this certificate may subject Buyer and all 
parties making any fraudulent use of this certificate to a fine or 
imprisonment, or both, together with the costs of prosecution.

________________________________________________________________________
Printed or typed name of person signing
________________________________________________________________________
Title of person signing
________________________________________________________________________
Employer identification number
________________________________________________________________________
Address of Buyer
________________________________________________________________________
Signature and date signed

    (f) Effective date. This section is applicable after March 30, 2000, 
except that paragraph (d) of this section is applicable after June 30, 
2000.

[T.D. 8879, 65 FR 17158, Mar. 31, 2000]



Sec. 48.4082-7  Kerosene; exemption for feedstock purposes.

    (a) Overview. This section prescribes the conditions under which tax 
does not apply to the removal or entry of kerosene for use for a 
feedstock purpose.
    (b) Definitions. The following definitions apply to this section:
    Feedstock purpose means the use of kerosene for nonfuel purposes in 
the manufacture or production of any substance other than gasoline, 
diesel fuel, or special fuels referred to in section 4041. Thus, for 
example, kerosene is used for a feedstock purpose when it is used as an 
ingredient in the production of paint and is not used for a feedstock 
purpose when it is used to power machinery at a factory where paint is 
produced.
    Feedstock user means a person that uses kerosene for a feedstock 
purpose.
    Registered feedstock user means a feedstock user that is--
    (1) Registered under section 4101 as a feedstock user; or
    (2) With respect to removals and entries before October 1, 2000, a 
taxable fuel registrant.
    (c) Exemption for removals and entries. Tax is not imposed on the 
removal or entry of kerosene if--
    (1) The person otherwise liable for tax is a taxable fuel 
registrant;
    (2) In the case of a removal from a terminal, the terminal is an 
approved terminal; and
    (3)(i) The person otherwise liable for tax uses the kerosene for a 
feedstock purpose; or
    (ii) The kerosene is sold for use by the buyer for a feedstock 
purpose and, at the time of the sale, the person otherwise liable for 
tax has an unexpired certificate (described in paragraph (e) of this 
section) from the buyer and has no reason to believe any information in 
the certificate is false.
    (d) Later sale--(1) In general. Paragraph (c) of this section does 
not apply with respect to kerosene that is sold as described in 
paragraph (c)(3)(ii) of this section if the buyer in that sale (the 
certifying buyer) sells the kerosene.
    (2) Imposition of tax; liability for tax. Notwithstanding Sec. Sec. 
48.4081-2 and 48.4081-3, in any case in which paragraph (d)(1) of this 
section applies, tax with respect to that kerosene is imposed at the 
time of the sale by the certifying buyer and the certifying buyer is 
liable for the tax.
    (3) Rate of tax. For the rate of tax, see section 4081.
    (e) Certificate--(1) In general. The certificate described in this 
paragraph (e) is a statement by a buyer that is

[[Page 137]]

signed under penalties of perjury by a person with authority to bind the 
buyer, is in substantially the same form as the model certificate 
provided in paragraph (e)(2) of this section, and contains all 
information necessary to complete the model certificate. A new 
certificate or notice that the current certificate is invalid must be 
given if any information in the current certificate changes. The 
certificate may be included as part of any business records normally 
used to document a sale. The certificate expires on the earliest of the 
following dates:
    (i) The date one year after the effective date of the certificate 
(which may be no earlier than the date it is signed).
    (ii) The date the buyer provides the seller a new certificate or 
notice that the current certificate is invalid.
    (iii) The date the seller is notified by the Internal Revenue 
Service or the buyer that the buyer's registration has been revoked or 
suspended.
    (2) Model certificate.

                CERTIFICATE OF REGISTERED FEEDSTOCK USER

(To support tax-free removals and entries of kerosene under section 4082 
                     of the Internal Revenue Code.)

----------(Buyer) certifies the following
Name of Buyer

    under penalties of perjury:
    Buyer is a registered feedstock user with registration number ------
--. Buyer's registration has not been revoked or suspended.
    The kerosene to which this certificate applies will be used by Buyer 
for a feedstock purpose.
    This certificate applies to -------- percent of Buyer's purchases 
from ------------------------ (name, address, and employer 
identification number of seller as follows (complete as applicable):
    1. A single purchase on invoice or delivery ticket number ----------
--.
    2. All purchases between ------------ (effective date) and --------
---- (expiration date) (period not to exceed one year after the 
effective date) under account or order number(s) ------------. If this 
certificate applies only to Buyer's purchases for certain locations, 
check here -------- and list the locations.

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

    If Buyer sells the kerosene to which this certificate relates, Buyer 
will be liable for tax on that sale.
    Buyer will provide a new certificate to the seller if any 
information in this certificate changes.
    If Buyer violates the terms of this certificate, the Internal 
Revenue Service may revoke Buyer's registration.
    Buyer understands that the fraudulent use of this certificate may 
subject Buyer and all parties making any fraudulent use of this 
certificate to a fine or imprisonment, or both, together with the costs 
of prosecution.

________________________________________________________________________
Printed or typed name of person signing
________________________________________________________________________
Title of person signing
________________________________________________________________________
Employer identification number
________________________________________________________________________
Address of Buyer
________________________________________________________________________
Signature and date signed
________________________________________________________________________

    (f) Effective date. This section is applicable after March 30, 2000, 
except that paragraph (d) of this section is applicable after June 30, 
2000.

[T.D. 8879, 65 FR 17158, Mar. 31, 2000]



Sec. 48.4083-1  Taxable fuel; administrative authority.

    (a) In general--(1) Authority to inspect. Officers or employees of 
the IRS designated by the Commissioner, upon presenting appropriate 
credentials and a written notice to the owner, operator, or agent in 
charge, are authorized to enter any place and to conduct inspections in 
accordance with paragraphs (a) through (c) of this section.
    (2) Reasonableness. Inspections will be performed in a reasonable 
manner and at times that are reasonable under the circumstances, taking 
into consideration the normal business hours of the place to be entered.
    (b) Place of inspection--(1) In general. Inspections may be at any 
place at which taxable fuel is (or may be) produced or stored or at any 
inspection site where evidence of activities described in section 
6715(a) may be discovered. These places may include, but are not limited 
to--
    (i) Any terminal;
    (ii) Any fuel storage facility that is not a terminal;
    (iii) Any retail fuel facility; or
    (iv) Any designated inspection site.

[[Page 138]]

    (2) Designated inspection sites. A designated inspection site is any 
State highway inspection station, weigh station, agricultural inspection 
station, mobile station, or other location designated by the 
Commissioner to be used as a fuel inspection site. A designated 
inspection site will be identified as a fuel inspection site.
    (c) Scope of inspection--(1) Inspection. Officers or employees may 
physically inspect, examine or otherwise search any tank, reservoir, or 
other container that can or may be used for the production, storage, or 
transportation of fuel, fuel dyes, or fuel markers. Inspection may also 
be made of any equipment used for, or in connection with, production, 
storage, or transportation of fuel, fuel dyes, or fuel markers. This 
includes any equipment used for the dyeing or marking of fuel. This also 
includes books and records, if any, that are maintained at the place of 
inspection and are kept to determine excise tax liability under section 
4081.
    (2) Detainment. Officers or employees may detain any vehicle or 
train for the purpose of inspecting its fuel tanks and storage tanks. 
Detainment will be either on the premises under inspection or at a 
designated inspection site. Detainment may continue for such reasonable 
period of time as is necessary to determine the amount and composition 
of the fuel.
    (3) Removal of samples. Officers or employees may take and remove 
samples of fuel in such quantities as are reasonably necessary to 
determine the composition of the fuel.
    (d) Refusal to submit to inspection. For the penalty for any refusal 
to permit an entry or inspection authorized by this section, see section 
4083(c)(3). This penalty is in addition to any tax that may be imposed 
by section 4041 or 4081 and any penalty that may be imposed by section 
6715.
    (e) Effective date. This section is effective January 1, 1994.

[T.D. 8659, 61 FR 10458, Mar. 14, 1996, as amended by T.D. 8685, 61 FR 
58007, Nov. 12, 1996; T.D. 8879, 65 FR 17159, Mar. 31, 2000]



Sec. 48.4091-3  Aviation fuel; conditions to allowance of refunds of aviation fuel tax under section 4091(d).

    (a) Overview. This section provides the conditions under which a 
refund of tax imposed by section 4091 is allowable with respect to taxed 
aviation fuel that is held by a registered aviation fuel producer. No 
credit against any tax imposed by the Internal Revenue Code is allowed 
under section 4091(d).
    (b) Conditions to allowance of refund. A claim for refund of tax 
imposed by section 4091 with respect to aviation fuel is allowed under 
section 4091(d) and this section only if--
    (1) A tax imposed by section 4091 with respect to the aviation fuel 
was paid to the government by an importer or producer (the first 
producer) and the tax has not been otherwise credited or refunded;
    (2) After imposition of the tax, the aviation fuel is acquired by a 
person that is a registered aviation fuel producer (the second 
producer);
    (3) The second producer has filed a timely claim for refund that 
contains the information required under paragraph (d) of this section; 
and
    (4) The first producer and any person that owns the fuel after its 
sale by the first producer and before its purchase by the second 
producer (a subsequent seller) have met the reporting requirements of 
paragraph (c) of this section.
    (c) Reporting requirements--(1) In general. The reporting 
requirements of this paragraph (c)(1) are met if the first producer 
files a report (the first producer's report) that--
    (i) Is in substantially the same form as the model report provided 
in paragraph (c)(2) of this section (or such other model report as the 
Commissioner may prescribe);
    (ii) Contains all information necessary to complete such model 
report; and
    (iii) Is filed at the time and in the manner prescribed by the 
Commissioner.

    (2) Model first producer's report.

                         First Producer's Report

________________________________________________________________________

________________________________________________________________________
First Producer's name, address, and employer identification number


[[Page 139]]


________________________________________________________________________

________________________________________________________________________
Buyer's name, address, and employer identification number

________________________________________________________________________
    Date and location of taxable sale

________________________________________________________________________
Volume and type of aviation fuel sold

________________________________________________________________________
Amount of federal excise tax paid on account of the sale
    Under penalties of perjury, First Producer declares that First 
Producer has examined this statement, including any accompanying 
schedules and statements, and, to the best of First Producer's knowledge 
and belief, it is true, correct and complete.

________________________________________________________________________
Printed or typed name of the person signing

________________________________________________________________________
Title of person signing

________________________________________________________________________
Signature and date signed

    (3) Information provided to buyers. The reporting requirements of 
this paragraph (c)(3) are met if a first producer that filed a first 
producer's report under paragraph (c)(1) of this section gives a copy of 
the report to the person to whom the first producer sells the aviation 
fuel.
    (4) Statement of subsequent seller--(i) In general. The reporting 
requirements of this paragraph (c)(4) are met if--
    (ii)(A) Each subsequent seller gives to its buyer a copy of a 
statement that provides all information (whether or not in the same 
format) necessary to complete the model statement prescribed in 
paragraph (c)(4)(ii) of this section (or such other model statement as 
the Commissioner may prescribe); and
    (B) The statement is provided at the bottom or on the back of the 
copy of the first producer's report (or in an attached document).
    (iii) Model statement describing subsequent sale.

             Statement of Subsequent Seller (Aviation Fuel)

________________________________________________________________________

________________________________________________________________________
Name, address, and employer identification number of seller in 
subsequent sale

________________________________________________________________________

________________________________________________________________________
Name, address, and employer identification number of buyer in subsequent 
sale

________________________________________________________________________
Date and location of subsequent sale

________________________________________________________________________
Volume and type of aviation fuel sold

    The undersigned seller (the Seller) has received the copy of the 
first producer's report provided with this statement in connection with 
Seller's purchase of the aviation fuel described in this statement.
    Under penalties of perjury, Seller declares that Seller has examined 
this statement, including any accompanying schedules and statements, 
and, to the best of Seller's knowledge and belief, it is true, correct 
and complete.

________________________________________________________________________
Printed or typed name of person signing

________________________________________________________________________
Title of person signing

________________________________________________________________________
Signature and date signed

    (5) Sale to multiple buyers. If a first producer's report relates to 
aviation fuel that is divided among more than one buyer, multiple copies 
of the first producer's report should be made at the stage that the 
aviation fuel is divided and a copy given to each buyer. The reporting 
requirements of this paragraph (c) will be met only with respect to the 
fuel purchased by buyers that are given a copy of the report including 
any statement required under paragraph (c)(4) of this section.
    (d) Form and content of claim--(1) In general. The following rules 
apply to claims for refund under section 4091(d):
    (i) The claim must be made by the second producer and must include 
all the information described in paragraph (d)(2) of this section.
    (ii) The claim must be made on Form 8849 (or such other form as the 
Commissioner may designate) in accordance with the instructions on the 
form. The form should be marked Section 4091(d) Claim at the top. 
Section 4091(d) claims must not be included with a claim for a refund 
under any other provision of the Internal Revenue Code.
    (2) Information to be included in the claim. Each claim for a refund 
under section 4091(d) must contain the following information with 
respect to the aviation fuel covered by the claim:
    (i) Volume and type of aviation fuel.
    (ii) Date on which the second producer acquired the aviation fuel to 
which the claim relates.

[[Page 140]]

    (iii) Amount of tax that the first producer paid to the government 
and a statement that the second producer has not included the amount of 
that tax in the sales price of the aviation fuel to which the claim 
relates and has not collected that amount from the person that bought 
the aviation fuel from the second producer, if any.
    (iv) Name, address, and employer identification number of the first 
producer that paid the tax to the government.
    (v) A copy of the first producer's report that relates to the 
aviation fuel covered by the claim.
    (vi) A copy of any statement of a subsequent seller that the second 
producer received with respect to that aviation fuel.
    (e) Time for filing claim. A claim for refund under section 4091(d) 
may be filed any time after the first producer has filed the return of 
the tax to which the claim relates and before the end of the period 
prescribed by section 6511 for the filing of a claim for refund of that 
tax.
    (f) Effective date. This section is applicable with respect to 
refunds of tax imposed by section 4091 after December 31, 1998.

[T.D. 8774, 63 FR 35802, July 1, 1998. Redesignated by T.D. 8879, 65 FR 
17159, Mar. 31, 2000]



Sec. 48.4101-1  Taxable fuel; registration.

    (a) In general. (1) This section provides rules relating to 
registration under section 4101 for purposes of the federal excise tax 
on taxable fuel imposed by sections 4041(a)(1) and 4081 and the credit 
or payment allowed to certain ultimate vendors of diesel fuel and 
kerosene under section 6427.
    (2) A person is registered under section 4101 only if the district 
director has issued a registration letter to the person and the 
registration has not been revoked or suspended. However, the United 
States is treated as registered under section 4101.
    (3) A refiner that is registered under section 4101 may, with 
respect to the bulk removal of any batch of gasohol from its refinery, 
treat itself as a person that is not registered. See Sec. 48.4081-
3(b)(1)(iii).
    (4) Each business unit that has, or is required to have, a separate 
employer identification number is treated as a separate person. Thus, 
two business units (for example, a parent corporation and a subsidiary 
corporation, or a proprietorship and a related partnership), each of 
which has a different employer identification number, are two persons.
    (5) A registration in effect on December 31, 1993, with respect to 
the tax on gasoline or diesel fuel is subject to the district director's 
review, and to revocation or suspension, under the standards set forth 
in this section, but remains in effect until the earlier of--
    (i) The effective date of a registration issued under paragraph 
(g)(3) of this section; or
    (ii) The effective date of the revocation or suspension of the 
registration under paragraph (i) of this section.
    (6)(i) A person is treated as a taxable fuel registrant if on June 
30, 1998, the person--
    (A) Is an enterer, refiner, terminal operator, or throughputter with 
respect to kerosene and is registered under section 4101 as a producer 
or importer of aviation fuel;
    (B) Operates one or more terminals that store kerosene (and no other 
type of taxable fuel); or
    (C) Is a commercial airline, an operator of aircraft in 
noncommercial aviation, or a fixed base operator and is also a position 
holder with respect to kerosene.
    (ii) A person treated as registered under paragraph (a)(6)(i) of 
this section is treated as registered from July 1, 1998, until the 
earlier of--
    (A) The date of a subsequent denial of an application for 
registration under paragraph (g)(2) of this section;
    (B) The effective date of a subsequent registration issued under 
paragraph (g)(3) of this section;
    (C) The effective date of a subsequent revocation or suspension of 
registration under paragraph (i) of this section; or
    (D) July 1, 1999.
    (b) Definitions--(1) Applicant. An applicant is a person that has 
applied for registration under paragraph (e) of this section.
    (2) Bonded registrant. A bonded registrant is a person that has 
given a bond

[[Page 141]]

to the district director under paragraph (j) of this section as a 
condition of registration.
    (3) Gasohol bonding amount. The gasohol bonding amount is the 
product of--
    (i) The rate of tax applicable to later separation, as described in 
Sec. 48.4081-6(f)(1)(iii); and
    (ii) The total number of gallons of gasoline expected to be bought 
at the gasohol production tax rate by the gasohol blender during a 
representative 6-month period (as determined by the district director).
    (4) Penalized for a wrongful act. A person has been penalized for a 
wrongful act if the person has--
    (i) Been assessed any penalty under chapter 68 of the Internal 
Revenue Code (or similar provision of the law of any State) for 
fraudulently failing to file any return or pay any tax, and the penalty 
has not been wholly abated, refunded, or credited;
    (ii) Been assessed any penalty under chapter 68 of the Internal 
Revenue Code, such penalty has not been wholly abated, refunded, or 
credited, and the district director determines that the conduct 
resulting in the penalty is part of a consistent pattern of failing to 
deposit, pay, or pay over a substantial amount of tax;
    (iii) Been convicted of a crime under chapter 75 of the Internal 
Revenue Code (or similar provision of the law of any State), or of 
conspiracy to commit such a crime, and the conviction has not been 
wholly reversed by a court of competent jurisdiction;
    (iv) Been convicted, under the laws of the United States or any 
State, of a felony for which an element of the offense is theft, fraud, 
or the making of false statements, and the conviction has not been 
wholly reversed by a court of competent jurisdiction;
    (v) Been assessed any tax under section 4103 and the tax has not 
been wholly abated, refunded, or credited; or
    (vi) Had its registration under section 4101 or 4222 revoked.
    (5) Related person. A related person is a person that--
    (i) Directly or indirectly exercises control over an activity of the 
applicant if the activity is described in paragraph (c)(1) or (d) of 
this section;
    (ii) Owns, directly or indirectly, five percent or more of the 
applicant;
    (iii) Is under a duty to assure the payment of a tax for which the 
applicant is responsible;
    (iv) Is a member, with the applicant, of a group of organizations 
(as defined in Sec. 1.52-1(b) of this chapter) that would be treated as 
a group of trades or businesses under common control for purposes of 
Sec. 1.52-1 of this chapter; or
    (v) Distributed or transferred assets to the applicant in a 
transaction in which the applicant's basis in the assets is determined 
by reference to the basis of the assets in the hands of the distributor 
or transferor.
    (6) Registrant. A registrant is a person that the district director 
has, in accordance with paragraph (g)(3) of this section, registered 
under section 4101 and whose registration has not been revoked or 
suspended.
    (7) Pipeline operator. A pipeline operator is any person that 
operates a pipeline within the bulk transfer/terminal system.
    (8) Vessel operator. A vessel operator is any person that operates a 
vessel within the bulk transfer/terminal system. However, for purposes 
of this definition, vessel does not include a deep draft ocean-going 
vessel (as defined in Sec. 48.4042-3(a)).
    (9) Other definitions. For other definitions relating to taxable 
fuel, see Sec. Sec. 48.4081-1, 48.4081-6(b), 48.4082-5(b), 48.4082-
6(b), 48.4082-7(b), 48.6427-9(b), 48.6427-10(b), and 48.6427-11(b).
    (c) Persons required to be registered--(1) In general. A person is 
required to be registered under section 4101 if the person is--
    (i) A blender;
    (ii) An enterer;
    (iii) A pipeline operator;
    (iv) A position holder;
    (v) A refiner;
    (vi) A terminal operator; or
    (vii) A vessel operator.

    (2) Bus and train operators. Every operator of a bus or train is 
required to be registered under section 4101 at any time it incurs any 
liability for tax under section 4041 at the bus rate (as described in 
Sec. 48.4082-4(b)(3)(i)) or the train rate (as described in Sec. 
48.4082-4(b)(3)(ii)).

[[Page 142]]

    (3) Consequences of failing to register. For the criminal penalty 
imposed for failure to register, see section 7232. For the civil penalty 
imposed for failure to register, see section 7272.
    (d) Persons that may, but are not required to, be registered. A 
person may, but is not required to, be registered under section 4101 if 
the person is--
    (1) A feedstock user;
    (2) A gasohol blender;
    (3) An industrial user;
    (4) A throughputter that is not a position holder;
    (5) An ultimate vendor; or
    (6) An ultimate vendor (blocked pump).

    (e) Application instructions. Application for registration under 
section 4101 must be made in accordance with the instructions for Form 
637 (or such other form as the Commissioner may designate).
    (f) Registration tests--(1) In general--(i) Persons other than 
ultimate vendors, pipeline operators, and vessel operators. Except as 
provided in paragraph (f)(1)(ii) of this section, the district director 
will register an applicant only if the district director determines that 
the applicant meets the following three tests (collectively, the 
registration tests):
    (A) The activity test of paragraph (f)(2) of this section.
    (B) The acceptable risk test of paragraph (f)(3) of this section.
    (C) The adequate security test of paragraph (f)(4) of this section.
    (ii) Ultimate vendors, pipeline operators, and vessel operators. The 
district director will register an applicant as an ultimate vendor, 
ultimate vendor (blocked pump), pipeline operator, or vessel operator 
only if the district director--
    (A) Determines that the applicant meets the activity test of 
paragraph (f)(2) of this section; and
    (B) Is satisfied with the filing, deposit, payment, and claim 
history for all federal taxes of the applicant and any related person.
    (2) The activity test. An applicant meets the activity test of this 
paragraph (f)(2) only if the district director determines that the 
applicant--
    (i) Is, in the course of its trade or business, regularly engaged as 
an operator of a bus or train or in the characteristic activity of a 
person described in paragraph (c)(1) or (d) of this section; or
    (ii) Is likely to be (because of such factors as the applicant's 
business experience, financial standing, or trade connections), in the 
course of its trade or business, regularly engaged as an operator of a 
bus or train or in the characteristic activity of a person described in 
paragraph (c)(1) or (d) of this section within a reasonable time after 
becoming registered under section 4101.
    (3) Acceptable risk test--(i) In general. An applicant meets the 
acceptable risk test of this paragraph (f)(3) only if--
    (A) Neither the applicant nor a related person has been penalized 
for a wrongful act; or
    (B) Even though the applicant or a related person has been penalized 
for a wrongful act, the district director determines, after review of 
evidence offered by the applicant, that the registration of the 
applicant does not create a significant risk of nonpayment or late 
payment of the tax imposed by sections 4041(a)(1) and 4081.
    (ii) Significant risk of nonpayment or late payment of tax. In 
making the determination described in paragraph (f)(3)(i)(B) of this 
section, the district director may consider factors such as the 
following:
    (A) The time elapsed since the applicant or related person was 
penalized for a wrongful act.
    (B) The present relationship between the applicant and any related 
person that was penalized for any wrongful act.
    (C) The degree of rehabilitation of the person penalized for any 
wrongful act.
    (D) The amount of bond given by the applicant. In this regard, the 
district director may accept a bond under paragraph (j) of this section, 
without regard to the limits on the amount of the bond set by paragraph 
(j)(2) of this section.
    (4) Adequate security test--(i) In general. An applicant meets the 
adequate security test of this paragraph (f)(4) only if the district 
director determines that the applicant has both adequate financial 
resources and a satisfactory tax history, or the applicant gives the

[[Page 143]]

district director a bond (under the provisions of paragraph (j) of this 
section).
    (ii) Adequate financial resources--(A) In general. An applicant has 
adequate financial resources only if the district director determines 
that the applicant is financially capable of paying--
    (1) Its expected tax liability under sections 4041(a)(1) and 4081 
for a representative 6-month period (as determined by the district 
director);
    (2) In the case of a terminal operator, the expected tax liability 
under section 4081 of persons other than the terminal operator with 
respect to taxable fuel removed at the racks of its terminals during a 
representative 1-month period (as determined by the district director); 
and
    (3) In the case of a gasohol blender, the gasohol bonding amount.
    (B) Basis for determination. The determination under this paragraph 
(f)(4)(ii) must be based on financial information such as the 
applicant's income statement, balance sheet or bond ratings, or other 
information related to the applicant's financial status.
    (iii) Satisfactory tax history. An applicant has a satisfactory tax 
history only if the district director is satisfied with the filing, 
deposit, and payment history for all federal taxes of the applicant and 
any related person.
    (g) Action on the application by the district director--(1) Review 
of application. The district director may investigate the accuracy and 
completeness of any representations made by an applicant, request any 
additional relevant information from the applicant, and inspect the 
applicant's premises during normal business hours without advance 
notice.
    (2) Denial. If the district director determines that an applicant 
does not meet all of the applicable registration tests described in 
paragraph (f) of this section, the district director must notify the 
applicant, in writing, that its application for registration is denied 
and state the basis for the denial.
    (3) Approval. If the district director determines that an applicant 
meets all of the applicable registration tests described in paragraph 
(f) of this section, the district director must register the applicant 
under section 4101 and issue the applicant a letter of registration 
containing the effective date of the registration. The effective date of 
the registration must be no earlier than the date on which the district 
director signs the letter of registration. A copy of an application for 
registration (Form 637) is not a letter of registration.
    (h) Terms and conditions of registration--(1) Affirmative duties. 
Each registrant must--
    (i) Make deposits, file returns, and pay taxes required by the 
Internal Revenue Code and the regulations;
    (ii) Keep records sufficient to show the registrant's tax liability 
under sections 4041(a)(1) and 4081 and payments or deposits of such 
liability;
    (iii) Make all information reports required under section 4101(d);
    (iv) Make available for inspection on demand by the Internal Revenue 
Service during normal business hours records relevant to a determination 
of tax liability under sections 4041(a)(1) and 4081; and
    (v) Notify the district director of any change (such as a change in 
ownership) in the information the registrant submitted in connection 
with its application for registration, or previously submitted under 
this paragraph (h)(1)(v), within 10 days after the change occurs.
    (2) Prohibited actions. A registrant may not--
    (i) Sell, lease or otherwise allow another person to use its 
registration;
    (ii) Make any false statement to the district director in connection 
with a submission under paragraph (h)(1) or (h)(3) of this section;
    (iii) Make any false statement on, or violate the terms of, any 
certificate given to another person to support an exemption from, or a 
reduced rate of, the tax imposed by section 4081; or
    (iv) In the case of an ultimate vendor (blocked pump), deliver 
kerosene (or allow kerosene to be delivered) into the fuel supply tank 
of a diesel-powered highway vehicle or diesel-powered train from a 
blocked pump.
    (3) Additional terms and conditions for terminal operators--(i) 
Notice required with respect to dyed diesel fuel and dyed kerosene. A 
legible and conspicuous notice stating ``DYED DIESEL FUEL, NONTAXABLE 
USE ONLY, PENALTY FOR TAXABLE USE'' must be provided

[[Page 144]]

by each terminal operator to any person that receives dyed diesel fuel 
at a terminal rack of that operator. A legible and conspicuous notice 
stating ``DYED KEROSENE, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE'' 
must be provided by each terminal operator to any person that receives 
dyed kerosene at a terminal rack of that operator. These notices must be 
provided by the time of the removal and must appear on all shipping 
papers, bills of lading, and similar documents that are provided by the 
terminal operator to accompany the removal of the fuel.
    (ii) Records to be maintained relating to removals of diesel fuel or 
kerosene. Each terminal operator must keep the following information 
with respect to each rack removal of diesel fuel or kerosene at each 
terminal it operates:
    (A) The bill of lading or other shipping document.
    (B) The record of whether the fuel was dyed and marked in accordance 
with Sec. 48.4082-1.
    (C) The volume and date of the removal.
    (D) The identity of the person, such as a common carrier, that 
physically received the fuel.
    (E) Any other information required by the Commissioner.
    (iii) Records to be maintained relating to dye. With respect to each 
of its terminals, a terminal operator must keep records relating to dye 
inventories and usage.
    (iv) [Reserved]. For further guidance, see Sec. 48.4101-
1T(h)(3)(iv).
    (v) Prohibition on providing incorrect information. In connection 
with the removal of diesel fuel or kerosene that is not dyed and marked 
in accordance with Sec. 48.4082-1, a terminal operator may not provide 
any person (including the position holder with respect to the fuel) with 
any bill of lading, shipping paper, or similar document indicating that 
the diesel fuel or kerosene is dyed and marked in accordance with Sec. 
48.4082-1.
    (i) Adverse actions by the district director against a registrant--
(1) Mandatory revocation or suspension. The district director must 
revoke or suspend the registration of any registrant if the district 
director determines that the registrant, at any time--
    (i) Does not meet one or more of the applicable registration tests 
under paragraph (f) of this section and has not corrected the deficiency 
within a reasonable period of time after notification by the district 
director;
    (ii) Has used its registration to evade, or attempt to evade, the 
payment of any tax imposed by section 4041(a)(1) or 4081, or to postpone 
or in any manner to interfere with the collection of any such tax, or to 
make a fraudulent claim for a credit or payment;
    (iii) Has aided or abetted another person in evading, or attempting 
to evade, payment of any tax imposed by section 4041(a)(1) or 4081, or 
in making a fraudulent claim for a credit or payment; or
    (iv) Has sold, leased, or otherwise allowed another person to use 
its registration.
    (2) Remedial action permitted in other cases. If the district 
director determines that a registrant has, at any time, failed to comply 
with the terms and conditions of registration under paragraph (h) of 
this section, made a false statement to the district director in 
connection with its application for registration or retention of 
registration, or otherwise used its registration in a manner that 
creates a significant risk of nonpayment or late payment of tax, then 
the district director may--
    (i) Revoke or suspend the registrant's registration;
    (ii) In the case of a registrant other than an ultimate vendor or an 
ultimate vendor (blocked pump), require the registrant to give a bond 
under the provisions of paragraph (j) of this section as a condition of 
retaining its registration; and
    (iii) In the case of a registrant other than an ultimate vendor or 
an ultimate vendor (blocked pump), require the registrant to file 
monthly or semimonthly returns under Sec. 40.6011(a)-1(b) of this 
chapter as a condition of retaining its registration.
    (3) Action by the district director to revoke or suspend a 
registration. If the district director revokes or suspends a 
registration, the district director must so notify the registrant in 
writing and state the basis for the revocation or

[[Page 145]]

suspension. The effective date of the revocation or suspension may not 
be earlier than the date on which the district director notifies the 
registrant.
    (j) Bonds--(1) Form. Each bond given to the district director as a 
condition of registration under paragraph (f)(4)(i) or (i)(2)(ii) of 
this section must be executed in the form prescribed by the district 
director. Each bond must be--
    (i) A public debt obligation of the United States Government;
    (ii) An obligation the principal and interest of which are 
unconditionally guaranteed by the United States Government;
    (iii) A bond executed by a surety company listed in Department of 
the Treasury Circular 570 as an acceptable surety or reinsurer of 
federal bonds (a surety bond); or
    (iv) Any other bond with security (including liens under section 
4101(b)(1)(B)) considered acceptable by the district director.
    (2) Amount of bond. A bond given under this paragraph (j) must be in 
an amount that the district director determines will ensure timely 
collection of the taxes imposed by sections 4041(a)(1) and 4081, taking 
into account the applicant's financial capabilities, tax history, and 
expected liability under sections 4041(a)(1) and 4081. The district 
director may increase or decrease the amount of the required bond to 
take into account changes in the applicant's financial capabilities, tax 
history, and expected liability under sections 4041(a)(1) and 4081. 
However, in no case may the amount of the bond be greater than the 
amount that the district director determines is equal to--
    (i) The applicant's expected tax liability under sections 4041(a)(1) 
and 4081 for a representative 6-month period (as determined by the 
district director);
    (ii) In the case of a terminal operator, the expected tax liability 
of persons other than the terminal operator under section 4081 with 
respect to taxable fuel removed at the racks of its terminals 
(determined as if all removals of taxable fuel were taxable) during a 
representative 1-month period (as determined by the district director); 
and
    (iii) In the case of a gasohol blender, the gasohol bonding amount.
    (3) Collection of taxes from a bond. If a bonded registrant does not 
pay the amount of tax it incurs under section 4041(a)(1) or 4081 by the 
time prescribed in section 6151 for paying that tax, the district 
director may collect the amount of the unpaid tax (including penalties 
and interest with respect to that tax) from the bonded registrant's 
bond.
    (4) Termination of bonds--(i) Surety bonds. A surety on a bond may 
give written notice to the district director and the bonded registrant 
that the surety desires to be relieved of liability under the bond after 
a certain date, which date must be at least 60 days after the receipt of 
the notice by the district director. The surety will be relieved of any 
liability that the bonded registrant incurs after the date named in the 
notice. However, the surety remains liable for the amount of tax that 
the bonded registrant incurred under sections 4041(a)(1) and 4081 during 
the term of the bond and for penalties and interest with respect to that 
tax.
    (ii) Other bonds. A bond (other than a surety bond) given to the 
district director may be returned to the bonded registrant only after 
the earlier of--
    (A) The district director's determination that the bonded registrant 
has paid all taxes that the bonded registrant incurred under sections 
4041(a)(1) and 4081 during the period covered by the bond and any 
penalties and interest with respect to the taxes;
    (B) The expiration of the period for assessment of the taxes that 
the bonded registrant incurred under sections 4041(a)(1) and 4081 taxes 
during the period covered by the bond, as determined under the 
provisions of subchapter A of chapter 66 of the Internal Revenue Code; 
or
    (C) The date that the district director receives from the registrant 
a substitute bond given under this paragraph (j).
    (5) Determination that bond is no longer required. If the district 
director determines that the bonded registrant meets the adequate 
security test of paragraph (f)(4) of this section without a bond, the 
registrant is to be released from the obligation to give a bond as a 
condition of registration under section 4101.

[[Page 146]]

    (k) Cross references. For a rule relating to the filing of monthly 
and semimonthly returns by certain persons that are registered under 
section 4101, see Sec. 40.6011(a)-1(b)(2) of this chapter. For rules 
relating to the tax on taxable fuel, see Sec. Sec. 48.4081-1 through 
48.4083-1. For rules relating to claims by registered ultimate vendors, 
see Sec. 48.6427-9. For rules relating to claims by registered ultimate 
vendors (blocked pump), see Sec. 48.6427-10.
    (l) Effective dates. (1) Except as otherwise provided in this 
paragraph (l), this section is applicable as of January 1, 1994.
    (2) Paragraph (c)(1) of this section (relating to persons required 
to be registered) is applicable as of January 1, 1995, except that 
paragraphs (c)(1)(iii) and (c)(1)(vii) of this section are applicable 
after March 31, 2001.
    (3) Paragraph (h)(3)(iii) of this section (relating to certain 
recordkeeping requirements) is applicable as of July 1, 1996.
    (4) References in this section to kerosene are applicable after June 
30, 1998.

[T.D. 8659, 61 FR 10459, Mar. 14, 1996; 61 FR 28053, June 4, 1996, as 
amended by T.D. 8879, 65 FR 17159, Mar. 31, 2000; 65 FR 26488, May 8, 
2000; T.D. 9199, 70 FR 21334, Apr. 26, 2005]



Sec. 48.4101-1T  Taxable fuel; registration (temporary).

    (a) through (h)(3)(iii) [Reserved]. For further guidance, see Sec. 
48.4101-1(a) through (h)(3)(iii).
    (iv) Retention of information. In addition to any other requirement 
relating to the retention of records, the terminal operator must--
    (A) Maintain the information described in Sec. 48.4101-1(h)(3)(ii) 
at the terminal from which the removal occurred for at least 3 months 
after the removal to which it relates in the case of information 
relating to removals before January 1, 2006, and at least 12 months 
after the removal to which it relates in the case of information 
relating to removals after December 31, 2005; and
    (B) Maintain the information described in Sec. 48.4101-1(h)(3)(iii) 
at the terminal where the dye was received for at least 3 months after 
the receipt in the case of receipts before January 1, 2006, and at least 
12 months after the receipt in the case of receipts after December 31, 
2005.
    (h)(3)(v) through (l) [Reserved]. For further guidance see Sec. 
48.4101-1(h)(3)(v) through (l).

[T.D. 9199, 70 FR 21334, Apr. 26, 2005]



Sec. 48.4101-2  Information reporting.

    (a) In general. Each information report under section 4101(d) must 
be--
    (1) Made in the form required by the Commissioner;
    (2) Made for a period of one calendar month; and
    (3) Filed by the last day of the first month following the month for 
which the report is made, except that a report relating to any month 
during 2000 must be filed by February 28, 2001.
    (b) Effective date. This section is applicable after March 30, 2000.

[T.D. 8879, 65 FR 17160, Mar. 31, 2000]



Sec. 48.4102-1  Inspection of records by State or local tax officers.

    (a) Inspection of records maintained by taxpayer. The records that a 
taxpayer is required to keep with respect to the taxes imposed by 
section 4081 or 4091 must be open to inspection by any officer of any 
State or political subdivision thereof, or of the District of Columbia, 
who is charged with the enforcement or collection of any tax on taxable 
fuel or aviation fuel.
    (b) Inspection of records maintained by Internal Revenue Service--
(1) In general. The records maintained by the Internal Revenue Service 
with respect to the taxes imposed by sections 4081 and 4091 shall, upon 
the request of an officer (described in paragraph (b)(2) of this 
section) of a State or political subdivision thereof, or of the District 
of Columbia, be open to inspection by the officer for purposes of 
collection or enforcement.
    (2) Requests for inspection. Requests for inspection under this 
paragraph shall be made in writing, signed by any officer of a State, 
political subdivision, or the District of Columbia, who is charged with 
the enforcement or collection of any tax on taxable fuel or aviation 
fuel imposed by the State, political subdivision, or the District of 
Columbia, and shall be addressed to the

[[Page 147]]

director of the Internal Revenue Service Center having custody of the 
records which it is desired to inspect. Each such request shall state 
(i) the kind of records (whether pertaining to taxable fuel or aviation 
fuel) it is desired to inspect, (ii) the period or periods covered by 
the records involved, (iii) the name of the officer by whom the 
inspection is to be made, (iv) the name of the representative of the 
officer who has been designated to make the inspection, (v) by specific 
reference, the law of the State, political subdivision, or the District 
of Columbia imposing the tax which the officer is charged with 
collecting or enforcing, and the law under which the officer is so 
charged, and (vi) the purpose for which the inspection is to be made. 
The service center director will notify the person making the request 
upon approval or disapproval of the request.
    (3) Time and place for inspection. In any case where a request for 
inspection under this paragraph (b) is approved, the inspection shall be 
made in the office of the service center director having custody of the 
records which it is desired to inspect, but only in the presence of an 
internal revenue officer or employee and during the regular hours of 
business of the office.

[T.D. 7908, 48 FR 40222, Sept. 6, 1983, as amended by T.D. 8659, 61 FR 
10462, Mar. 14, 1996]



                             Subpart I_Coal



Sec. 48.4121-1  Imposition and rate of tax on coal.

    (a) Imposition of tax--(1) In general. Section 4121(a) imposes a tax 
on coal mined at any time in this country if the coal is sold or used by 
the producer after March 31, 1978 (see section 4218 and the regulations 
under that section for rules relating to the use of coal being treated 
as a sale of coal). For purposes of this section, the term ``producer'' 
means the person in whom is vested ownership of the coal under state law 
immediately after the coal is severed from the ground, without regard to 
the existence of any contractual arrangement for the sale or other 
disposition of the coal or the payment of any royalties between the 
producer and third parties. The term includes any person who extracts 
coal from coal waste refuse piles or from the silt waste product which 
results from the wet washing (or similarly processing) of coal. However, 
the excise tax does not apply to a producer who sells the silt waste 
product without extracting the coal from it, or to the producer who uses 
the silt waste product without extracting the coal from it. Furthermore, 
the excise tax does not apply to the sale or use of the silt waste 
product after any coal has been extracted from it.
    (2) Examples. Paragraph (a)(1) of this section may be illustrated by 
the following examples:

    Example (1). A, a limited partnership, is the owner of land on which 
a coal mine is located. A contracts with XYZ Company to extract the coal 
for a set price per ton. XYZ Company is an independent contractor and 
has no ownership interest in the coal mined. Under state law, A is the 
owner of the coal immediately after severance. After XYZ extracts the 
coal from the mine, A sells the coal. A is the producer of the coal and 
is responsible for the payment of the excise tax.
    Example (2). A, a limited partnership, is the owner of land on which 
a coal mine is located. A leases the land to XYZ Company, and XYZ 
Company extracts coal from the mine and sells it. Under state law, XYZ 
is the owner of the coal immediately after the coal is severed from the 
ground. XYZ Company is the producer and must pay the excise tax. This is 
true even though the lease agreement requires XYZ to pay a royalty to A.
    Example (3). XYZ Company purchases a coal waste refuse pile from B 
and extracts the coal from the waste refuse pile and sells the coal. XYZ 
is the producer and must pay the excise tax.
    Example (4). XYZ Company is a producer of coal and operates its own 
cleaning plant. After wet washing the coal, it sells the coal and the 
silt waste product. The sale of the coal is subject to the excise tax 
whereas the sale of the silt is not.
    Example (5). Assume the same facts as in example (4) except that 
before selling the silt waste product XYZ Company extracts a small 
quantity of finely sized coal from the silt waste product and then sells 
both the finely sized coal and the silt waste product. The sale of the 
finely sized coal is subject to the excise tax whereas the sale of the 
silt is not.

    (b) Rate of tax--(1) Underground mines; surface mines. The rate of 
tax imposed on coal from underground mines located in the United States 
is the lower of 50 cents per ton (2,000 pounds), or 2

[[Page 148]]

percent of the sale price. The rate of tax imposed on coal from surface 
mines located in the United States is the lower of 25 cents per ton 
(2,000 pounds) or 2 percent of the sale price. If a sale or use includes 
a portion of a ton, the tax is applied proportionately. Thus, if 1,200 
pounds of coal from an underground mine are sold for $35.00, the tax is 
30 cents.
    (2) Combination. If a single mine yields coal from both surface and 
underground mining, the producer must determine the rate (50 cents or 25 
cents per ton) for each ton of coal mined: It is presumed that coal is 
mined from underground mines (50 cents per ton) unless the producer 
keeps sufficient records to establish to the satisfaction of the 
Secretary that the coal was mined from a surface mine.
    (c) Exemptions--(1) Lignite or imported coal. The excise tax of coal 
does not apply to lignite or imported coal. Lignite is defined in 
accordance with the standard specification for classification of coals 
by rank of the American Society for Testing and Materials (Annual Book 
of ASTM Standards Part 26, D 388). The procedures specified in D 388 
must be followed. If a producer extracts both taxable coal and lignite, 
then the producer must maintain adequate records to establish the 
portion of the mineral mined that is exempt from the tax. In determining 
whether all or a portion of the mineral extracted is lignite, the 
Service will consider all the facts and circumstances. For example, if a 
producer sells lignite and coal, the Service will examine all the facts 
and circumstances, including the contract price, contract 
specifications, and the amount of lignite extracted as it compares to 
the amount of lignite sold.
    (2) Other exemptions not applicable. There are no exemptions for 
sales for further manufacture, for export, for use as supplies for 
vessels or aircraft, for the use of a State or local government, or for 
the use of a nonprofit educational organization. Furthermore, the 
Secretary does not have discretion to exempt sales of coal for use of 
the United States from the tax. There is also no exemption from the coal 
excise tax when the coal is used in further manufacture of another 
article that is subject to manufacturers excise tax. For example, if a 
producer of coal converts coal into gasoline which the producer then 
sells, the producer is liable for the coal excise tax when the coal is 
converted into gasoline and also liable for the manufacturers excise tax 
on gasoline when the gasoline is sold.
    (d) Definitions and special rules--(1) Coal produced from surface 
mine. Coal is treated as produced from a surface mine if all of the 
geological matter (e.g., trees, earth, rock) above the coal is removed 
before the coal is mined. In addition, both coal mined by auger and coal 
that is reclaimed from coal waste refuse piles are treated as produced 
from a surface mine.
    (2) Coal produced from underground mine. Coal is treated as produced 
from an underground mine if it is not produced from a surface mine.
    (3) Coal used by the producer. For purposes of this section, the 
term ``coal used by the producer'' means use by the producer in other 
than a mining process. A mining process is determined the same way it is 
determined for percentage depletion purposes. For example, a producer 
who mines coal does not ``use'' the coal and thereby becomes liable for 
the tax merely because, before selling the coal, the producer breaks it, 
cleans it, sizes it, or applies one of the other processes listed in 
section 613(c)(4)(A) of the Code. In such a case, the producer will be 
liable for the tax only when he sells the coal. On the other hand, a 
producer who mines coal does become liable for the tax when he uses the 
coal as fuel, as an ingredient in making coke, or in another process not 
treated as ``mining'' under section 613(c).
    (4) Tonnage sold and sales price. For purposes of determining both 
the amount of coal sold by a producer and the sales price of the coal, 
the point of sale is f.o.b. mine, or f.o.b. cleaning point if the 
producer cleans the coal before selling it. This is true even if the 
producer sells the coal on the basis of a delivered price. Accordingly, 
f.o.b. mine or cleaning point is the point at which the number of tons 
sold is to be determined for purposes of applying the applicable tonnage 
rate, and the point at which the sales price is to be

[[Page 149]]

determined for purposes of the tax under the 2 percent rate.
    (5) Constructive sale price. If a producer uses coal mined by the 
producer in other than a mining process, a constructive sale price must 
be used in determining the tax under the 2 percent rate. This 
constructive price is determined under sections 613(c) and 4218(e) of 
the Code, and is based on sales of like kind and grade of coal by the 
producer or other producers made f.o.b. mine (if the coal is used 
without first being cleaned) or f.o.b. cleaning plant (if the coal is 
cleaned before it is used). Normally, this constructive price will be 
the same as the constructive price used in determining the producer's 
percentage depletion deduction.

[T.D. 7726, 45 FR 66453, Oct. 7, 1980; 45 FR 69214, Oct. 20, 1980; T.D. 
8448, 57 FR 48186, Oct. 22, 1992]

Subpart J [Reserved]



                        Subpart K_Sporting Goods

    Source: Sections 48.4161(a)-1 through 48.4161(b)-5 contained in T.D. 
7328, 39 FR 36586, Oct. 11, 1974 unless otherwise noted. Sections 
48.4181-1 through 48.4182-2 contained in T.D. 6454, 25 FR 1774, Mar. 1, 
1960, unless otherwise noted.



Sec. 48.4161(a)  [Reserved]



Sec. 48.4161(a)-1  Imposition and rate of tax; fishing equipment.

    (a) Imposition of tax. Section 4161(a) imposes a tax on the sale of 
the following articles of fishing equipment (including in each case 
parts or accessories of such articles sold on or in connection therewith 
or with the sale thereof) by the manufacturer, producer, or importer 
thereof:
    (1) Fishing rods;
    (2) Fishing creels;
    (3) Fishing reels; and
    (4) Artificial lures, baits, and flies.

The tax applies only to those items of fishing equipment specified in 
section 4161(a) and this paragraph. Therefore, other items of fishing 
equipment, such as fishing nets, lines, hooks, sinkers, gaffs, etc., are 
not subject to the tax. Furthermore, the tax applies only to those 
specified articles of fishing equipment that are designed or constructed 
for use in the sport of fishing. Accordingly, the tax does not apply to 
those articles which, although nominally articles that are specified in 
section 4161(a), are in the nature of toys or novelties that merely 
simulate articles of a type referred to in section 4161(a), and are not 
designed or constructed for practical use in the sport of fishing.
    (b) Rate of tax. Tax is imposed on the sale of the articles 
enumerated in section 4161(a) and paragraph (a) of this section at the 
rate of 10 percent of the price for which such articles are sold. For 
the definition of the term ``price'' see section 4216 and the 
regulations thereunder.
    (c) Liability for tax. The tax imposed by section 4161(a) is payable 
by the manufacturer, producer, or importer making the sale. For 
determining who is the manufacturer, producer, or importer, see Sec. 
48.0-2(a)(4).

[T.D. 7328, 39 FR 36586, Oct. 11, 1974, as amended by T.D. 8043, 50 FR 
32014, Aug. 8, 1985]



Sec. 48.4161(a)-2  Meaning of terms.

    (a) Fishing rods. The term ``fishing rods'' includes all articles, 
however, designated, that are designed or constructed for use in 
conjunction with a fishing reel for casting a line and hook in the sport 
of fishing. The term does not include any article that is neither 
designed for use in casting, nor suitable for such use. A so-called 
fishing rod ``blank'' is not considered to be a ``fishing rod'' unless 
the blank contains an affixed handle and reel seat, or is sold in the 
form of a kit that contains a rod blank, a handle, and a reel seat.
    (b) Fishing creels. The term ``fishing creels'' includes all 
portable containers, of whatever material made, that are designed for 
storing and carrying fish from the time they are caught until such time 
as they are removed from the container for consumption or preservation. 
The term does not include any article primarily designed for use in the 
commercial fishing industry, or an article such as a collapsible wire 
basket designed to be hung over the side of a boat to keep fish captive 
and alive in the water.
    (c) Fishing reels. The term ``fishing reels'' includes all 
mechanical and electrical devices that contain a spool

[[Page 150]]

for dispensing and recovering fishing line, and are designed for use 
with fishing rods in casting and in reeling in hooked fish in the sport 
of fishing. The term also includes reels designed for use with bows, in 
the sport of bowfishing.
    (d) Artificial lures, baits, and flies. The term ``artificial lures, 
baits, and flies'' includes all artifacts, of whatever materials made, 
that simulate an article considered edible by fish and are designed to 
be attached to a line or hook to attract fish so that they may be 
captured. Thus, the term includes such artifacts as imitation flies, 
blades, spoons, and spinners, and edible materials that have been 
processed so as to resemble a different edible article considered more 
attractive to fish, such as bread crumbs treated so as to simulate 
salmon eggs, and pork rind cut and dyed to resemble frogs, eels, or 
tadpoles.

[T.D. 7328, 39 FR 36586, Oct. 11, 1974, as amended by T.D. 8043, 50 FR 
32014, Aug. 8, 1985]



Sec. 48.4161(a)-3  Parts and accessories.

    (a) In general. The tax attaches with respect to parts and 
accessories for articles specified in section 4161(a) and Sec. 
48.4161(a)-1 that are sold on or in connection with such articles, or 
with the sale thereof, at the same rate applicable to the sale of the 
basic articles. The tax attaches in such cases whether or not charges 
for the parts or accessories are billed separately. To be considered a 
part or accessory for an article specified in section 4161(a), an item 
must be either essential to the operation of the specified article, or 
be designed to directly improve the performance of the specified 
article, or to improve its appearance. For example, a carrying case for 
a fishing rod is not considered to be a part or accessory for a fishing 
rod, despite the fact that it is designed for use with the rod, because 
it is neither essential to the use of the rod, nor does it in any way 
improve its performance or appearance. A sale of a part or accessory 
which would otherwise be considered a sale ``on or in connection with'' 
the sale of an article taxable under section 4161(a), is not subject to 
tax if the part or accessory is sold as a replacement for an identical 
part or accessory being sold with the taxable article.
    (b) Essential equipment. If taxable articles are sold by the 
manufacturer, producer, or importer thereof, without parts or 
accessories that are essential for their operation, or are designed 
directly to improve the performance or appearnace of the articles, the 
separate sale of the parts accessories to the same vendee will be 
considered, in the absense of evidence to the contrary, to have been 
made in connection with the sale of the basic article, even though the 
parts or accessories are shipped separately at the same time or on a 
different date.

[T.D. 7328, 39 FR 36586, Oct. 11, 1974, as amended by T.D. 8043, 50 FR 
32014, Aug. 8, 1985]



Sec. 48.4161(a)-4  Use considered sale.

    For provisions relating to the tax on use of taxable articles by the 
manufacturer, producer, or importer thereof, see section 4218 relating 
to use by a manufacturer being considered a sale, and the regulations 
thereunder.



Sec. 48.4161(a)-5  Tax-free sales.

    For provisions relating to the tax-free sales of articles referred 
to in section 4161(a) see:
    (a) Section 4221, relating to certain tax-free sales;
    (b) Section 4222, relating to registration;
    (c) Section 4223, pertaining to special rules relating to further 
manufacture; and
    (d) Section 4225, relating to exemption of articles manufactured or 
produced by Indians;

and the regulations thereunder.



Sec. 48.4161(b)  [Reserved]



Sec. 48.4161(b)-1  Imposition and rates of tax; bows and arrows.

    (a) Imposition of tax. Section 4161(b) imposes a tax on the sale of 
the following articles by the manufacturer, producer, or importer 
thereof:
    (1) Any bow that has a draw weight of 10 pounds or more;
    (2) Any arrow that measures 18 inches overall or more in length;
    (3) Any part or accessory (other than a fishing reel) suitable for 
inclusion in

[[Page 151]]

or attachment to a bow or arrow described in subparagraph (1) or (2) of 
this paragraph; and
    (4) Any quiver suitable for use with arrows described in 
subparagraph (2) of this paragraph.
    (b) Rate of tax. The tax is imposed on the sale of articles 
enumerated in section 4161(b) and paragraph (a) of this section at the 
rate of 11 percent of the price for which such articles are sold. For 
the definition of the term ``price'', see section 4216 and the 
regulations thereunder.
    (c) Liability for tax. (1) The tax imposed by section 4161(b) is 
payable by the manufacturer, producer, or importer making the sale. For 
determining who is the manufacturer, producer, or importer, see Sec. 
48.0-2(a)(4).

[T.D. 7328, 39 FR 36586, Oct. 11, 1974, as amended by T.D. 8043, 50 FR 
32014, Aug. 8, 1985]



Sec. 48.4161(b)-2  Meaning of terms.

    (a) For purposes of the tax imposed by section 4161(b), and unless 
otherwise expressly indicated:
    (1) Bows. The term ``bows'' includes all articles made of flexible 
materials, that are designed to be equipped with a string and used for 
the propelling of arrows in the sport of archery (target shooting), or 
in hunting or fishing.
    (2) Arrows. The term ``arrows'' includes all articles designed or 
constructed to be propelled by a bow in the sport of archery (target 
shooting), or in hunting or fishing. The overall length of an arrow is 
to be measured from the point of the tip or arrow-head to the end of the 
arrow nock. In the case of arrows sold by the manufacturer without 
heads, tips, or nocks, the overall length is to include the length of 
the shaft plus the length of the nock and head or tip that is normally 
used with the particular type of arrow shaft.
    (b) Parts and accessories--(1) In general. ``Parts and accessories'' 
for bows and arrows include all articles (other than fishing reels) 
suitable for inclusion in, or attachment to, a bow or arrow of the type 
described in section 4161(b)(1) and paragraph (a) of this section. 
Examples of parts and accessories for bows are bow handles, bow limbs, 
bow strings, bow string silencers, bow stabilizers, arrow rests, bow 
slings, bow sights, bow levels, bow tip protectors, brush buttons, 
camouflaged bow covers, and all other articles designed to be attached 
to or included in a bow to assist in aiming or propelling an arrow, or 
to protect the bow while in use. Example of parts and accessories for 
arrows are arrow shafts, nocks, tips, heads, head adapters, and 
feathers.
    (2) General purpose materials and articles. General purpose 
materials and articles that are not specifically designed to directly 
improve the performance or appearance of bows or arrows, or to protect 
them while in use, are not considered to be ``parts and accessories'' 
for bows or arrows, even though such materials may be intended, after 
further processing, to be included in or attached to bows or arrows. An 
example of a nontaxable article that is designed for use with a bow, but 
is neither attached to a bow, nor serves a purpose directly related to 
the efficient use of a bow, is a carrying case for a bow. Examples of 
nontaxable general purpose materials or articles are glues and cements, 
feathers before they are prepared for use with arrows, and bowstring 
thread before it is processed into bowstrings. Arrow-shaft material is 
considered to be a taxable part for an arrow, unless the manufacturer, 
producer, or importer can establish that the particular material is 
unsuitable for use in the manufacture of arrows that are subject to the 
tax imposed by section 4161(b)(1)(B). In addition, the term ``parts and 
accessories'' does not include articles in the nature of expendable 
supplies, even though such articles are designed to be applied to, or 
used with, bows or arrows. Examples of such supply materials are 
bowstring wax, and archery powder.
    (c) Quivers. The term ``quivers'' includes all articles, of whatever 
material made, that are designed to contain, and to provide ready access 
to, taxable arrows during the time an archer is engaged in target 
shooting, hunting, or fishing. The term does not include any article 
designed solely for storing or transporting arrows during times when the 
arrows are not in use.

[[Page 152]]



Sec. 48.4161(b)-3  Use considered sale.

    For provisions relating to the tax on use of taxable articles by the 
manufacturer, producer, or importer thereof, see section 4218 relating 
to use by a manufacturer considered a sale, and the regulations 
thereunder.



Sec. 48.4161(b)-4  Tax-free sales.

    For provisions relating to tax-free sales of articles referred to in 
section 4161(b) see:
    (a) Section 4221, relating to certain tax-free sales;
    (b) Section 4222, relating to registration;
    (c) Section 4223, pertaining to special rules relating to further 
manufacture; and
    (d) Section 4225, relating to exemption of articles manufactured or 
produced by Indians;

and the regulations thereunder.



Sec. 48.4161(b)-5  Effective date.

    The taxes imposed by section 4161(b) are effective with respect to 
sales made on and after January 1, 1975.

Subpart L [Reserved]



     Subpart M_Special Provisions Applicable to Manufacturers Taxes



Sec. 48.4216(a)-1  Charges to be included in sale price.

    (a) In general. 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. See Sec. 48.0-2 (a) 
(5). However, for purposes of the taxes imposed under Chapter 32 certain 
collateral charges made in connection with the sale of a taxable article 
must be included in the taxable sale price, whereas others may be 
excluded. Any charge which is required by a manufacturer, producer, or 
importer to be paid as a condition of its sale of a taxable article and 
which is not attributable to an expense falling within one of the 
exclusions provided in section 4216 or the regulations thereunder is 
includible in the taxable sale price. It is immaterial for this purpose 
that the charge may be paid to a person other than the manufacturer, 
producer, or importer, or that it may be separately billed to the 
purchaser as a charge earmarked for expenses incurred or to be incurred 
in his behalf, such as charges for demonstration or display of the 
article, for sales promotion programs, or otherwise. With respect to the 
rules relating to exclusion (in the case of sales after December 31, 
1960) of charges for local advertising of a manufacturer's products, see 
section 4216(e) and Sec. 48.4216(e)-1. In the case of sales on credit, 
a carrying, finance, or service charge is excludable from the sale price 
if it is reasonably related to the costs of carrying the deferred 
portion of the sale price (such as interest on the deferred portion of 
the sale price, expenses of bookkeeping necessary to keep the records of 
such sales, and expenses of correspondence and other communication in 
connection with collection).
    (b) Tools and dies. Separate charges for tools and dies used in the 
manufacture or production of a taxable article are to be included, in 
whole or in part, in the sale price on which the tax is based. It is 
immaterial whether the charges for such items are billed in a lump sum 
or are amortized or allocated to each of the taxable articles. If, at 
the termination of a contract to manufacture taxable articles, the tools 
and dies used in production pass to the purchaser, only the amount of 
depreciation of the tools and dies incurred in production, computed on a 
``production output'' basis, should be included in the sale price. If 
the purchaser furnishes the tools and dies, the amount of the cost 
thereof, to the extent that such cost has been depreciated in the 
production of the taxable articles (computed on a ``production output'' 
basis), shall be included in determining the sale price of the articles 
for purposes of computing the tax. This paragraph applies to sales by 
manufacturers after May 5, 1974.
    (c) Charges for warranty. A charge for a warranty of an article 
which the manufacturer, producer, or importer requires the purchaser to 
pay in order to obtain the article shall be included in the sale price 
of the article on which the tax is computed. On the other

[[Page 153]]

hand, a charge for a warranty of a taxable article paid at the 
purchaser's option shall not be included in the sale price for purposes 
of computing tax thereon.
    (d) Charges for coverings, containers, and packing. Any charge by 
the manufacturer, producer, or importer for coverings and containers of 
whatever nature used to pack an article for shipment shall be included 
as part of the sale price for the purpose of computing the tax, whether 
or not the charges are identified as such on the invoice or are billed 
separately. Even though there is an agreement that the manufacturer, 
producer, or importer will repay all or a portion of the charge for the 
coverings or containers upon the return thereof, the full charge 
nevertheless shall be included in the sale price. It is immaterial 
whether the charge made at the time of sale is more or less than the 
actual value of the covering or container. See paragraph (b)(4) of Sec. 
48.6416(b)-1 for provisions relating to the claiming of a credit or 
refund in the case of a price readjustment due to the return or 
repossession of a covering or container. Packing charges are to be 
included in the sale price whether the charges cover normal packing or 
special packing services, such as for extra protection of the article or 
for odd-lot quantities. This rule shall apply whether the packing 
services are initiated by the manufacturer, producer, or importer or are 
furnished at the request of the purchaser and whether the packing is 
performed by the manufacturer, producer, or importer or by another 
person at his request. If the purchaser supplies packing materials, the 
fair market value of such materials must be included in the tax base 
when computing tax liability on the sale of the article.
    (e) Taxable and nontaxable articles sold as a unit. Where a taxable 
article and a nontaxable article are sold by the manufacturer as a unit, 
the tax attaches to that portion of the manufacturer's sale price of the 
unit which is properly allocable to the taxable article. For example, 
where a fishing reel (an article subject to tax under section 4161(a)) 
is equipped with a fishing line (a nontaxable article) and the reel and 
line are sold as a unit, the tax imposed by section 4161(a) applies only 
to that portion of the manufacturer's sale price of the unit which is 
properly allocable to the fishing reel. Normally, the taxable portion of 
such a unit may be determined by applying to the manufacturer's sale 
price of the unit the ratio which the manufacturer's separate sale price 
of the taxable article bears to the sum of the sale prices of both the 
taxable and nontaxable articles, if such articles are sold separately by 
the manufacturer. Where the articles (or either one of them) are not 
sold separately by the manufacturer and do not have established sale 
prices, the taxable portion is to be determined from a comparison of the 
actual costs of the articles to the manufacturer. Thus, if the cost of 
the taxable article represents four-fifths of the total cost of the 
complete unit, the tax applies to four-fifths of the price charged by 
the manufacturer for the unit.

[T.D. 7536, 43 FR 13517, Mar. 31, 1978]



Sec. 48.4216(a)-2  Exclusions from sale price.

    (a) Tax--(1) Tax not part of taxable sale price. The tax imposed by 
Chapter 32 of the Code on the sale of an article is not part of the 
taxable sale price of the article. Thus, if a manufacturer computes the 
tax on a sale price which is determined without regard to the tax, and 
it charges the proper tax as a separate item, the amount of tax so 
charged does not become a part of the taxable sale price and no tax is 
due on the tax so charged. Where no separate charge is made as tax, it 
will be presumed that the price charged to the purchaser for the article 
includes the proper tax, and the proper percentage of such price will be 
allocated to the tax.
    (2) Computation of tax. If an article subject to tax at the rate of 
10 percent is sold for $100 and an additional item of $10 is billed as 
tax, $100 is the taxable selling price and $10 is the amount of tax due 
thereon. However, if the article is sold for $100 with no separate 
billing or indication of the amount of the tax, it will be presumed that 
the tax is included in the $100, and a computation will be necessary to 
determine what portion of the total amount represents the sale price of 
the article

[[Page 154]]

and what portion represents the tax. The computation is as follows:

    Taxable sale price = sale price including tax/100+rate of tax.


Thus, if the tax rate is 10 percent and the sale price including tax is 
$100, the taxable sale price is $90.91 (that is, $100 divided by 
(100+10)), and the tax is 10 percent of $90.91, or $9.09.
    (b) Transportation, delivery, insurance, or installation charges--
(1) Charges incurred pursuant to sale. Charges for transportation, 
delivery, insurance, installation, and other expenses actually incurred 
in connection with the delivery of an article to a purchaser pursuant to 
a bona fide sale shall be excluded from the sale price in computing the 
tax. Such charges include all items of transportation, delivery, 
insurance, installation, and similar expense incurred after shipment to 
a customer begins, in response to the customer's order, pursuant to a 
bona fide sale. However, costs of such nature incurred by a 
manufacturer, producer, or importer in transporting, in the normal 
course of business and for its benefit and convenience, articles from a 
factory or port of entry to a warehouse or other facility (regardless of 
the location of such warehouse or facility) are not considered as being 
incurred in connection with the delivery of an article to a purchaser 
pursuant to a bona find sale, and charges therefor cannot be excluded 
from the sale price in computing tax liability. Similarly, an allowance 
granted by a manufacturer as reimbursement for expenses incurred by the 
purchaser in shipping used articles to the manufacturer for credit 
against the purchase price of taxable articles shall not be excluded 
from the sale price when computing tax due on the sale of the taxable 
articles. In any event, no charge may be excluded from the sale price 
unless the conditions set forth in subparagraph (2) of this paragraph 
are complied with. Said conditions are prescribed under the authority 
granted the Secretary or his delegate in section 4216(a).
    (2) Only actual expenses to be excluded. Where a separate charge is 
made for transportation or other expenses incurred in connection with 
the delivery of an article to the purchaser pursuant to a bona fide 
sale, there shall be excluded in arriving at the sale price subject to 
tax only that portion of the charge which represents the actual expenses 
incurred for the transportation or other excludible expenses. Where a 
separate charge is less than the actual expense, the difference is 
presumed to be included in the billed price. Such difference, together 
with the separate charge, shall be excluded in arriving at the sale 
price on which the tax is computed. Similarly, where no separate charge 
is made but the manufacturer, producer, or importer incurs an expense of 
the type to which this paragraph has application, the amount of such 
expense actually incurred shall be excluded from the sale price on which 
the tax is computed. Where transportation expense is incurred in 
conjunction with a shipment composed of both taxable and nontaxable 
articles, only the portion of the expense allocable to the taxable 
articles shall be excludible. In general, unless the taxpayer 
establishes to the satisfaction of the district director that another 
method reasonably apportions such freight expense between taxable and 
nontaxable articles, such expense should be apportioned on the basis of 
the relative weights (or, if available, the relative published tariff 
rates applicable to) the taxable and nontaxable articles. Where it is 
not feasible to apportion such expense on the basis of relative weights 
or tariff rates, the expense shall be apportioned on another reasonable 
basis; for example, in the case of a shipment including both taxable and 
nontaxable automotive parts which are subject to the same tariff rate, 
it may be appropriate to apportion the transportation expense on the 
basis of the relative sale prices. A charge for insurance in connection 
with the delivery of an article to a purchaser is considered to 
represent an expense actually incurred only to the extent that an amount 
equivalent to such charge is paid or payable by the manufacturer to a 
person authorized to assume such insurance risk.
    (3) Transportation, delivery, or installation services performed by 
manufacturer. For purposes of computing the taxable sale price of 
articles, it is immaterial whether the transportation, delivery,

[[Page 155]]

or other services of the type to which this paragraph has application 
are performed by a common carrier or independent agency for or on behalf 
of the manufacturer, producer, or importer, or are performed by the 
manufacturer, producer, or importer with the use of its own vehicles or 
other facilities. Thus, where a manufacturer, producer, or importer 
performs the transportation, delivery, or other services with its 
equipment, tools, employees, etc., the cost of such services allocable 
to the sale of the taxable article shall be excluded. In determining 
whether an expense is an excludible transportation or delivery expense, 
only those expenses incurred by reason of the fact that the purchaser 
accepts delivery at some point other than the manufacturer's place of 
business shall be considered excludible transportation or delivery 
expenses. All expenses incurred in placing an article packed, ready for 
shipment on the loading dock at the manufacturer's factory are not 
excludible transportation or delivery expenses. An allowance granted by 
the manufacturer, producer, or importer to the purchaser for 
transportation, delivery, or other expenses incurred or to be incurred 
by the purchaser in connection with the sale shall be excluded in 
computing the taxable sale price, if charges for similar expenses would 
be excludible if incurred by the manufacturer.
    (4) Records in support of exclusion. Every manufacturer, producer, 
or importer making sales of taxable articles shall keep records which 
will disclose the amount of transportation, delivery, insurance, 
installation or other expense actually incurred by it in connection with 
the delivery of a taxable article to a purchaser pursuant to a bona fide 
sale.
    (c) Other charges. A charge or expense not within the scope of 
paragraph (a) or (b) of this section, whether or not separately stated, 
may not be excluded in computing the taxable sale price unless it can be 
shown by adequate records that the charge or expense properly is not to 
be included as a manufacturing or selling expense or is in no way 
incidental to placing the article in condition packed ready for 
shipment. Commissions to manufacturers' agents, or allowances, payments, 
or adjustments made to, and for the benefit of, persons other than the 
purchaser may not be excluded or deducted, under any condition, in 
computing the sale price upon which the tax is computed.

[T.D. 7536, 43 FR 13518, Mar. 31, 1978; T.D. 7536, 43 FR 16974, Apr. 21, 
1978]



Sec. 48.4216(a)-3  Other items relating to tax on sale price.

    (a) Exchanges. If, in connection with the sale of an article subject 
to a tax imposed under Chapter 32 on the price for which sold, a 
manufacturer receives from its vendee another article in exchange, the 
tax on the manufacturer's sale shall be computed on the basis of the 
amount allowed for the article received from the vendee, plus any 
additional amount charged the vendee.
    (b) Replacements under warranty. If an article, subject to a tax 
imposed under Chapter 32 on the price for which sold, is returned to the 
manufacturer by reason of the failure of the article under a warranty as 
to its quality or service, and a new article is given by the 
manufacturer, free, or at a reduced price, the tax on the new article 
shall be computed on the actual amount, if any, to be paid to the 
manufacturer for the new article. See paragraph (b)(2) of Sec. 
48.6416(b)-1 for the circumstances under which the allowance made by the 
manufacturer, producer, or importer upon the return of the first article 
constitutes a price readjustment of the sale price of first article and 
the extent, if any, to which a credit may be allowed, or refund made, of 
the tax paid by the manufacturer, producer, or importer on the sale of 
the first article.
    (c) Readjustments in sale price. Readjustment in sale price (such as 
allowable discounts, rebates, bonuses, etc.) cannot be anticipated. The 
tax must be based upon the original price unless the readjustments have 
actually been made prior to the close of the period for which the tax 
upon the sale is returned. However, if the price upon which the tax was 
computed is subsequently readjusted, credit may be taken against the tax 
due on a subsequent return or a claim for refund filed

[[Page 156]]

as provided by section 6416(b)(1) and the regulations thereunder.

[T.D. 7536, 43 FR 13519, Mar. 31, 1978]



Sec. 48.4216(b)-1  Constructive sale price; scope and application.

    (a) In general. Section 4216(b) pertains to those taxes imposed 
under Chapter 32 that are based on the price for which an article is 
sold, and contains the provisions for constructing a tax base other than 
the actual sale price of the article, under certain defined conditions.
    (b) Specific applications. (1) Section 4216(b)(1) applies to:
    (i) Arm's-length sales at retail or on consignment, other than those 
sales at retail and to retailers to which section 4216(b)(2) and Sec. 
48.4216(b)-3 apply; and
    (ii) Sales otherwise than at arm's length, and at less than fair 
market price.
    (2) Section 4216(b)(2) applies generally to arm's-length sales of an 
article at retail or to retailers, or both, where the manufacturer also 
sells the same article to wholesale distributors.
    (3) Section 4216(b)(3) provides a formula for determining a 
constructive sale price for sales of taxable articles between members of 
an affiliated group of corporations (as ``affiliated group'' is defined 
in section 1504(a)) in those instances where the purchasing corporation 
regularly resells to retailers but does not regularly resell to 
wholesale distributors, and except for situations where section 4216(b) 
(4) or (5) applies.
    (4) Section 4216(b)(4) provides a special method for computing a 
constructive sale price for sales of taxable articles between affiliated 
corporations where the purchasing corporation sells only to retailers, 
and the normal method of selling within the industry is for 
manufacturers to sell to wholesale distributors.
    (5) Section 4216(b)(5) provides a special method for computing a 
constructive sale price for sales of articles subject to a tax imposed 
by section 4061(a) (trucks, buses, tractors, etc.) between affiliated 
corporations, where the purchasing corporation regularly sells such 
articles in arm's-length transactions to independent retailers.
    (c) Definitions. For purposes of section 4216(b) and the regulations 
thereunder and unless otherwise indicated:
    (1) Sale at retail. A ``sale at retail,'' or a ``retail sale'', is a 
sale of an article to a purchaser who intends to use or lease the 
article rather than resell it. The fact that articles are sold in 
wholesale lots, or at wholesale prices, will not change the character of 
such sales as ``sales at retail'' if the purchaser is not engaged in the 
business of reselling such articles, and acquires them for the purpose 
of using them rather than reselling them.
    (2) Retail dealers. A ``retail dealer'', or ``retailer'', is a 
person engaged in the business of selling articles at retail.
    (3) Wholesale distributor. The term ``wholesale distributor'' means 
a person engaged in the business of selling articles to persons engaged 
in the business of reselling such articles.

[T.D. 7613, 44 FR 23824, Apr. 23, 1979]



Sec. 48.4216(b)-2  Constructive sale price; basic rules.

    (a) In general. Section 4216(b)(1) sets forth the conditions that 
require the Secretary to construct a sale price on which to compute a 
tax imposed under Chapter 32 on the price for which an article is sold. 
The section requires a constructive sale price to be established where a 
taxable article is (1) sold at retail, (2) sold while on consignment, or 
(3) sold otherwise than through an arm's-length transaction at less than 
fair market price. See Sec. 48.4216 (b)-2 (c) for the treatment of 
articles taxable under section 4061(a).
    (b) Sales at retail. Section 4216(b)(1)(A) relates to the 
determination of a constructive sale price for sales of taxable articles 
sold at arm's length and at retail. In the case of such sales, the 
constructive sale price is the highest price for which such articles are 
sold to wholesale distributors, in the ordinary course of trade, by 
manufacturers or producers thereof, as determined by the Secretary. If 
the constructive sale price is less than the actual sale price, the 
constructive sale price shall be used as the tax base. If the 
constructive sale price is not less than the actual sale price, the 
actual sale price shall be considered as not less than fair market, and 
shall be used as the tax

[[Page 157]]

base. In determining the highest price for which articles are sold by 
manufacturers to wholesale distributors, there must be taken into 
consideration the normal industry practices with respect to section 4216 
(a) and (f) inclusions and exclusions. However, once a constructive sale 
price has been determined by the Secretary or his delegate, no further 
adjustment of such price shall be made. The provisions of section 
4216(b)(1)(A) and this paragraph shall not apply in those instances 
where the provisions of section 4216(b)(2) and Sec. 48.4216(b)-3 apply.
    (c) Sales of articles taxable under section 4061(a). With respect to 
sales made after December 31, 1978, in the case of an article the sale 
of which is taxable under section 4061(a) and which is sold at retail, 
the tax under this chapter shall be computed on a percentage (as 
determined by the Secretary but not greater than 100 percent) of the 
actual selling price based on the highest price for which such articles 
are sold by manufacturers and producers in the ordinary course of trade. 
The constructive sale price under this section shall be determined 
without regard to any individual manufacturer's or producer's cost.
    (d) Sales on consignment. As in the case of sales at retail, the 
constructive sale price for sales on consignment shall be the price for 
which such articles are sold, in the ordinary course of trade, by 
manufacturers or producers thereof, as determined by the Secretary or 
his delegate. For purposes of section 4216(b)(1)(B) and this paragraph, 
an article is considered to be sold on consignment if it is sold while 
it is on consignment to a person which has the right to sell, and does 
sell, such article in its own name, but never receives title to the 
article from the manufacturer. Ordinarily, the constructive sale price 
of an article sold on consignment is the net price received by the 
manufacturer from the consignee. The provisions of section 4216(b)(1)(B) 
and this paragraph shall not apply if the provisions of section 
4216(b)(2) and Sec. 48.4216(b)-3 apply.
    (e) Sales not at arm's length. For purposes of section 4216(b)(1)(C) 
and this paragraph, a sale is considered to be made under circumstances 
otherwise than at ``arm's length'' if:
    (1) One of the parties is controlled (in law or in fact) by the 
other, or there is common control, whether or not such control is 
actually exercised to influence the sale price, or
    (2) The sale is made pursuant to special arrangements between a 
manufacturer and a purchaser.

In the case of an article sold otherwise than at arm's length, and at 
less than fair market price, the constructive sale price shall be the 
price for which such articles are sold, in the ordinary course of trade, 
by manufacturers or producers thereof, as determined by the Secretary. 
Once such a constructive sale price has been determined, no further 
adjustment of such price shall be made. See sections 4216(b) (3), (4), 
and (5), and Sec. 48.4216 (b)-4, for specific methods for determining 
constructive sale prices for intercompany sales under certain defined 
conditions.

[T.D. 7613, 44 FR 23825, Apr. 23, 1979; 44 FR 47767, Aug. 15, 1979]



Sec. 48.4216(b)-3  Constructive sale price; special rule for arm's-length sales.

    (a) In general. Section 4216 (b)(2) provides a special rule under 
which a manufacturer shall determine a constructive sale price for his 
sales of taxable articles at retail, and to retail dealers, under 
certain conditions. The rule is applicable where:
    (1) The manufacturer regularly sells such articles at retail, or to 
retailers, or both, as the case may be,
    (2) The manufacturer also regularly sells such articles to one or 
more wholesale distributors in arm's-length transactions, and the 
manufacturer establishes that its prices in such cases are determined 
without regard to any benefit to be derived under section 4216(b)(2),
    (3) The transactions are arm's-length transactions, and
    (4) With respect to articles to which the tax imposed by section 
4061(a) applies (relating to trucks, buses, tractors, etc.), the normal 
method of sales for such articles within the industry is not to sell 
such articles at retail or to retailers, or combinations thereof.

[[Page 158]]


A manufacturer meeting the foregoing requirements shall base its tax 
liability for sales at retail and sales to retailers on the lower of its 
actual sale price or the highest price for which it sells the same 
articles under the same conditions to wholesale distributors.
    (b) Definitions. For purposes of section 4216(b)(2) and this 
section:
    (1) Actual sale price. ``Actual sale price'' means the actual 
selling price of an article determined in the same manner as sale price 
is determined for a taxable sale. Accordingly, such price must reflect 
the inclusions and exclusions set forth in sections 4216 (a) and (f), 
and any price adjustments described in section 6416(b)(1).
    (2) Highest price to wholesale distributors. The ``highest price'' 
charged wholesale distributors for an article by a manufacturer, 
producer, or importer thereof, is the highest price at which the 
manufacturer, producer, or importer sells the article to wholesale 
distributors, determined without regard to quantity. Such price shall be 
determined in the same manner as sale price is determined for a taxable 
sale with respect to sections 4216 (a) and (f) inclusions and 
exclusions; however, since the price is to be a ``highest'' price, no 
further adjustment may be made for price readjustments under section 
6416(b)(1).
    (3) Regular sales. An article is considered to sold ``regularly'' at 
retail or to retailers if sales are made at retail or to retailers 
periodically and recurringly as a regular part of the seller's business. 
If a seller makes only isolated or casual sales of an article at retail 
or to retailers, it is not considered to be selling ``regularly'' at 
retail or to retailers. Similarly, a manufacturer is considered to be 
making regular sales for an article to one or more distributors if it 
sells the article to at least one distributor periodically and 
recurringly as a regular part of its business.
    (4) Normal method of sales in industry. In the absence of a showing 
to the Commissioner of Internal Revenue of a more appropriate manner of 
determining the normal method of sales within an industry which is 
practical in application, the normal method of sales within an industry 
shall be regarded as not being at retail or to retailers, or both, if 
the industry dollar volume of sales which are at retail or to retailers, 
or both, is less than half the total industry dollar volume of sales at 
all levels of distribution by manufacturers, producers, or importers, 
including sales to other manufacturers, producers, or importers.
    (5) Industry. Each of the following categories of articles upon 
which tax is imposed by section 4061(a) constitutes a separate 
``industry'':
    (i) Taxable automobile trucks (consisting of automobile truck bodies 
and chassis);
    (ii) Taxable automobile buses (consisting of automobile bus bodies 
and chassis);
    (iii) Taxable truck and bus trailers and semitrailers (consisting of 
chassis and bodies of such trailers and semi-trailers); and
    (iv) Taxable tractors of the kind chiefly used for highway 
transportation in combination with a trailer or semi-trailer.
    (6) Application of section 4216(b)(2) to certain sales before June 
22, 1965. In the case of sales before June 22, 1965, of articles then 
taxable under section 4121 (relating to electric, gas, and oil 
appliances), section 4216(b)(2) also applied in the case of a sale of 
such an article to a special dealer. The applicability of section 
4216(b)(2) to such a sale may be determined by inserting ``or to a 
special dealer'' following ``or to a retailer'' in so much of section 
4216(b)(2) as precedes subparagraph (A); by inserting ``or to special 
dealers'' following ``retailers'' in section 4216(b)(2)(A); and by 
inserting ``(other than special dealers)'' after ``wholesale 
distributors'' in section 4216(b)(2)(B) and so much of section 
4216(b)(2) as follows section 4216(b)(2)(D). A ``special dealer'' was a 
distributor of articles taxable under section 4121 who did not maintain 
a sales force to resell the article whose constructive sale price was 
established under section 4216(b)(2) but relied on salesmen of the 
manufacturer, producer, or importer of the article. In the case of sales 
before June 22, 1965, of articles taxable under section 4191 (relating 
to business machines) or section 4211 (relating to matches), section 
4216(b)(2) was applicable in the

[[Page 159]]

same manner as in the case of articles taxable under section 4061(a). 
With respect to sales after September 30, 1972, section 4216(b)(2)(C) 
applied only to articles taxable under section 4061(a), 4191, or 4211. 
Section 4216(b)(2)(C) was applicable to sales before October 1, 1962, of 
all articles subject to tax under Chapter 32.

[T.D. 7613, 44 FR 23825, Apr. 23, 1979]



Sec. 48.4216(b)-4  Constructive sale price; affiliated corporations.

    (a) In general. Sections 4216(b) (3), (4), and (5) establish 
procedures for determining a constructive sale price under section 
4216(b)(1)(C) for sales between corporations that are members of the 
same ``affiliated group'', as that term is defined in section 1504(a).
    (b) Sales to which section 4216(b)(3) applies. Section 4216(b)(3), 
which applies to articles sold after December 31, 1969, provides a 
procedure for determining a constructive sale price under section 
4216(b)(1)(C) in those instances where:
    (1) A manufacturer, producer or importer regularly sells a taxable 
article (other than an article subject to a tax imposed by section 
4061(a) (trucks, buses, etc.)) to a wholesale distributor which is a 
member of the same affiliated group as the manufacturer, producer or 
importer, and
    (2) The wholesale distributor regularly sells such article to one or 
more independent retailers, but does not regularly sell to wholesale 
distributors.

Under such circumstances the constructive sale price for the article 
shall be an amount equal to 90 percent of the lowest price for which the 
distributor regularly sells the article in arm's-length transactions to 
such independent retailers. Once the constructive sale price has been 
determined, no adjustment shall be made for sections 4216 (a) and (f) 
inclusions or exclusions or section 6416(b)(1) price readjustments. If 
both section 4216(b)(3) and section 4216(b)(4) apply with respect to the 
sale of an article, the constructive sale price for such article shall 
be the lower of the prices computed under section 4216(b)(3) and section 
4216(b)(4).
    (c) Sales to which section 4216(b)(4) applies. Section 4216(b)(4), 
which applies to articles sold after December 31, 1969, provides a 
procedure for determining a constructive sale price under section 
4216(b)(1)(C) in those instances where:
    (1) A manufacturer, producer, or importer regularly sells (except 
for tax-free sales) a taxable article only to a wholesale distributor 
which is a member of the same affiliated group as the manufacturer, 
producer, or importer,
    (2) The distributor regularly sells (except for tax-free sales) such 
article only to retail dealers, and
    (3) The normal method of sales for such articles within the industry 
is to sell such articles in arm's-length transactions to wholesale 
distributors.

Section 4216(b)(4) applies with respect to articles taxable under 
section 4061(a) (relating to trucks, buses, etc.) only as to sales after 
December 31, 1969, and before January 1, 1971. Under section 4216(b)(4), 
the constructive sale price of such article shall be the median price at 
which the distributor, at the time of the sale by the manufacturer, 
resells the article to retail dealers, reduced by a percentage of such 
price equal to the percentage which:
    (i) The difference between the median price for which comparable 
articles are sold to wholesale distributors, in the ordinary course of 
trade, by manufacturers of producers thereof, and the median price at 
which such wholesale distributors in arm's-length transactions sell such 
comparable articles to retailers, is of
    (ii) The median price at which such wholesale distributors in arm's-
length transactions sell such comparable articles to retailers.

For purposes of this paragraph, the ``median price'' for which an 
article is sold at a particular level of distribution is the price 
midway between the highest and lowest prices charged vendees at the 
particular level of distribution. Where only one price is charged at a 
level of distribution, ``median price'' is equivalent to ``actual 
price''. All sale prices referred to in paragraphs (b), (c), (d), and 
(e) of this section are prices that must reflect the inclusions and 
exclusions set forth in sections 4216(a) and (f). However, once a 
constructive sale price has been determined under these paragraphs, no 
further adjustment of such price is allowed.

[[Page 160]]

    (d) Application of section 4216(b)(4). The application of section 
4216(b)(4) and paragraph (c) of this section may be illustrated by the 
following example:

    Example. M, a corporation engaged in the manufacture of article X, 
sold 100 of such articles at $10.00 per article to a wholesale 
distributor N, a corporation engaged in the business of selling X 
articles to independent retail dealers. N is a member of the same 
affiliated group of corporations as M. M sells X articles only to N. The 
normal method of manufacturers' sales of X articles in the industry is 
to sell to independent wholesale distributors. N corporation sells X 
articles to retailers for $15.00 each. The price for which comparable X 
articles are sold to wholesale distributors in the ordinary course of 
trade by manufacturers thereof is $12.00 per article. Wholesale 
distributors sell X articles to retailers in the ordinary course of 
trade for $16.00 per article. Under the foregoing facts the constructive 
sale price determined under section 4216(b)(4) and this paragraph is 
$11.25, computed as follows:
[GRAPHIC] [TIFF OMITTED] TC14NO91.111

    (e) Sales to which section 4216(b)(5) applies. Section 4216(b)(5), 
which applies to articles sold after December 31, 1970, provides a 
procedure for determining a constructive sale price under section 
4216(b)(1)(C) in those circumstances where:
    (1) A manufacturer, producer, or importer of an article subject to a 
tax imposed by section 4061(a) (trucks, buses, etc.) regularly sells 
such article to a wholesale distributor that is a member of the same 
affiliated group of corporations as the manufacturer, producer, or 
importer, and
    (2) Such distributor regularly sells such articles to independent 
retail dealers.


Under such circumstances the constructive sale price of such articles 
shall be 98\1/2\ percent of the lowest price for which such distributor 
regularly sells the article in arms's-length transactions to the 
independent retail dealers. Once the constructive sale price has been 
determined, no adjustment shall be made for section 4216 (a) and (f) 
inclusions or exclusions or section 6416(b)(1) price readjustments.
    (f) Determination of ``lowest price''. (1) In addition to other 
considerations, in determining a ``lowest price'' for purposes of 
section 4216(b) (1), (3), and (5) and Sec. 48.4216(b)-4(b), and 
48.4216(b)-4(e), such price shall be determined:
    (i) Without requiring that a given percentage of sales be made at 
that price (provided that the volume of sales made at that price is 
great enough to indicate that those sales have not been engaged in 
primarily to establish a lower tax base), and
    (ii) Without including any charge for a fixed amount that the 
purchaser has an unconditional right to recover on the basis of a 
contractual arrangement existing at the time of sale.
    (2) For purposes of applying section 4216(b)(1) and Sec. 
48.4216(b)-2, section 4216(b)(6) and this paragraph apply to articles 
sold after June 30, 1962. For purposes of applying section 4216(b)(3) 
and paragraph (b) of this section, section 4216(b)(6) and this paragraph 
apply to articles sold after December 31, 1969. For purposes of applying 
section 4216(b)(5) and paragraph (e) of this section, section 4216(b)(6) 
and this paragraph apply to articles sold after December 31, 1970.
    (g) Definitions. For purposes of this section and paragraphs (3), 
(4), and (5) of section 4216(b), the term ``regularly sells'' has the 
same meaning as that accorded the term ``regular sales'' in subparagraph 
(3) of Sec. 48.4216(b)-3(b), and the term ``normal method of sales in 
the industry'' has the same meaning as accorded that term in 
subparagraph (4) of Sec. 48.4216(b)-3(b).

[T.D. 7613, 44 FR 23826, Apr. 23, 1979; 44 FR 47767, Aug. 15, 1979]



Sec. 48.4216(c)-1  Computation of tax on leases and installment sales.

    (a) Leases. When a taxable article is leased by a manufacturer, 
producer, or importer, liability for tax is incurred,

[[Page 161]]

except as provided by section 4217(b) and Sec. 48.4217-2, on each 
payment made with respect to such lease. Tax is payable on each lease 
payment as long as the article is leased by the manufacturer, producer, 
or importer. The tax payable with respect to each lease payment is a 
percentage of each payment based on the rate of tax, if any, in effect 
on the date the lease payment is due. If the article is subsequently 
sold by the manufacturer, producer, or importer, the tax applies also to 
such sale, without regard to the tax paid when the article was leased. 
For definition of the term ``lease'', see paragraph (a) of Sec. 
48.4217-1(a).
    (b) Installment sales. When a taxable article is sold under an 
installment payment contract with title reserved in the seller, or under 
a conditional sale contract, chattel mortgage arrangement or other 
arrangement creating a security interest with payments to be made in 
installments, tax shall be computed and paid on each payment made by the 
purchaser. The tax payable with each payment is a percentage of each 
payment based on the rate of tax, if any, in effect on the date the 
payment is due. The part of each payment that is subject to tax is that 
portion of the payment equal to the percentage of the total charge for 
the article that is subject to tax. For example, if the total charge for 
the article is $1,000, and of the total amount charged only 90 percent 
thereof, or $900, is subject to tax by reason of exclusions, then only 
90 percent of the installment payment is subject to tax. If the tax base 
is a constructive sale price computed under section 4216(b) that is less 
than the actual sale price of the article, the portion of each payment 
subject to tax is the percentage of such payment equal to the percentage 
that the constructive sale price bears to the actual sale price. For 
example, if an article is sold at retail for $100, and the constructive 
sale price for such an article computed under the provisions of section 
4216(b)(1)(A) is $75, the percentage which the constructive sale price 
bears to the actual sale price is 75 percent. Accordingly, only 75 
percent of each installment payment is subject to tax.
    (c) Sales on credit. Where articles are sold on credit under 
conditions other than those specified in paragraph (b) of this section, 
the entire tax shall be reported and paid with the return covering the 
period in which the sale is made, even though the price may not be paid 
to the manufacturer, producer, or importer until a later date, or not 
paid at all.
    (d) Effective dates of paragraphs (a) and (b) of this section. The 
rules set forth in paragraphs (a) and (b) of this section are effective 
as of June 22, 1965. As in effect before June 22, 1965, section 4216(c) 
required, in the case of a transaction described in section 4216(c) (1), 
(2), (3), or (4), that there be paid upon each payment with respect to 
an article that portion of the total tax which was proportionate to the 
portion of the total amount to be paid represented by such payment.

[T.D. 7536, 43 FR 13519, Mar. 31, 1978]



Sec. 48.4216(d)-1  Sales of installment accounts.

    (a) In general. Except as provided in paragraph (d) of this section, 
in case of a sale or other disposition by a manufacturer, producer, or 
importer of an installment account of the type specified in section 
4216(c), the tax shall not apply to subsequent installment payments on 
such account. Instead, there shall be paid an amount equal to the 
difference between the tax previously paid on such installment account 
and the total tax computed by applying:
    (1) To each installment due before the sale of the installment 
account, the rate of tax applicable at the time payment thereof was due, 
and
    (2) To each installment, the time for payment of which has not 
arrived, the rate of tax which, under the provisions of Chapter 32 as in 
effect on the date of the sale of the installment account, is (or is to 
be) in effect on the date such installment is due.

However, see paragraph (b) of this section if the sale is made in a 
bankruptcy or insolvency proceeding. The tax due under this paragraph 
shall be included in the return for the period in which the account is 
sold.
    (b) Sale in bankruptcy or insolvency proceeding. In the case of a 
sale of an installment account of a manufacturer,

[[Page 162]]

producer, or importer pursuant to the order of, or subject to the 
approval of, a court of competent jurisdiction in a bankruptcy or 
insolvency proceeding, the amount of tax due shall be computed and paid 
as provided in paragraph (a) of this section but shall not exceed the 
amount of tax computed by multiplying (1) the proportionate share of the 
amount for which such accounts are sold which is allocable to each 
unpaid installment payment, by (2) the rate of tax which, under the 
provisions of chapter 32 as in effect on the date of the sale of the 
installment account, is (or is to be) in effect on the date such payment 
is due.
    (c) Collection of installment accounts on behalf of the 
manufacturer. Where a manufacturer, producer, or importer retains title 
to an installment account but turns it over to another person for 
collection on a fee basis, no sale of such account (or other disposition 
as contemplated in section 4216(d)) has been made. The tax shall 
continue to be paid as provided by section 4216(c).
    (d) Returned installment accounts. Where an installment account 
which has been sold or otherwise disposed of is returned to the 
manufacturer, producer, or importer who sold it under an agreement under 
which the account was sold, and credit or refund has been allowed under 
section 6416(b)(5) and the regulations thereunder, the manufacturer, 
producer, or importer shall pay tax as provided by section 4216(c) and 
Sec. 48.4216(c)-1 on any subsequent payments made on such returned 
installment account until such time as there shall have been paid the 
total tax liability with respect to the account as computed under 
paragraph (a) of this section.
    (e) Limitation. The sum of the amounts payable under this section 
and Sec. 48.4216(c)-1 on an installment account shall not exceed the 
total amount of tax which would be payable if such installment account 
had not been sold or otherwise disposed of (computed as provided in 
subsection (c)).
    (f) Applicability of paragraphs (a) and (b) of this section. The 
rules set forth in paragraphs (a) and (b) of this section apply in the 
case of installment accounts sold after June 21, 1965. In the case of 
installment accounts sold before June 22, 1965, paragraph (b) of this 
section shall be applied by substituting, in lieu of subparagraph (2) 
thereof, ``the rate of tax, as set forth in chapter 32 of the Code, 
which applied on the day on which the transaction giving rise to such 
installment accounts took place.''

[T.D. 7536, 43 FR 13520, Mar. 31, 1978]



Sec. 48.4216(e)-1  Exclusion of local advertising charges from sale price.

    (a) In general. Section 4216(e) deals with the treatment to be 
accorded charges made by a manufacturer for, and reimbursements by a 
manufacturer of expenditures in connection with, the advertising of 
certain articles subject to excise tax under chapter 32 of the Code. 
Section 4216(e) provides an exclusion (which is in addition to the 
exclusions provided by section 4216(a) and the regulations thereunder) 
in respect of charges for local advertising, as defined in paragraph (b) 
of this section, for purposes of determining the price for which an 
article is sold. See paragraph (c) of this section. The exclusion 
provided by section 4216(e) and paragraph (c) of this section has 
application only if:
    (1) In the case of articles sold during the period January 1, 1961, 
through December 31, 1962, the advertising is broadcast over a radio or 
television station, or appears in a newspaper; and
    (2) In the case of articles sold on or after January 1, 1963, the 
advertising is broadcast over a radio or television station, appears in 
a newspaper or magazine, or is displayed by means of an outdoor 
advertising sign or poster.

Section 4216(e) also provides an overall limitation in respect of the 
sum of the amount of the exclusions from price as charges for local 
advertising and the amount of the readjustments authorized under section 
6416(b)(1) (relating to credits or refunds for price readjustments) in 
respect of reimbursements by a manufacture of expenditures for local 
advertising. See Sec. 48.4216(e)-2. For provisions prohibiting 
exclusion from price or readjustment of price in respect of charges for, 
and reimbursements of expenditures for, advertising other than local 
advertising, see Sec. 48.4216(e)-3.

[[Page 163]]

    (b) Definition of local advertising--(1) In general. For purposes of 
the regulations under sections 4216(e) and 6416(b)(1), the term ``local 
advertising'' means advertising which relates to an article with respect 
to which tax is imposed under Chapter 32 of the Code on the price for 
which sold and which:
    (i) Is initiated or obtained by the purchaser or any subsequent 
vendee,
    (ii) Names the article for which the price is determinable under 
section 4216 and states the location at which such article may be 
purchased at retail, and
    (iii)(a) In the case of articles sold on or after January 1, 1961, 
and before January 1, 1963, is broadcast over a radio station or 
television station or appears in a newspaper, or
    (b) In the case of articles sold on or after January 1, 1963, is 
broadcast over a radio station or television station, appears in a 
newspaper or magazine, or is displayed by means of an outdoor 
advertising sign or poster.
    (2) Initiating or obtaining advertising. For purposes of 
subparagraph (1) of this paragraph, the advertising must be initiated or 
obtained by one or more of the persons in the chain of distribution of 
the article (wholesale distributor, jobber, dealer, etc.) who purchased 
the article for resale. For purposes of this subparagraph, the 
manufacturer is not considered to be one of the persons in the chain of 
distribution of the article. In general, advertising of an article is 
considered to be initiated or obtained by one or more persons in the 
chain of distribution of the article if any such person:
    (i) Takes an active part in the actual planning and development, or 
in the arrangements or negotiations leading to the development, of the 
form and content of the advertising, or
    (ii) Contracts for the placement of the advertising.

The participation by the manufacturer of the article in the planning, 
development, or placement of the advertising is immaterial provided the 
advertising is in fact initiated or obtained by one or more persons in 
the chain of distribution of the article. Furthermore, it is immaterial 
whether or not the advertising is subject to the approval of the 
manufacturer of the article. However, if no person in the chain of 
distribution of the article takes an active part in the actual planning 
and development, or in the arrangements or negotiations leading to the 
development, of the form and content of the advertising, but, rather, 
all such planning, development, arrangements, and negotiations are 
accomplished by the manufacturer of the article, then such manufacturer 
is considered to have initiated the advertising, and if he also 
contracts for the placement of the advertising, such advertising does 
not qualify as ``local advertising''.
    (3) Identification of article and sales location. To meet the 
requirements of subparagraph (1) of this paragraph, the advertising must 
identify the article for which the price is determinable under section 
4216 and give the location or locations at which the article may be 
purchased at retail. All products taxable at the same rate under the 
same section of chapter 32 of the Code shall be considered to be an 
``article'' for purposes of the preceding sentence. No specific method 
or means of identification is prescribed. The identification of the 
article may be made through the use of the name of the manufacturer or 
the use of an established trade-mark, such as a seal, picture, letter or 
letters, etc., or a combination thereof. The advertising must identify 
the particular retail establishment or establishments at which the 
article may be purchased at retail but need not specify the location of 
any such establishment in terms of the number by which the premises are 
designated or the name of the street on which the retail premises are 
situated. However, the location of the retail premises must be described 
sufficiently, as, for example, by reference to a particular named 
shopping area or shopping center, to enable consumers to find the retail 
establishment.
    (4) Determination of costs of local advertising. Where an 
advertisement identifies more than one article, and all such articles 
are not taxable, or are not taxable at the same rate under the same 
section of Chapter 32 of the Code, a reasonable allocation of the cost 
of the advertisement must be made among (i) articles taxable at the same 
rate under the same section of the Code and (ii) articles which are not 
taxable

[[Page 164]]

under Chapter 32 of the Code. For example, in the case of a single page 
newspaper or magazine advertisement, an allocation of costs reflecting 
the lineage or space devoted to the specified categories will be 
considered to reflect a reasonable allocation of the cost of advertising 
the different articles. As a general rule, only the cost of the ``spot'' 
portion identifying the retail establishment is considered ``local 
advertising'' in the case of national television or radio programs.
    (5) Meaning of ``newspaper''. The term ``newspaper'', as used in 
subparagraph (1) of this paragraph, is limited to those publications 
which are commonly understood to be newspapers and which are printed and 
distributed periodically at daily, weekly, or other short intervals for 
the dissemination of news of a general character and of a general 
interest. The term does not include handbills, circulars, flyers, or the 
like, unless printed and distributed as a part of a publication which 
constitutes a newspaper within the meaning of this subparagraph. Neither 
does the term include any publication which is issued to supply 
information on certain subjects of interest to particular groups unless 
such publication otherwise qualifies as a newspaper within the meaning 
of this subparagraph. For purposes of this subparagraph, advertising is 
not considered to be news of a general character and of a general 
interest.
    (6) Meaning of ``magazine''. The term ``magazine'', as used in 
subparagraph (1) of this paragraph, is limited to those publications 
which are (i) commonly understood to be magazines, (ii) printed and 
distributed periodically at least twice a year, and (iii) published for 
the dissemination of information of a general nature or of special 
interest to particular groups. The term does not include handbills, 
circulars, flyers or the like, unless printed and distributed as a part 
of a publication which constitutes a magazine within the meaning of this 
subparagraph. For purposes of this subparagraph, advertising is not 
considered to be information of a general nature or information of 
special interest to particular groups within the contemplation of 
subdivision (iii) of this subparagraph.
    (7) Meaning of ``outdoor advertising sign or poster''. The term 
``outdoor advertising sign or poster'', as used in subparagraph (1) of 
this paragraph, means a sign or poster displaying advertising matter, 
which is located outside of a roofed enclosure. This term includes both 
signs or posters on billboards, whether placed on or affixed to land, 
buildings, or other structures, and those which are displayed on or 
attached to moving objects, provided the signs or posters are located 
outside of a roofed enclosure. The term ``roofed enclosure'' means a 
roof structure which is enclosed on more than one-half of its sides by 
walls, fences, or other barriers.
    (c) Exclusion--(1) Conditions and limitations. A charge for local 
advertising which is required by a manufacturer to be paid as a 
condition to his sale of an article is not a part of the taxable price 
of the article, to the extent that such charge meets each of the 
following conditions and limitations:
    (i) Such charge does not exceed 5 percent of the difference between 
(a) an amount which would constitute to taxable price of the article 
(computed at the time of the sale of the article) if no part of any 
charge for local advertising were excludable in computing taxable price 
and (b) the amount of any separate charge for local advertising, 
whatever the amount of such charge may be,
    (ii) Such charge is specifically shown as a separate charge for 
local advertising on the invoice or statement covering the sale of the 
article.
    (iii) Such charge is billed by the manufacturer with the intention 
on his part of repaying the amount of the charge to the person 
purchasing the article from him, or to any person who subsequently 
purchases the article for resale, in reimbursement of costs incurred or 
local advertising of such article or some other article or articles 
taxable at the same rate under the same section of the Code. In the 
absence of evidence to the contrary, the fact of such intention will be 
assumed in all cases where the manufacturer and his vendees are parties 
to an advertising plan which calls for such repayments, or the 
manufacturer can otherwise establish that the vendees to whom he bills 
such charges understand

[[Page 165]]

and expect that such repayments will be made.
    (2) When exclusion ceases to apply. To the extent that charge for 
local advertising meets the conditions and limitations stated in 
subparagraph (1) of this paragraph, such charge is excludable in 
computing the taxable price of the article in respect of which the 
charge was made. However, the exclusion will cease to apply in respect 
of any part of such charge which the manufacturer fails to repay, before 
May 1 of the calendar year following the calendar year in which the 
article was sold, to the person who purchased the article from him, or 
to some other person who subsequently purchases the article for resale, 
in reimbursement of costs incurred for local advertising of such article 
or some other article or articles taxable at the same rate under the 
same section of the Code. If, before such May 1, any part of the charge 
so excluded has not been so repaid, the manufacturer becomes liable for 
tax on such May 1 in the same manner as if an article taxable under such 
section of the Code had been sold by him on such May 1 at a taxable 
price equivalent to that part of the charge not so repaid. However, see 
paragraph (c)(2) of Sec. 48.6416(b)-1, relating to price readjustments 
in cases where local advertising charges are not repaid before such May 
1 but are subsequently paid over by the manufacturer to his vendees in 
reimbursement of costs for local advertising. For provisions relating to 
the method of determining whether a payment by a manufacturer is or is 
not attributable to an excluded local advertising charge, see paragraph 
(b)(3) of Sec. 48.4216(e)-2. In any case where the payment is 
determined to be attributable to such a charge, the date of the sale in 
connection with which the charge was made shall be determined on a 
first-in-first-out basis in respect of the vendee to whom the charge was 
billed by the manufacturer.
    (d) Examples. The application of this section may be illustrated by 
the following examples:

    Example (1). During the first calendar quarter of 1961, a 
manufacturer sold refrigerators to one of his distributors at a total 
charge of $10,500, exclusive of tax, transportation charges, delivery 
charges, or other charges which are excludable in computing taxable 
price pursuant to section 4216(a). This total charge of $10,500 was 
billed as follows:

Refrigerators...............................................     $10,000
Local advertising charge....................................         500
                                                             -----------
  Total charge..............................................      10,500
 


At the time of the manufacturer's sales of the refrigerators, it was his 
intention, in accordance with the agreement between him and the 
distributor, to make repayment to the distributor of the local 
advertising charge, to the extent of expenditures by the distributor for 
radio, television, or newspaper advertising specifically naming 
refrigerators or other articles taxable at the same rate under section 
4111 which were manufactured by the manufacturer, and giving the 
location of various retail stores within the distributor's territory 
where such articles may be purchased. Pursuant to such agreement, the 
selection of the advertising medium to be employed is to be made by the 
distributor, who is to plan the advertising subject to approval by the 
manufacturer, and contract for its placement. In this example, the 
advertising for which the charge is made qualifies as local advertising, 
the charge is billed to the manufacturer's vendee as a separate charge, 
the manufacturer intends to repay the charge to his vendee in 
reimbursement of costs incurred by the vendee for local advertising, and 
the charge does not exceed 5 percent of $10,000. Accordingly, the 
manufacturer's charge of $500 for local advertising is not includible in 
the taxable price of the refrigerators for purposes of computing and 
paying the tax imposed by section 4111.
    Example (2). Assume the same facts as those stated in Example (1), 
and assume further that prior to May 1, 1962, the manufacturer has 
repaid to the distributor, in reimbursement of local advertising 
expenses incurred by the distributor in connection with refrigerators or 
other articles taxable at the same rate under section 4111 sold to him 
by the manufacturer, $400 of the $500 billed as a local advertising 
charge by the manufacturer in connection with his sale of refrigerators 
to the distributor in the first quarter of 1961. The manufacturer is 
liable, as of May 1, 1962, for tax in respect of the $100 which has not 
been repaid to the distributor. The amount of the tax is determinable at 
the rate in effect under section 4111 on May 1, 1962, in respect of 
refrigerators and is includible in the manufacturer's return of tax 
under such section for the second quarter of 1962.
    Example (3). During the first calendar quarter of 1961, a 
manufacturer sold refrigerators to one of his distributors at a total 
charge of $11,000, exclusive of tax, transportation charges, delivery 
charges, or other charges which are excludable in computing taxable 
price under section 4216(a). This total charge of $11,000 was billed as 
follows:

[[Page 166]]



Refrigerators...............................................     $10,000
Local advertising charge....................................       1,000
                                                             -----------
  Total charge..............................................      11,000
 


At the time of the manufacturer's sales of the refrigerators, it was his 
intention, in accordance with the terms of a cooperative advertising 
plan to which the manufacturer and the distributor were parties, to make 
repayment to the distributor of the local advertising charge. Pursuant 
to the plan, the repayment would be made to the extent of expenditures 
by the distributor for radio, television, or newspaper advertising, 
initiated or obtained by him, specifically naming refrigerators or other 
articles taxable at the same rate under section 4111 which were 
manufactured by the manufacturer, and giving the location of various 
retail stores within the distributor's territory where such articles may 
be purchased. In this example, only $500 of the manufacturer's charge of 
$1,000 for local advertising may be excluded in determining the taxable 
price of the refrigerators for purposes of reporting and paying the tax 
imposed by section 4111. The remaining $500 may not be excluded in 
computing the taxable price of the refrigerators since this is the 
amount by which the $1,000 local advertising charge exceeds 5 percent of 
$10,000. Thus, the taxable price of the refrigerators in this example is 
$10,500.
    Example (4). Assume the same facts as those stated in Example (1), 
except that, pursuant to the agreement between the manufacturer and the 
distributor, the manufacturer is to contract for the placement of the 
local advertising. Payment of the $500 local advertising charge is to be 
made by the manufacturer to the person with whom the advertising is 
placed in satisfaction of the manufacturer's contractual liability to 
such person. Under these circumstances, the manufacturer's payment of 
the $500 charge to the person with whom the advertising is placed does 
not constitute a refund to the purchaser in reimbursement of costs 
incurred for local advertising.


[T.D. 6635, 28 FR 1201, Feb. 7, 1963, as amended by T.D. 6686, 28 FR 
11410, Oct. 24, 1963. Redesignated and amended by T.D. 7536, 43 FR 
13520, Mar. 31, 1978]



Sec. 48.4216(e)-2  Limitation on aggregate of exclusions and price readjustments.

    (a) In general. The sum of the amount excluded from taxable price in 
respect of charges for local advertising, as provided in section 
4216(e)(1) and Sec. 48.4216(e)-1, plus the amount of the readjustments 
for which credits or refunds may be claimed in respect of local 
advertising, as provided in section 6416(b)(1) and paragraph (c) of 
Sec. 48.6416(b)-1, is subject to an over-all 5 percent limitation. This 
limitation applies to each manufacturer, as of the close of each 
calendar quarter, in respect of all articles taxable under the same 
section of Chapter 32 which were sold by such manufacturer in such 
quarter (and the preceding quarter of quarters, if any, in the calendar 
year). For example, a manufacturer selling articles taxable under 
section 4061 (relating to automobiles, trucks, buses, etc.), and also 
selling articles taxable under section 4111 (relating to refrigerators, 
quick-freeze units, etc.), who makes separate charges for local 
advertising in connection with his sales, or who makes reimbursement of 
local advertising expenses to his vendees out of moneys previously 
included in taxable price, in respect of any one or more articles in 
each of the two groups must apply the limitation separately in relation 
to the articles taxable under section 4061 and in relation to the 
articles taxable under section 4111. However, in such case, no breakdown 
of the separate articles taxable under section 4061, or of the separate 
articles taxable under section 4111, is required.
    (b) Computation of over-all 5 percent limitation--(1) In general. 
The limitation prescribed by section 4216(e)(2) (the ``over-all 5 
percent limitation'' referred to in paragraph (a) of this section) as to 
the total of the exclusions from price and readjustments of price which 
may be claimed for local advertising in respect of all articles taxable 
under the same section of Chapter 32 of the Code shall be computed as of 
the close of each calendar quarter of the calendar year. The over-all 5 
percent limitation is 5 percent of the difference between (i) the amount 
which would constitute the total taxable price (computed at the time of 
sale) of all articles taxable under the same section of Chapter 32 of 
the Code sold by the manufacturer during the elapsed calendar quarters 
of the calendar year, if no part of any charge for local advertising 
were excludable in computing taxable price, and (ii) the total of all 
amounts billed as separate charges for local advertising of such 
articles (whatever the amount of any single charge of the total of all 
charges).

[[Page 167]]

In making the computations under subdivisions (i) and (ii) of this 
subparagraph, credits or refunds under section 6416(b) of tax paid on 
the sale of any such articles are to be disregarded and articles sold 
tax-free by the manufacturer are to be excluded. The amount by which the 
over-all 5 percent limitation computed as of the close of a particular 
calendar quarter in respect of articles taxable under the same section 
of the Code exceeds the sum of the charges for local advertising 
excluded in computing the taxable price and the amount of reimbursements 
for local advertising of such articles made during the elapsed calendar 
quarters of the calendar year, in respect of which credit or refund has 
been claimed, represents the unused portion of the over-all 5 percent 
limitation. Such unused portion is the maximum amount of reimbursements 
for local advertising in respect of which credit or refund may be 
claimed at the close of the particular calendar quarter, subject to the 
applicable conditions and limitations governing the right to claim a 
credit or refund in respect of local advertising (see Sec. 48.6416(b)-
1). The unused portion of the over-all 5 percent limitation as of the 
close of the fourth calendar quarter of a calendar year in respect of 
which credit or refund may not be claimed as of the close of such 
quarter must be disregarded in computing the over-all 5 percent 
limitation for any subsequent calendar quarter. Moreover, the amount of 
any reimbursements for local advertising made by a manufacturer in a 
calendar year which is in excess of the amount of such reimbursements in 
respect of which credit or refund may be claimed, within the over-all 
limitation, as of the close of the calendar year, may not subsequently 
serve as the basis for a credit or refund.
    (2) Alternative method of computation in certain cases. If during 
the portion of the calendar year ending with the date as of which the 
over-all 5 percent limitation is being computed the amount of the local 
advertising charge separately billed by the manufacturer has not, in 
respect of any sale of any articles taxable under the same section of 
Chapter 32 of the Code, exceeded the amount excludable pursuant to 
paragraph (c) of Sec. 48.4216(e)-1 in computing taxable price, the 
over-all 5 percent limitation as of the close of a particular calendar 
quarter in respect of articles taxable under such section is 5 percent 
of the total taxable price (computed at the time of the sale) of all 
such articles sold taxpaid during the calendar year.
    (3) Allocation of amounts paid in reimbursement of expenditures for 
local advertising. If a manufacturer makes contributions to a local 
advertising program in connection with which he makes excludable local 
advertising charges, it is necessary that reimbursements by the 
manufacturer for local advertising be attributed to the charges for 
local advertising, to the manufacturer's contributions, or allocated 
between them. Whether an amount paid by a manufacturer in reimbursement 
of expenses for local advertising is or is not a repayment of a local 
advertising charge which was excluded from taxable price under section 
4216(e)(1) and Sec. 48.4216(e)-1, shall be determined on the basis of 
an allocation made under the agreement between the manufacturer and his 
vendee (or any subsequent vendee).
    (c) Examples. The application of paragraphs (a) and (b) of this 
section may be illustrated by the following examples:

    Example (1). During the first and second calendar quarters of 1961, 
a manufacturer makes sales of articles taxable under section 4111 to his 
distributors. The total charges for such sales, exclusive of the tax, 
transportation charges, delivery charges, or other charges which are 
excludable, pursuant to section 4216(a), in computing taxable price, are 
as follows:

                              First Quarter
Articles taxable under section 4111.........................    $100,000
Local advertising charges...................................       3,000
                                                             -----------
  Total charge..............................................    $103,000
 


                             Second Quarter
Articles taxable under section 4111.........................    $150,000
Local advertising charges...................................       4,000
                                                             -----------
  Total charge..............................................    $154,000
 


Assume further that the manufacturer contributes to the advertising plan 
and that the manufacturer pays $5,500 and $1,000 during the first and 
second calendar quarters of 1961, respectively, to his distributors in 
reimbursement of expenses incurred by them for local advertising of the 
articles purchased from the manufacturer.

[[Page 168]]


            Computation as of close of first calendar quarter
1. Amount which would constitute total taxable price            $103,000
 (computed at time of sale) if not part of any charge for
 local advertising were excludable in computing taxable
 price......................................................
2. Amounts billed as separate charges for local advertising.       3,000
                                                             -----------
3. Difference...............................................    $100,000
4. Over-all 5 percent limitation (5 percent of item 3)......      $5,000
5. Amount excluded in computing taxable price...............       3,000
                                                             -----------
6. Unused portion of limitation.............................      $2,000
7. Allocation, pursuant to agreement, or $5,500 paid to
 distributors:
    Charges for local advertising...........................      $3,000
    Contributions by manufacturer...........................       2,500
 

Readjustment may be claimed in respect of that portion of the total 
amount repaid to the distributors which is allocated to the 
manufacturer's contribution ($2,500) to the extent that such portion 
does not exceed the unused portion of the over-all 5 percent limitation 
($2,000). Accordingly, as of the close of the first calendar quarter the 
manufacturer may claim credit or refund in respect of a readjustment or 
price in the amount of $2,000.

           Computation as of close of second calendar quarter
1. Amount which would constitute total taxable price            $257,000
 (computed at time of sale) if not part of any charge for
 local advertising were excludable in computing taxable
 price $103,000+ $154,000)..................................
2. Amounts billed as separate charges for local advertising        7,000
 ($3,000+$4,000)............................................
                                                             -----------
3. Difference...............................................    $250,000
4. Over-all 5 percent limitation (5 percent of item 3)......     $12,500
5. Amount excluded in computing taxable price                      9,000
 ($3,000+$4,000) plus readjustment claimed at end of first
 calendar quarter ($2,000)..................................
                                                             -----------
6. Unused portion of limitation.............................      $3,500
7. Allocation, pursuant to agreement, of $6,500
 ($5,500+$1,000) paid to distributors:
    Charges for local advertising...........................      $3,500
    Contributions by manufacturer...........................       3,000
 

Although the total reimbursements for local advertising expenses 
attributable to contributions by the manufacturer ($3,000) does not 
exceed the unused portion of the over-all 5 percent limitation ($3,500), 
the manufacturer having taken, at the close of the first calendar 
quarter, a price readjustment in the amount of $2,000 in respect of his 
contributions is entitled at the close of the second calendar quarter to 
claim credit or refund in respect of a price readjustment in the amount 
of $1,000 ($3,000-$2,000).
    Example (2). During the first calendar quarter of 1961, a 
manufacturer sold articles taxable under section 4111 to his 
distributors at a total charge of $106,000, exclusive of the tax, 
transportation charges, delivery charges, or other charges which are 
excludable, pursuant to section 4216(a), in computing taxable price. 
This total charge of $106,000 was billed as follows:

Articles taxable under section 4111.........................    $100,000
Local advertising charges...................................       6,000
                                                             -----------
    Total charge............................................    $106,000
 


Assume further that the manufacturer contributes to the advertising plan 
and that the manufacturer pays $3,000 during the first calendar quarter 
of 1961 to his distributors in reimbursement of expenses incurred by 
them for local advertising of the articles purchased from the 
manufacturer.

            Computation as of close of first calendar quarter
1. Amount which would constitute total taxable price            $106,000
 (computed at time of sale) if not part of any charge for
 local advertising were excludable in computing taxable
 price......................................................
2. Amounts billed as separate charges for local advertising.       6,000
                                                             -----------
3. Difference...............................................    $100,000
                                                             -----------
4. Over-all 5 percent limitation (5 percent of item 3)......      $5,000
5. Amount excluded in computing taxable price (see paragraph       5,000
 (c) of Sec.  48.4216(e)-1)................................
                                                             -----------
6. Unused portion of limitation.............................          $0
                                                             -----------
7. Allocation, pursuant to agreement, of $3,000 paid to
 distributors:
    Charges for local advertising...........................      $2,000
    Contributions by manufacturer...........................       1,000
 

Credit or refund may not be claimed in respect of that portion of the 
total amount repaid to the distributors ($3,000) which is allocated to 
the manufacturer's contribution ($1,000) since the amount excluded in 
computing taxable price is equal to the over-all 5 percent limitation.


[T.D. 6635, 28 FR 1203, Feb. 7, 1963. Redesignated and amended by T.D. 
7536, 43 FR 13520, Mar. 31, 1978]



Sec. 48.4216(e)-3  No exclusion or readjustment for other advertising charges or reimbursements.

    (a) Exclusions from price. No exclusion in computing the taxable 
price of any article sold by the manufacturer may be allowed in respect 
of any charge for advertising if, and to the extent that, such charge:
    (1) Is for advertising which does not qualify as local advertising 
within the meaning of section 4216(e)(4) and paragraphs (a) and (b) of 
Sec. 48.4216(e)-1, or
    (2) Does not satisfy all of the conditions and limitations stated in 
section 4216(e)(1) and paragraph (c) of Sec. 48.4216(e)-1.
    (b) Readjustments of price. No credit or refund under section 
6416(b)(1) may be allowed in respect of any amount which was included in 
the taxable price of an article sold by the manufacturer

[[Page 169]]

and which was later paid by him to his vendee in reimbursement of costs 
incurred for advertising, if, and to the extent that, the amount so 
paid:
    (1) Is for advertising which does not qualify as local advertising 
within the meaning of section 4216(e)(4) and paragraph (b) of Sec. 
48.4216(e)-1, or
    (2) Is not within the limitation provided in section 4216(e)(2), as 
computed in accordance with Sec. 48.4216(e)-2, as of the close of the 
calendar quarter in which the amount is so paid over or as of the close 
of any subsequent calendar quarter in the same calendar year. See, 
however, paragraph (c)(2)(ii) of Sec. 48.6416(b)-1, relating to 
redetermination of price readjustments in cases where local advertising 
charges excluded from taxable price in one calendar year become taxable 
as of May 1 of the following calendar year.

[T.D. 6686, 28 FR 11411, Oct. 24, 1963. Redesignated and amended by T.D. 
7536, 43 FR 13521, Mar. 31, 1978]



Sec. 48.4216(f)-1  Value of used components excluded from price of certain trucks.

    For purposes of the tax imposed by section 4061(a)(1) (relating to 
trucks, buses, etc.), in determining the price for which an article is 
sold, the value of any previously used component of such article shall 
be excluded from the price if the person furnishing the component is the 
first user of the finished article. For example, where a manufacturer 
builds a truck for a customer who intends to use, rather than resell the 
truck, incorporating used parts furnished by the customer, the value of 
the previously used parts shall not be included in the price for which 
the truck is considered sold by the manufacturer.

[T.D. 7536, 43 FR 13521, Mar. 31, 1978]



Sec. 48.4217-1  Lease considered as sale.

    For purposes of Chapter 32 of the Code, the lease of an article by a 
manufacturer, producer, or importer shall be considered a sale of the 
article. The term ``lease'' means a contract or agreement, written or 
verbal, which gives the lessee an exclusive, continuous right to the 
possession or use of a particular article for a period of time. The term 
includes any renewal or extension of a lease or any subsequent lease of 
the article. However, in the case of the lease of an automobile the sale 
of which by the manufacturer would be taxable under section 4064, the 
term includes only the first lease (excluding any renewal or extension 
of the lease) of such automobile by the manufacturer.

[T.D. 7536, 43 FR 13521, Mar. 31, 1978, as amended by T.D. 8036, 50 FR 
29963, July 23, 1985]



Sec. 48.4217-2  Limitation on amount of tax applicable to certain leases.

    (a) Conditions for eligibility. Section 4217(b) provides for a 
limitation on the amount of tax that shall apply to the lease, any 
renewal, or further lease, of an article which, if sold, would be 
subject to tax on the basis of sale price. Such limitation on the amount 
of the tax applies with respect to the lease of an article only if, at 
the time of making the lease, the lessor is engaged in the business of 
selling in arm's length transactions the same type and model of article. 
In case of a lease to which section 4217(b) does not apply, tax shall be 
computed and paid as provided in section 4216(c) and paragraph (a) of 
Sec. 48.4216(c)-1.
    (b) Lessor engaged in business of selling. The lessor will be 
regarded as being engaged in the business of selling in arm's length 
transactions the same type and model of an article as the one being 
leased if it periodically and recurringly makes bona fide offers for 
sale of such articles in the regular course of operation of its 
business, which offers if accepted would constitute sales at arm's 
length. Whether the offers are bona fide shall be determined on the 
basis of the facts in each case, such as sales actually made, the nature 
of the advertising, sales literature, and other means used to effectuate 
sales. It is not necessary that the offers for sale be made to the same 
class of purchasers as those to whom the article is being leased.
    (c) Same type and model of article. To qualify as the ``same type 
and model of article'', the article offered for sale must be an unused 
article essentially the same in size, design, and function as the 
article being leased. For example, a van-type truck trailer would not

[[Page 170]]

be the same type and model as a stake-body of flat-bed truck trailer. 
Neither would a 25-foot van-type trailer be the same type and model as a 
35-foot van-type trailer. Slight differences in appearance or 
accessories will not render articles dissimilar which are identical in 
all other respects.
    (d) Basis for tax--(1) Tax payable until total tax is paid. In case 
of a lease of an article to which section 4217 (b) applies, tax shall be 
paid on each lease payment in an amount computed by applying to such 
lease payment a percentage equal to the rate of tax in effect on the 
date of the lease payment. Such tax payments shall continue to be made 
under such lease, or any subsequent lease of the article, until the 
cumulative total of the tax payments equals the total tax. Lease 
payments made thereafter with respect to that article shall not be 
subject to tax. For definition of the term ``total tax'', see paragraph 
(e) of this section.
    (2) Changes in tax rates. Except as provided in:
    (i) Section 701 (a) (3) of the Excise Tax Reduction Act of 1965 (79 
Stat. 155) in the case of certain reductions in tax rates effective June 
22, 1965, or January 1, 1966, and
    (ii) Section 401(h)(3) of the Revenue Act of 1971 (85 Stat. 534) in 
the case of certain reductions in tax rates effective December 11, 1971, 
if the rate of tax is increased or decreased during a lease period, the 
new rate shall apply to the lease payments made on and after the date of 
the change, but the amount of the total tax shall remain the same.
    (e) Total tax. For purposes of this section, the term ``total tax'' 
means the amount of tax, computed at the rate in effect on the date of 
the first lease of the article to which section 4217(b) applies, which 
would be due on the constructive sale price of the article as determined 
under section 4216(b) and Sec. 48.4216(b)-2, as if the article had been 
sold by a manufacturer at retail on such date.
    (f) Sale of article before total tax becomes payable. If the lessor 
sells the article before the total tax has become payable, the tax 
payable on the sale shall be the lesser of the following amounts:
    (1) The difference between (i) the total tax, and (ii) the aggregate 
tax applicable to lease payments already received; or
    (2) A tax computed, at the rate in effect on the date of the sale, 
on the price for which the article is sold.

For purposes of subparagraph (2) of this paragraph, the provisions of 
section 4216(b) for determining a constructive sale price shall not 
apply if the sale is at arm's length. If the sale is not at arm's 
length, the tax referred to in subparagraph (2) of this paragraph shall 
be computed on a constructive sale price as provided in Sec. 
48.4216(b)-2.
    (g) Sale of article after total tax has become payable. If the 
lessor sells an article after the total tax has become payable, the tax 
imposed under Chapter 32 of the Code shall not apply to such sale.
    (h) Special rules applicable to certain leases entered into before 
January 1, 1959. For purposes of this section, in the case of any lease 
entered into before, and existing on, January 1, 1959:
    (1) Such lease shall be considered to have been entered into on 
January 1, 1959.
    (2) The total tax shall be computed on the fair market value of the 
article on January 1, 1959.
    (3) The lease payments under such lease shall include only payents 
attributable to periods beginning after December 31, 1958.
    (i) Cross-reference. In the case of the lease of an automobile the 
sale of which by the manufacturer would be taxable under section 4064, 
the foregoing provisions of this section shall not apply. See section 
4217 (e) for the rules relating to the payment of the gas guzzler tax.

[T.D. 7536, 43 FR 13521, Mar. 31, 1978, as amended by T.D. 8036, 50 FR 
29963, July 23, 1985]

             Use by Manufacturer or Importer Considered Sale



Sec. 48.4218-1  Tax on use by manufacturer, producer, or importer.

    (a) In general. Section 4218 imposes tax in respect of certain uses 
of articles by the actual manufacturer, producer, or importer thereof. 
This section also applies in respect of the use of articles

[[Page 171]]

by any other person who, pursuant to a provision of Chapter 32 of the 
Code, is considered to be, or is treated as, the manufacturer or 
producer of the articles. See, for example, section 4223 relating to 
articles purchased tax free for use in further manufacture.
    (b) Taxable articles in general--(1) Application of tax. If the 
manufacturer, producer, or importer of an article taxable under Chapter 
32 of the Code (other than an article referred to in paragraph (a), (d), 
or (e) of this section) uses the article for any purpose other than that 
indicated in subparagraph (3) or (4) of this paragraph, he shall be 
liable for tax with respect to the use of such article in the same 
manner as if the article were sold by him.
    (2) Taxable use in manufacture of nontaxable articles--(i) In 
general. In the case of an article to which subparagraph (1) of this 
paragraph applies, tax attaches when the manufacturer, producer, or 
importer of the article uses it as material in the manufacture or 
production of, or as a component part of, another article which is not 
taxable under Chapter 32 of the Code, regardless of the disposition made 
of such other article. (See paragraph (c) of Sec. 48.4218-5 for 
computation of tax on such use.)
    (ii) Types of use in manufacture of nontaxable articles. Taxable use 
may consist of the incorporation of a taxable article, such as an 
electric light bulb, into a nontaxable article, such as a flashlight. 
Taxable use may also result from the combining of a taxable article (or 
the components thereof) with a nontaxable article (or the components of 
a nontaxable article) resulting in a combination end article which 
itself is not taxable. Although the taxable article may not be a 
completely separable unit, within the contemplation of the law a taxable 
article has been produced and incorporated in the combination end 
article. The following are examples of taxable articles so used:
    (a) Household type electric or gas clothes drier incorporated in a 
combination washer-drier.
    (b) Household type electric, gas, or oil cooking range combined 
either with a range using other means of heating or with a nontaxable 
space heater.
    (c) Taxable radio receiving set incorporated in a combination radio 
receiver-transmitter or in a combination radio receiver-
intercommunication system.

If an automobile part or accessory, radio or television component, or 
camera lens is used as material in the manufacture or production of, or 
as a component part of, a taxable article to which subparagraph (1) of 
this paragraph has application and such article in turn is used in the 
manufacture or production of, or as a component part of, a nontaxable 
article, the part or accessory, component, or lens is considered to have 
been used in the manufacture of the taxable article, and not in the 
manufacture of the nontaxable article. For example, the use of taxable 
radio components in the production of a taxable radio receiving set is 
exempt from tax (see paragraph (d) of this section), but the use of the 
radio receiving set in the production of a nontaxable combination radio 
receiver-transmitter is subject to tax. See section 6416(b)(2) or 
6416(b)(3) and the regulations thereunder contained in Subpart O for 
credit or refund of tax paid in respect of such radio receiver if the 
combination radio receiver-transmitter is by any person exported, sold 
to a State or local government for its exclusive use, sold to a 
nonprofit educational organization for its exclusive use, or used or 
sold for use as supplies for vessels or aircraft.
    (3) Nontaxable use in manufacture of taxable articles. The tax on 
the use of an article to which subparagraph (1) of this paragraph has 
application shall not apply if the article is used by the manufacturer, 
producer, or importer thereof as material in the manufacture or 
production of, or as a component part of, another article taxable under 
Chapter 32 to be manufactured or produced by him. It is immaterial what 
disposition is made of such other article.
    (4) Gasoline. The tax on the use of an article shall not apply in 
the case of gasoline used on or after October 1, 1961, by any person, 
for nonfuel purposes, as a material in the manufacture or production of 
another article to be manufactured or produced by him. See

[[Page 172]]

section 4221 and the regulations thereunder contained in Subpart N. For 
provisions applicable to use of gasoline by a producer or importer 
otherwise than in the production of other gasoline, or special motor 
fuel taxable under section 4041(b), see section 4082(c) and paragraph 
(c) of Sec. 48.4082-1 contained in subpart H.
    (c) Tires, inner tubes, and automobile radio or television receiving 
sets. If the manufacturer, producer, or importer of a tire or inner tube 
taxable under section 4071 (other than a bicycle tire or inner tube 
referred to in paragraph (e) of this section), or an automobile radio or 
television receiving set taxable under section 4141, sells such article 
on or in connection with the sale of any other article or uses it for 
any purpose, he shall be liable for tax with respect to such tire, inner 
tube, or radio or television receiving set in the same manner as if it 
were sold by him as a separate article. However, tax does not apply 
where the manufacturer, producer, or importer of the tire, inner tube, 
or automobile radio or television receiving set sells such article on or 
in connection with the sale of another article manufactured by him for 
any of the exempt purposes specified in paragraphs (2) to (5), 
inclusive, of section 4221(a) and the regulations thereunder contained 
in Subpart N.
    (d) Automobile parts or accessories, radio or television components, 
and camera lenses--(1) Application of tax. If the manufacturer, 
producer, or importer of an automobile part or accessory taxable under 
section 4061(b), a radio or television component taxable under section 
4141, or a camera lens taxable under section 4171, uses the article for 
any purpose other than that indicated in subparagraph (2) of this 
paragraph, he shall be liable for tax with respect to the use of the 
article in the same manner as if the article were sold by him. For 
example, tax applies if the manufacturer, producer, or importer uses the 
article referred to in this subparagraph for repair or replacement 
purposes in connection with equipment used by him in the operation of 
his business.
    (2) Nontaxable use in manufacture of other articles. The tax on the 
use of an article referred to in subparagraph (1) of this paragraph 
shall not apply if the article is used by the manufacturer, producer, or 
importer thereof as material in the manufacture or production of, or as 
a component part of, any other article (whether or not taxable under 
Chapter 32) to be manufactured or produced by him. It is immaterial what 
disposition is made of such other article.
    (e) Bicycle tires and inner tubes--(1) Application of tax. If the 
manufacturer, producer, or importer of a bicycle tire as defined in 
section 4221(e)(4)(B) or an inner tube for such a tire uses the tire or 
inner tube for any purpose other than as indicated in subparagraph (2) 
of this paragraph, he shall be liable for tax with respect to the use of 
the tire or inner tube in the same manner as if the article were sold by 
him.
    (2) Nontaxable use in manufacture of other articles. The tax on the 
use of a bicycle tire or inner tube referred to in subparagraph (1) of 
this paragraph shall not apply if the tire or inner tube is used by the 
manufacturer, producer, or importer thereof as material in the 
manufacture or production of, or as a component part of, a new bicycle 
to be manufactured or produced by him. It is immaterial what disposition 
is made of the new bicycle. Tax, however, applies in the case of the use 
of a bicycle tire or inner tube by the manufacturer, producer, or 
importer thereof in the rebuilding or reconditioning of a used bicycle.
    (3) Effective date. The provisions of this paragraph shall apply to 
the use on or after May 1, 1960, of a bicycle tire or inner tube by the 
manufacturer, producer, or importer thereof. Liability for tax on the 
use prior to that date of a bicycle tire or inner tube by the 
manufacturer, producer, or importer thereof shall be based on the 
provisions of paragraph (c) of this section which apply to tires and 
inner tubes in general.
    (f) Use after lease. If the manufacturer, producer, or importer of a 
taxable article leases such article and thereafter uses the article, he 
incurs liability for tax on such use as provided in these regulations to 
the same extent as if the article were sold after being

[[Page 173]]

leased. See section 4217 and the regulations thereunder in this subpart 
for application and computation of tax in case of leased articles.
    (g) Time of application of tax. In the case of a taxable use of an 
article by the manufacturer, producer, or importer thereof, the tax 
attaches at the time such use begins. If tax applies by reason of the 
sale of an article by the manufacturer, producer, or importer thereof on 
or in connection with his sale of another article, the tax attaches at 
the time of the sale of such other article.
    (h) Exemptions because of other statutory provisions. Tax does not 
apply on the use of an article by the manufacturer, producer, or 
importer thereof if under the applicable provisions of the Code the sale 
of the article for a similar use would not be subject to tax. For 
example, the use of gasoline by the producer thereof to propel tankers 
engaged in foreign trade which are owned or leased by the producer would 
not be subject to tax under section 4218 since a sale for such use would 
be exempt from tax as provided in section 4221(a)(3). Also, tax need not 
be paid with respect to the use of an article by the manufacturer, 
producer, or importer thereof if such use would qualify, under the 
provisions of section 6416(b), for credit or refund of the tax paid.

[T.D. 6687, 28 FR 11780, Nov. 5, 1963]



Sec. 48.4218-2  Business or personal use of articles.

    (a) Business use. Section 4218 applies to the use by a person, in 
the operation of any business in which he is engaged, of a taxable 
article which has been manufactured, produced, or imported by him or his 
agent. For example, a person engaged in the operation of a dairy 
business incurs liability for tax with respect to a truck body 
manufactured by him and used in the operation of his dairy business.
    (b) Personal use. The tax on use of a taxable article does not 
attach in cases where an individual incidentally manufactures, produces, 
or imports a taxable article for his personal use or causes a taxable 
article to be manufactured, produced, or imported for his personal use.

[T.D. 6687, 28 FR 11781, Nov. 5, 1963]



Sec. 48.4218-3  Events subsequent to taxable use of article.

    Liability for tax incurred on the use of an article is not 
extinguished or reduced because of any subsequent sale or lease of the 
article even if such sale or lease would have been exempt if the article 
had been so sold or leased prior to use. If a manufacturer, producer, or 
importer of an article incurs liability for tax on his use thereof, and 
thereafter sells or leases the article in a transaction which otherwise 
would be subject to tax, liability for tax is not incurred on such sale 
or lease.

[T.D. 6687, 28 FR 11781, Nov. 5, 1963]



Sec. 48.4218-4  Use in further manufacture.

    For purposes of section 4218 and Sec. 48.4218-1, an article is used 
as material in the manufacture or production of, or as a component part 
of, another article, if it is incorporated in, or is a part or accessory 
of, the other article. Lubricating oil in the crankcase of a new truck 
is an example of a taxable article use as material in the manufacture or 
production of, or as a component part of, another article. In addition, 
an article (other than gasoline used as a fuel) is considered to be used 
as material in the manufacture of another article if it is partly or 
entirely consumed in testing such other article; for example, shells or 
cartridges used in testing new firearms. similarly, if an article is 
partly or wholly consumed in quality testing a production run of like 
articles (as, for example, an automotive part destroyed in stress 
testing) such article is also considered to have been used as material 
in the manufacture of another article. However, if a taxable article 
that has been used tax free and only partly consumed in testing is later 
sold, or put to a taxable use, by the manufacturer, tax attaches to such 
sale or use. An article that is consumed in the manufacturing process 
other than in testing, so that it is not a physical part of the 
manufactured article, is not used as material in the manufacture or 
production of, or as

[[Page 174]]

a component part of, such other article. Thus, lubricating oil consumed 
in operating plant machinery in the course of the manufacture of 
automobile truck chassis is not used as material in the manufacture or 
production of, or as a component part of, the truck chassis.

[T.D. 6687, 28 FR 11781, Nov. 5, 1963, as amended by T.D. 7536, 43 FR 
13521, Mar. 31, 1978]



Sec. 48.4218-5  Computation of tax.

    (a) Tax based on price. Except as provided in paragraph (d) of this 
section, tax liability incurred on the use of an article shall be 
computed on the price at which such or similar articles are sold in the 
ordinary course of trade by manufacturers, producers, or importers 
thereof and in the absence of special arrangements. For additional 
provisions applicable in computing the tax in the case of the use of an 
article by a manufacturer and producer who purchased the article free of 
tax under section 4221(a)(1) for use by him in further manufacture, see 
section 423(b) and the regulations thereunder.
    (b) Articles regularly sold by manufacturer. If the manufacturer, 
producer, or importer of an article regularly sells such articles at 
wholesale in arm's length transactions, tax liability on his use of any 
such article shall be computed on his lowest established wholesale price 
for such articles in effect at the time of the taxable use. In 
establishing such price, there shall be included and excluded, as 
applicable, the charges and readjustments specified in sections 4216(a), 
4216(f), and 6416(b)(1), as in effect at the time tax liability on the 
use of the article is incurred, and the regulations thereunder contained 
in this subpart and Subpart O. If the manufacturer, producer, or 
importer of an article does not regularly sell such articles at 
wholesale in arm's length transactions, a constructive price on which 
the use tax shall be computed will be determined by the Commissioner. 
This price will be established after considering the selling practices 
and price structures of manufacturers, producers, and importers of 
similar articles.
    (c) Articles governed by section 4218(a) used in manufacture of 
nontaxable combination articles. If the manufacturer, producer, or 
importer of an article to which section 4218(a) applies does not 
regularly sell such article separately but uses it as material in the 
manufacture or production of, or as a component part of, a nontaxable 
combination article consisting of a taxable and nontaxable article, 
liability for tax on his use shall be computed on the constructive price 
of the taxable article at the time of use. To determine the constructive 
price of the taxable article in such case, the combination article is 
considered to be composed of (1) parts used exclusively in the 
functioning of the taxable article in the combination, (2) parts used 
exclusively in the functioning of the nontaxable article in the 
combination, and (3) parts, called common parts, which serve a dual 
function in connection with the parts in both subparagraphs (1) and (2) 
of this paragraph. The ratio which the cost of the parts in subparagraph 
(1) of this paragraph bears to the sum of the cost of such parts and the 
parts in subparagraph (2) of this paragraph is applied to the lowest 
established wholesale price for which like combination articles are at 
the time of the taxable use being sold by the manufacturer or producer 
in the ordinary course of trade. The resulting amount is the 
constructive sale price for the taxable article on which tax is to be 
computed. The cost of the common parts is allocable to the parts in 
subparagraphs (1) and (2) of this paragraph in the same ratio, and, 
therefore, need not be taken into account in the computation since the 
inclusion and allocation of the cost of such parts in the determination 
would not result in a different ratio. In determining the lowest 
established wholesale price for the combination article, there shall be 
included and excluded, as applicable, the charges and readjustments 
specified in sections 4216(a), 4216(f), and 6416(b)(1), as in effect at 
the time tax liability on the use of the taxable article is incurred, 
and the regulations thereunder contained in this subpart and Subpart O 
of this part. The tax applicable to the use of the article for which a 
constructive sale price has been computed is not affected by any charges 
or readjustments of the price for which the nontaxable combination 
article is sold, whether by reason of the

[[Page 175]]

return or repossession of the nontaxable article or its covering or 
container, or by a bona fide discount, rebate, allowance, or other 
factor. The application of this subparagraph may be illustrated by the 
following example:

    Example. A manufacturer of a nontaxable washer-drier combination 
produces and uses an electric clothes drier taxable under section 4121 
in the manufacture of the combination article. The lowest established 
wholesale price of the manufacturer for the washer-drier combination at 
the time of the taxable use is $150 with respect to identical 
combinations after including and excluding applicable charges and 
readjustments. The manufacturer does not regularly sell such drier 
separately. In the manufacture of the washer-drier the two units are 
integrated to the extent that certain component parts function both in 
the operation of the washer and of the drier. The parts used exclusively 
in the operation of the washer cost $30 and those used exclusively in 
the operation of the drier cost $20. The taxable cost ratio in this 
instance is 20/50, or 40 percent. Applying 40 percent to the 
manufacturer's lowest established wholesale price of $150 for the 
washer-drier results in $60 as the constructive price for the taxable 
article in the combination at the time tax liability is incurred. No 
additional charges or readjustments in connection with, or subsequent 
to, the sale of the washer-drier combination may affect the tax 
liability incurred at the time of use.

    (d) Tax based on weight or volume. Where liability for tax is 
incurred on the use of an article subject, if sold, to a tax based on:
    (1) The weight of the article (such as a tire), or
    (2) The volume of the article (such as gasoline or lubricating oil),

the tax due shall be computed on the basis which would be applicable if 
such article were sold.

[T.D. 6687, 28 FR 11781, Nov. 5, 1963]

   Application of Tax in Case of Sales by Other Than Manufacturer or 
                                Importer



Sec. 48.4219-1  Sales of taxable articles by a person other than the manufacturer, producer, or importer.

    (a) General rule. If the title to, or ownership of, an article 
taxable under Chapter 32 of the Code is transferred from the 
manufacturer, producer, or importer thereof, and, under the law, no tax 
attaches to such transfer, the subsequent sale, lease, or use of such 
article by the transferee is subject to tax to the same extent and in 
the same manner as if such transferee were the manufacturer, producer, 
or importer of the article. The following examples illustrate this rule:
    (1) The surviving spouse, child or children, executors or 
administrators, or other legal representatives, as the case may be, of a 
deceased manufacturer, producer, or importer of taxable articles, incur 
liability for tax on all such articles sold by them.
    (2) A receiver or trustee in bankruptcy who under a court order 
conducts or liquidates the business of a manufacturer, producer, or 
importer of taxable articles, incurs liability for tax on all taxable 
articles sold by him, regardless of whether the articles were 
manufactured, produced, or imported before or after he took charge of 
the business.
    (3) An assignee for the benefit of creditors of a manufacturer, 
producer, or importer incurs liability for tax with respect to all 
taxable articles sold by him as such assignee.
    (4) If one or more members of a partnership withdraw, or if new 
partners are admitted, the new partnership so constituted incurs 
liability for tax on all taxable articles sold by it regardless of when 
such articles were manufactured, produced, or imported.
    (5) A person who acquires title to taxable articles as a result of 
default of the manufacturer, producer, or importer pursuant to an 
agreement under the terms of which the articles were pledged as 
collateral incurs liability for tax with respect to his sale of the 
articles so acquired.
    (6) A person who succeeds to the business of a manufacturer, 
producer, or importer of taxable articles, such as:
    (i) A corporation which results from a consolidation, merger, or 
reorganization;
    (ii) A corporation which acquires the business of an individual or 
partnership; or
    (iii) A stockholder in a corporation who, after its dissolution, 
continues the business;

incurs liability for tax on all taxable articles sold by such person. 
However,

[[Page 176]]

where a manufacturer, producer, or importer sells only his assets, 
rather than ownership of his business, he incurs liability for tax on 
the sale of any taxable articles included in such assets.
    (b) Transfer of title to damaged articles. If title to a damaged 
taxable article is transferred by the manufacturer, producer, or 
importer thereof to a carrier or insurance company in adjustment of a 
damage claim, such transfer is not considered a taxable sale of the 
article. If the article is usable, even though damaged, the carrier or 
insurance company incurs liability for tax on its sale, lease, or use of 
the article. Where the article has been damaged to the extent that its 
only value is as scrap, and it is not restored to usable condition, sale 
thereof by the carrier or insurance company is not subject to tax.

[T.D. 6687, 28 FR 11782, Nov. 5, 1963]



                Subpart N_Exemptions, Registration, Etc.

    Source: T.D. 7536, 43 FR 13522, Mar. 31, 1978, unless otherwise 
noted.



Sec. 48.4221-1  Tax-free sales; general rule.

    (a) Application of regulations under section 4221--(1) In general. 
The regulations under section 4221 provide rules under which the 
manufacturer, producer, or importer of an article subject to tax under 
chapter 32 (or the retailer of an article subject to tax under 
subchapter A or C of chapter 31) may sell the article tax free under 
section 4221.
    (2) Limitations. The following restrictions must be taken into 
account in applying the regulations under section 4221:
    (i) The exemptions under section 4221 (a)(4) and (a)(5) do not apply 
to the tax imposed by section 4064 (gas guzzler tax).
    (ii) The exemptions under section 4221 do not apply to the tax 
imposed by section 4081 (taxable fuel tax).
    (iii) The exemptions under section 4221 do not apply to the tax 
imposed by section 4091 (aviation fuel tax). For rules relating to tax-
free sales of aviation fuel, see section 4092 and the regulations 
thereunder.
    (iv) The exemptions under section 4221 do not apply to the tax 
imposed by section 4121 (coal tax).
    (v) The exemptions under section 4221 (a)(3) through (a)(5) do not 
apply to the tax imposed by section 4131 (vaccine tax). In addition, the 
exemption under section 4221(a)(2) applies to the vaccine tax only to 
the extent provided in Sec. 48.4221-3(e) (relating to tax-free sales of 
vaccine for export).
    (vi) The exemptions under section 4221(a) apply only in those cases 
where the exportation or use referred to is to occur before any other 
use.
    (b) Manufacturer relieved of liability in certain cases--(1) General 
rule. Under the provisions of section 4221(c), if an article subject to 
tax under Chapter 32 of the Code is sold free of tax by the manufacturer 
of the article for an exempt purpose referred to in section 4221(c) and 
paragraph (b)(2) of this section, the manufacturer shall be relieved of 
any tax liability under Chapter 32 with respect to such sale if the 
manufacturer in good faith accepts a proper certification by the 
purchaser that the article or articles will be used by the purchaser in 
the stated exempt manner. See paragraph (b)(2) of this section for a 
list of the exempt purposes referred to in section 4221(c).
    (2) The following are situations wherein section 4221(c) is 
applicable with respect to sales made tax free on the assumption that 
one of the following sections of the Code provides exemption for such 
sales:
    (i) Section 4221(a)(1), to the extent that it relates to sales for 
further manufacture by a first purchaser (see Sec. 48.4221-2),
    (ii) Section 4221(a)(3), relating to supplies for vessels and 
aircraft (see Sec. 48.4221-4),
    (iii) Section 4221(a)(4), relating to sales to State or local 
governments (see Sec. 48.4221-5),
    (iv) Section 4221(a)(5), relating to sales to nonprofit educational 
organizations (see Sec. 48.4221-6), and
    (v) Section 4221(e)(3) relating to the sale of tires used on 
intercity, local, or school buses (see Sec. 48.4221-8).
    (3) Duty of seller to ascertain validity of tax-free sale. If the 
manufacturer at the time of its sale has reason to believe

[[Page 177]]

that the article sold by it is not intended for the exempt purpose 
indicated by the purchaser, or that the purchaser has failed to register 
as required, the manufacturer is not considered to have accepted 
certification from the purchaser in good faith, and is not relieved from 
liability under the provisions of section 4221(c).
    (4) Information to be furnished to purchaser. A manufacturer selling 
articles free of tax under this section after December 31, 1978, shall 
indicate to the purchaser that (i) certain articles normally subject to 
tax are being sold tax free and (ii) the purchaser is obtaining those 
articles tax free for an exempt purpose under an exemption certificate 
or its equivalent. The manufacturer may transmit this information by any 
convenient means, such as coding of sales invoices, provided that the 
information is presented with sufficient particularity so that the 
purchaser is informed that he has obtained the articles tax free and:
    (i) The purchaser can compute and remit the tax due if an article 
sold tax free for further manufacture is diverted to a taxable use,
    (ii) The manufacturer can remit the tax due with respect to an 
article purchased tax free for resale for use in further manufacture or 
for export if, within the 6-month period described in Sec. 48.4221-2(c) 
or Sec. 48.4221-3(c), the manufacturer does not receive proof that the 
article has been exported or resold for use in further manufacture, or
    (iii) The purchaser can notify the manufacturer if an article 
otherwise purchased tax free is diverted to a taxable use.
    (c) Evidence required in support of tax-free sales--(1) Purchasers 
required to be registered. Every purchaser who is required to be 
registered (see Sec. 48.4222(a)-1) shall furnish to the seller, as 
evidence in support of each tax-free sale made by the seller to such 
purchaser, the exempt purpose for which the article or articles are 
being purchased and the registration number of the purchaser. Such 
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 each sale.
    (2) Purchasers not required to be registered. For the evidence which 
purchasers not required to register must furnish to the seller in 
support of each tax-free sale made by the seller to such purchasers, see 
paragraph (b) of Sec. 48.4221-3 for sales or resales to a foreign 
purchaser for export, paragraph (d) of Sec. 48.4221-4 for sales of 
supplies to vessels or aircraft, paragraph (c) of Sec. 48.4221-5 for 
sales to State and local governments, and paragraph (c) of Sec. 
48.4222(b)-1 for sales and purchases by the United States.

[T.D. 6687, 28 FR 11782, Nov. 5, 1963, as amended by T.D. 7834, 47 FR 
42345, Sept. 27, 1982; T.D. 8036, 50 FR 29963, July 23, 1985; T.D. 8659, 
61 FR 10463, Mar. 14, 1996; T.D. 8879, 65 FR 17160, Mar. 31, 2000]



Sec. 48.4221-2  Tax-free sale of articles to be used for, or resold for, further manufacture.

    (a) Further manufacture--(1) In general. Under prescribed 
conditions, an article subject to tax under Chapter 32 (other than a 
tire taxable under section 4071, which is given special treatment under 
section 4221(e)(2) and Sec. 48.4221-7) may be sold tax free by the 
manufacturer, pursuant to section 4221(a)(1), for use by the purchaser 
in further manufacture, or for resale by the purchaser to a second 
purchaser for use by the second purchaser in further manufacture. See 
section 4221(d)(6) and paragraph (b) of this section for the 
circumstances under which an article is considered to have been sold for 
use in further manufacture. See section 6416(b)(3) and Sec. 48.6416(b)-
3 for the circumstances under which credit or refund is available when 
tax-paid articles are used in further manufacture.
    (2) Proof of resale for use in further manufacture. See section 
4221(b)(1) and paragraph (c) of this section for provisions under which 
the exemption provided in section 4221(a)(1) shall cease to apply in the 
case of an article sold by the manufacturer to a purchaser for resale to 
a second purchaser for use in further manufacture unless the 
manufacturer receives timely proof of resale for further manufacture.
    (b) Circumstances under which an article is considered to have been 
sold for use in further manufacture. (1) An article

[[Page 178]]

shall be treated as sold for use in further manufacture if the article 
is sold for use by the buyer as material in the manufacture or 
production of, or as a component part of, another article taxable under 
chapter 32 of the Internal Revenue Code.
    (2) An article is used as material in the manufacture or production 
of, or as a component of, another article if it is incorporated in, or 
is a part or accessory of, the other article when the other article is 
sold by the manufacturer. In addition, an article is considered to be 
used as material in the manufacture of another article if it is consumed 
in whole or in part in testing such other article. However, an article 
that is consumed in the manufacturing process other than in testing, so 
that it is not a physical part of the manufactured article, is not 
considered to have been used as material in the manufacture of, or as a 
component part of, another article.
    (c) Proof of resale for further manufacture--(1) Cessation of 
exemption. The exemption provided in section 4221(a)(1) and described in 
paragraph (a) of this section in respect of an article sold by the 
manufacturer to a purchaser for resale to a second purchaser for use by 
the second purchaser in further manufacture shall cease to apply on the 
first day following the close of the 6-month period which begins on the 
date of the sale of such article by the manufacturer, or the date of 
shipment of the article by the manufacturer, whichever is earlier, 
unless, within such 6-month period, the manufacturer receives proof, in 
the form prescribed by paragraph (c) (2) of this section, that the 
article was actually resold by the purchaser to a second purchaser for 
such use. If, on the first day following the close of the 6-month 
period, such proof has not been received, the manufacturer shall become 
liable for tax at that time at the rate in effect when the sale was made 
but otherwise in the same manner as if the article had been sold by it 
on such first day at a taxable price equivalent to that at which the 
article was actually sold. If the manufacturer later obtains such proof, 
it may file a claim for refund or credit of this tax. The payment of 
this tax by the manufacturer is not considered an overpayment by the 
subsequent manufacturer or producer for which the subsequent 
manufacturer or producer is entitled to a credit or refund under section 
6416(b)(3). See section 4221(d)(6) and paragraph (b) of this section for 
the circumstances under which an article is considered to have been sold 
for use in further manufacture.
    (2) Proof of resale--(i) Certificate of purchaser. The proof of 
resale to be received by the manufacturer, as required under section 
4221(b)(1), may consist of either a copy of the invoice of the 
manufacturer's vendee directed to his purchaser which discloses the 
certificate of registry number held by each party or a statement 
described below. In the case of an invoice of manufacturer's vendee, it 
must appear from such invoice (or by statement attached thereto) that 
the article was in fact resold for use in further manufacture. In lieu 
of such an invoice, proof of resale may consist of a statement, executed 
and signed by the manufacturer's vendee. Such statement shall be in 
substantially the following form:

                   Statement of Manufacturer's Vendee

    (To support tax-free sales of taxable articles to a purchaser for 
resale to a second purchaser for use in further manufacture (section 
4221(a)(1) of the Internal Revenue Code).)

               (Date) --------------------------, 19----.

    The undersigned, or the -------------------------------------- (Name 
of manufacturer's vendee if other than undersigned), of which I am ----
------ (Title), holds certificate of registry No. ----, issued by the 
District Director of Internal Revenue at ------------------.
    The article or articles specified below or on the reverse side 
hereof were purchased tax free by me, or by ----------------------------
---- (Name of manufacturer's vendee if other than undersigned), on ----
------ (Date) and were thereafter resold to a purchaser who holds 
certificate of registry No. ----, issued by the District Director of 
Internal Revenue at ------------------, for use by it as material in the 
manufacture or production of, or as a component part or parts of, an 
article or articles taxable under chapter 32 of the Internal Revenue 
Code, or, if the article or articles are automobile parts or accessories 
(to which section 4061(b) applies) or gasoline, for use by it as 
material (for nonfuel uses in the

[[Page 179]]

case of gasoline) in the manufacture or production of, or as a component 
part or parts of, any article or articles.
    The undersigned, or ---------------------------------- (Name of 
manufacturer's vendee if other than undersigned), has in my/its 
possession proof of tax-free resale of such article or articles in the 
form of related purchase orders and sales invoices, and proof of tax-
free resale will be retained by me or ----------------------------------
-- (Name of manufacturer's vendee if other than undersigned), for at 
least 3 years from the date of this statement, and will be made readily 
available for inspection by Government officers during such 3-year 
period.
    I have not previously executed a statement in respect of such 
certificate of resale, and I understand that the fraudulent use of this 
statement may subject me and all parties making such fraudulent use of 
this statement to a fine of not more than $10,000, or imprisonment for 
not more than 5 years, or both, together with the costs of prosecution.

________________________________________________________________________
                                                             (Signature)
________________________________________________________________________
                                                               (Address)

    (ii) Period covered. Any statement executed and signed by the 
manufacturer's vendee, as provided in subdivision (i) of this paragraph 
(c)(2), may be executed with respect to any one or more articles 
purchased tax free from a manufacturer and resold for use in further 
manufacture within the 6-month period prescribed in section 4221 (a)(1) 
and paragraph (c)(1) of this section. Such statement (or other 
prescribed proof of resale) must be retained for inspection by the 
district director as provided in section 6001.

(Sec. 4222 (72 Stat. 1284; 26 U.S.C. 422); secs. 4051, 4052, 4061 and 
7805 of the Internal Revenue Code of 1954 (96 Stat. 2174, 2175 and 2173; 
68A Stat. 917; 26 U.S.C. 4051, 4052, 4061, and 7805) and secs. 522 and 
523 of the Highway Revenue Act of 1982 (Pub. L. 97-424, 96 Stat. 2185, 
2186))

[T.D. 7536, 43 FR 13522, Mar. 31, 1978, as amended by T.D. 7681, 45 FR 
13728, Mar. 3, 1980; T.D. 7753, 46 FR 2999, Jan. 13, 1981; T.D. 7882, 48 
FR 14362, Apr. 4, 1983; T.D. 8659, 61 FR 10463, Mar. 14, 1996]



Sec. 48.4221-3  Tax-free sale of articles for export, or for resale by the purchaser to a second purchaser for export.

    (a) In general. (1) An article subject to tax under Chapter 32 of 
the Code may be sold tax free by the manufacturer, pursuant to section 
4221(a)(2) and this section, for export, or for resale by the purchaser 
to a second purchaser for export. See paragraph (a)(10) of Sec. 48.0-2 
for the meaning of the term ``export''. An article may be sold tax free 
by the manufacturer under the provisions of this section only if the 
person to whom the manufacturer sells the article intends either to 
export the article or to resell it to a person who intends to export it. 
An article may not be sold tax free under the provisions of this section 
by a manufacturer to a purchaser for resale to a second purchaser which 
does not intend to export the article itself but plans to resell it to a 
third purchaser for export. See section 6416 (b)(2)(A) and paragraph 
(b)(1) of Sec. 48.6416(b)-2 for the circumstances under which credit or 
refund of tax is available where tax-paid articles are exported from the 
United States.
    (2) If an article, otherwise taxable under Chapter 32 of the Code:
    (i) Is sold tax free by the manufacturer pursuant to section 
4221(a)(2) and this section, and
    (ii) 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. The 
provisions of this paragraph (a)(2) may be illustrated by the following 
examples:

    Example (1). Q, a U.S. motor vehicle manufacturer, previously sold a 
truck chassis to R, a company in Canada. The sale was tax free under 
section 4221(a)(2). R mounted a truck body on the truck chassis and sold 
the completed vehicle to S. Thereafter S sold the completed new vehicle 
to T who imported the vehicle into the United States and sold it. The 
sale of the completed truck subjects T to an excise tax liability under 
section 4061(a)(1) with respect to both the body and the chassis.
    Example (2). X, a U.S. manufacturer of trucks, sold a trash 
collection truck to Y, a company in France. The sale was tax free under 
section 4221(a)(2). The truck was sold by Y to the City of Nice, France. 
After initial use, the city determined that the truck was not suited for 
its needs and resold the truck to X. X returned the truck to the United 
States where it was resold. The resale of the truck by X does not 
subject X to an excise tax liability under section 4061(a)(1).


[[Page 180]]


    (b) Sales or resales to a foreign purchaser for export. In the case 
of sales or resales to a foreign purchaser for export, where the first 
purchaser or the second purchaser is located in a foreign country or 
possession of the United States, such purchaser is not required to 
register as provided in section 4222(a) and Sec. 48.4222(a)-1. To 
establish the right to sell articles tax free for export to a purchaser 
who is not registered and who is located in a foreign country or a 
possession of the United States, the manufacturer must obtain from such 
purchaser at the time title to the article passes or at the time of 
shipment, whichever is earlier, either:
    (1) A written order or contract of sale showing that the 
manufacturer is to ship the article to a foreign destination; or
    (2) Where delivery by the manufacturer is to be made within the 
United States, a statement from the purchaser showing:
    (i) That the article is purchased either to fill existing or future 
orders for delivery to a foreign destination or for resale to another 
person engaged in the business of exporting who will export the article, 
and
    (ii) That such article will be transported to its foreign 
destination in due course prior to use or further manufacture and prior 
to any resale except for export.

See section 4221(b) and paragraphs (c) and (d) of this section for 
requirements as to timely proof of exportation and cessation of the 
exemption for export unless the evidence to show actual exportation has 
been received by the manufacturer.
    (c) Cessation of exemption. The exemption provided in section 
4221(a)(2) and paragraph (a) of this section for an article sold by the 
manufacturer for export or for resale by the purchaser to a second 
purchaser for export shall cease to apply on the first day following the 
close of the 6-month period which begins on the date of the sale of the 
article by the manufacturer, or the date of shipment of the article by 
the manufacturer, whichever is earlier, unless within the 6-month period 
the manufacturer receives proof, in the form prescribed by paragraph (d) 
of this section, that the article was actually exported. If, on the 
first day following the close of the 6-month period, the proof has not 
been received, the manufacturer shall become liable for tax at that time 
at the rate in effect when the sale was made but otherwise in the same 
manner as if the article had been sold by it on such first day at a 
taxable price equivalent to that at which the article was actually sold.
    (d) Proof of exportation. (1) Exportation may be evidenced by:
    (i) A copy of the export bill of lading issued by the delivering 
carrier,
    (ii) A certificate by the agent or representative of the export 
carrier showing actual exportation of the article,
    (iii) A certificate of landing signed by a customs officer of the 
foreign country to which the article is exported,
    (iv) Where the foreign country has no customs administration, a 
statement of the foreign consignee showing receipt of the article, or
    (v) Where a department or agency of the United States Government is 
unable to furnish any one of the foregoing four types of proof of 
exportation, a statement or certification on the department or agency 
stationery, executed by an authorized officer, that the listed or 
identified articles have, in fact, been exported.
    (2) In any case where the manufacturer is not the exporter, the 
manufacturer must have in its possession a statement from the vendee to 
whom the manufacturer sold the article stating that the article was in 
fact exported in due course by the vendee or was sold to another person 
who in due course exported the article. The statement must state what 
evidence is available to establish that the article was in fact exported 
in due course prior to use or further manufacture and prior to resale in 
the United States other than for export. Such evidence must be that 
described in paragraph (d)(1) of this section, and the statement must 
show where such evidence is readily available for inspection by 
Government officers, and should be in substantially the following form:

                   Statement of Manufacturer's Vendee

    (To support tax-free sales of taxable articles to a purchaser for 
export or for resale to a second purchaser for export (section 
4221(a)(2) of the Internal Revenue Code).)

[[Page 181]]

    The undersigned, or the ------------------------------ (Name of 
manufacturer's vendee if other than undersigned) of which I am --------
-- (Title) holds certificate of registry No. ----, issued by the 
District Director of Internal Revenue at ------------------.
    The article or articles specified below or on the reverse side 
hereof were purchased tax free by me or by ---------------------------- 
(Name of manufacturer's vendee if other than undersigned) on ---------- 
(Date), and were thereafter exported.
    The undersigned or ---------------------------- (Name of 
manufacturer's vendee if other than undersigned) has in my/its 
possession proof of exportation in respect of such article or articles. 
The evidence of export available is ------------------ and is located at 
------------------------------ (If other than address below). Such proof 
of exportation will be retained by ------------------------------ (Name 
of manufacturer's vendee) for at least 3 years from the date of this 
statement and will be made readily available for inspection by 
Government officers.
    I have not previously executed a statement in respect of the article 
or articles covered by this statement, and I understand that the 
fraudulent use of this statement will subject me and all parties making 
such fraudulent use of this statement to a fine of not more than 
$10,000, or imprisonment for not more than 5 years, or both, together 
with the costs of prosecution.

________________________________________________________________________
                                                             (Signature)
________________________________________________________________________
                                                               (Address)
________________________________________________________________________
                                                                  (Date)

    (3) The statement executed and signed by the manufacturer's vendee, 
as provided in paragraph (d)(2) of this section, may be executed with 
respect to any one or more articles purchased tax free from a 
manufacturer and exported within the 6-month period prescribed in 
section 4221(b)(2) and paragraph (c) of this section. Such statement 
shall be kept for inspection by the district director as provided in 
section 6001 and the regulations thereunder.
    (e) Vaccines. The exemption provided by section 4221(a)(2) applies 
after August 10, 1993, to the tax imposed on vaccines by section 4131, 
but only if--
    (1) The vaccine is sold by the manufacturer after August 10, 1993; 
and
    (2) In the case of vaccine sold to, or sold for resale to, the 
United States or any of its agencies or instrumentalities, the United 
States or such agency or instrumentality notifies the manufacturer that 
the vaccine is intended for uses other than the vaccination of persons 
described in 42 U.S.C. 300aa-11(c)(1)(B)(i)(II) (relating to certain 
U.S. citizens who are vaccinated outside the United States).

[T.D. 7536, 43 FR 13522, Mar. 31, 1978, as amended by T.D. 7729, 45 FR 
72653, Nov. 3, 1980; T.D. 8561, 59 FR 43045, Aug. 22, 1994]



Sec. 48.4221-4  Tax-free sale of articles for use by the purchaser as supplies for vessels or aircraft.

    (a) Supplies for vessels or aircraft--(1) In general. An article 
subject to tax under Chapter 32 may be sold tax free by the 
manufacturer, pursuant to section 4221(a)(3) and this section, for use 
by the purchaser as supplies for vessels or aircraft. See paragraph (b) 
of this section for the meaning of the term ``supplies for vessels or 
aircraft.'' An article may be sold tax free under the provisions of this 
section only in those cases where the sale of an article by the 
manufacturer is made directly to the owner, officer, charterer, or 
authorized agent of a vessel or aircraft for use as supplies for the 
vessel or aircraft. No sale may be made tax free to a dealer for resale 
for use as supplies for vessels or aircraft, even though it is known at 
the time of sale by the manufacturer that the article will be so resold. 
See section 6416(b)(2)(B) and paragraph (b)(2) of Sec. 48.6416 (b)-2 
for circumstances under which credit or refund of tax is available where 
tax-paid articles are used, or sold for use, as supplies for vessels or 
aircraft. An article may not be sold tax free under the provisions of 
this section by the manufacturer to passengers or members of the crew of 
a vessel or aircraft.
    (2) Civil aircraft of foreign registry. In the case of any article 
sold by the manufacturer for use by the purchaser as supplies for civil 
aircraft of foreign registry employed in foreign trade or in trade 
between the United States and any of its possessions, the provisions of 
this paragraph apply only if the reciprocity requirements of section

[[Page 182]]

4221(e)(1) are met. See paragraph (c) of this section.
    (b) Meaning of terms--(1) Supplies for vessels or aircraft. The term 
``supplies for vessels or aircraft'' means fuel supplies, ships' stores, 
sea stores, or legitimate equipment on vessels of war of the United 
States or of any foreign nation, vessels employed in the fisheries or in 
the whaling business, or vessels actually engaged in foreign trade or 
trade between the Atlantic and Pacific ports of the United States or 
between the United States and any of its possessions.
    (2) Fuel supplies, ships' stores, and legitimate equipment. The 
terms ``fuel supplies'', ``ships' stores'', and ``legitimate equipment'' 
include all articles, materials, supplies, and equipment necessary for 
the navigation, propulsion, and upkeep of vessels of war of the United 
States or of any foreign nation, vessels employed in the fisheries or in 
the whaling business, or vessels actually engaged in foreign trade or in 
trade between the Atlantic and Pacific ports of the United States or 
between the United States and any of its possessions, even though such 
vessels may make intermediate stops in the United States. The term does 
not include supplies for vessels engaged in trade (i) between domestic 
ports in the Atlantic Ocean and the Gulf of Mexico, (ii) between 
domestic ports on the Pacific Ocean, (iii) between domestic ports on the 
Great Lakes, or (iv) on the inland waterways of the United States.
    (3) Sea stores. The term ``sea stores'' includes any article 
purchased for use or consumption by the passengers or crew, or both, of 
a vessel during its voyage.
    (4) Vessels. The term ``vessel'' includes (i) every description of 
watercraft or other contrivance used, or capable of being used, as a 
means of transportation on water, (ii) civil aircraft registered in the 
United States and employed in foreign trade or in trade between the 
United States and any of its possessions, and (iii) civil aircraft 
registered in a foreign country and employed in foreign trade or in 
trade between the United States and any of its possessions.
    (5) Vessels of war of the United States or of any foreign nation. 
The term ``vessels of war of the United States or of any foreign 
nation'' includes (i) every description of watercraft or other 
contrivance used, or capable of being used, as a means of transportation 
on water and constituting equipment of the armed forces (including the 
U.S. Coast Guard and U.S. National Guard) of the United States or of a 
foreign nation, and (ii) aircraft owned by the United States or by any 
foreign nation and constituting equipment of the armed forces thereof. 
For purposes of this section, vessels or aircraft owned by armed forces 
are not considered to be equipment of such armed forces while on lease 
or loan to an organization that is not part of the armed forces.
    (6) Vessels used in fisheries or whaling business. The exemption 
provided by section 4221(a)(3) and paragraph (a) of this section in the 
case of articles sold for the prescribed use on vessels employed in the 
fisheries or whaling business is limited to articles sold by the 
manufacturer for such use on vessles while employed, and to the extent 
employed, exclusively in the fisheries or in the whaling business. For 
purposes of this section, vessels engaged in sport fishing are not 
considered to be employed in the fisheries.
    (7) Civil aircraft. The exemption provided by section 4221(a)(3) and 
paragraph (a) of this section relating to supplies for vessels or 
aircraft, with respect to civil aircraft, extends only to civil aircraft 
when employed in foreign trade, or in trade between the United States 
and any of its possessions. Sales of supplies to civil aircraft when 
engaged in trade between the Atlantic and the Pacific ports of the 
United States are not exempt from the tax imposed under Chapter 32. See 
section 4221(e)(1) and paragraph (c) of this section for requirement of 
reciprocal exemption in the case of a civil aircraft registered in a 
foreign country.
    (8) Trade. The term ``trade'' includes the transportation of persons 
or property for hire and the making of the necessary preparations for 
such transportation. The term ``trade'' also includes the transportation 
of property on a vessel or aircraft owned or chartered by the owner of 
the property in connection with the purchase, sale, or

[[Page 183]]

exchange of the property in a commercial business operation. However, a 
vessel owned or chartered by a company and used in the transportation of 
personnel or property of such company to or from its business properties 
located in a foreign country, or in a possession of the United States, 
is not engaged in ``trade''.
    (c) Reciprocity required in the case of civil aircraft. The 
exemption provided by section 4221(a)(3) and paragraph (a) of this 
section with respect to the sales of supplies for civil aircraft 
registered in a foreign country is further limited in that the privilege 
of exemption may be granted only if the Secretary of Commerce advises 
the Secretary of the Treasury that the foreign country allows, or will 
allow, substantially the same reciprocal privileges. If a foreign 
country discontinues the allowance of such substantially reciprocal 
exemption, the exemption allowed by the United States will not apply 
after the Secretary of the Treasury is notified by the Secretary of 
Commerce of the discontinuance of the exemption allowed by the foreign 
country.
    (d) Evidence required to establish exemption--(1) In general. The 
exemption provided in section 4221(a)(3) and paragraph (a) of this 
section for articles sold for use by the purchaser as supplies for 
vessels or aircraft applies only (i) if both the manufacturer and 
purchaser are registered under the provisions of section 4222 or (ii) 
the purchaser or both the manufacturer and the purchaser are not 
registered but have satisfied the provisions of paragraph (d)(2) of this 
section. See paragraph (c) of Sec. 48.4221-1 for the evidence required 
to establish exemption where the purchaser is registered pursuant to 
section 4222 and Sec. 48.4222(a)-1.
    (2) Exemption certificates for use in support of tax-free sales of 
supplies for vessels and aircraft. (i) In order to establish exemption 
from tax under section 4221(a)(3) in those instances where the purchaser 
or both the manufacturer and purchaser are not registered under section 
4222, the manufacturer must obtain (prior to or at the time of the sale) 
from the owner, charterer, or authorized agent of the vessel or aircraft 
and retain in the manufacturer's possession a properly executed 
exemption certificate in the form prescribed by subdivision (iii) of 
this paragraph (d)(2). If articles are sold tax free for use as supplies 
for civil aircraft employed in foreign trade or in trade between the 
United States and any of its possessions, the exemption certificate must 
show the name of the country in which the aircraft is registered.
    (ii) Where only occasional sales of articles are made to a purchaser 
for use as supplies for vessels or aircraft, a separate exemption 
certificate shall be furnished for each order. However, where sales are 
regularly or frequently made to a purchaser for such exempt use, a 
certificate covering all orders for a specified period not to exceed 12 
calendar quarters will be acceptable. Such certificates and proper 
records of invoices, orders, etc., relative to tax-free sales must be 
kept for inspection by the district director as provided in section 6001 
and the regulations thereunder.
    (iii) Acceptable form of exemption certificate. The following form 
of exemption certificate will be acceptable for the purposes of this 
section and must by adhered to in substance:

                          Exemption Certificate

(For use by purchasers of articles for use as fuel supplies, ships 
stores, sea stores, of legitimate equipment on certain vessels or 
aircraft (sections 4221 and 4222 of the Internal Revenue Code of 1954).)

                              (Date) --------------------------, 19----.

    I, the undersigned purchaser, hereby certify that I am the --------
-------- (Owner, charterer, or authorized agent) of ---------- (Name of 
company and vessel) and that: (Check applicable type of certificate)
---- the article or articles specified in the accompanying order, or on 
the reverse side hereof, (or)
---- all orders placed by the purchaser for the period commencing (Date) 
------ and ending (Date) ------ (period not to exceed 12 calendar 
quarters), will be used only for fuel supplies, ships' stores, sea 
stores, or legitimate equipment on a vessel belonging to one of the 
following classes of vessels to which section 4221 of the Internal 
Revenue Code applies: (Check class to which vessel belongs.)

                                     (1) Vessels engaged in foreign
                                      trade.
                                     (2) Vessels engaged in trade
                                      between the Atlantic and Pacific
                                      ports of the United States.
                                     (3) Vessels engaged in trade
                                      between the United States and any
                                      of its possessions.

[[Page 184]]

 
                                     (4) Vessels employed in the
                                      fisheries or whaling business.
                                     (5) Vessels of war of the United
                                      States or a foreign nation.
 

    If the articles are purchased for use on civil aircraft engaged in 
trade as specified in (1) or (3) above, state the name of the country in 
which the aircraft is registered:

________________________________________________________________________

    I understand that if the articles are used for any purpose other 
than as stated in this certificate, or are resold or otherwise disposed 
of, I must report such fact to the manufacturer. I understand that this 
certificate may not be used in purchasing articles tax free for use as 
fuel supplies, etc., on pleasure vessels, or on any type of aircraft 
except that (i) civil aircraft employed in foreign trade or trade 
between the United States and any of its possessions, and (ii) aircraft 
owned by the United States or any foreign country and constituting a 
part of the armed forces thereof.
    I understand that the fraudulent use of this certificate to secure 
exemption will subject me and all parties making such fraudulent use of 
this certificate to a fine of not more than $10,000, or to imprisonment 
for not more than 5 years, or both, together with costs of prosecution. 
I also understand that I must be prepared to establish by satisfactory 
evidence the purpose for which the article was used.

________________________________________________________________________
                                                             (Signature)
________________________________________________________________________
                                                               (Address)



Sec. 48.4221-5  Tax-free sale of articles to State and local governments for their exclusive use.

    (a) In general. An article (excluding an automobile subject to tax 
under section 4064) subject to tax under Chapter 32 of the Code may be 
sold tax free by the manufacturer, pursuant to section 4221(a)(4) and 
this section, to a State or local government for the exclusive use of 
such State or local government. See paragraph (b) of this section for 
the meaning of the term ``State or local government''. An article may be 
sold tax free by the manufacturer under this paragraph only in those 
cases where the sale is made directly to a State or local government for 
its exclusive use. Accordingly, no sale may be made tax free to a dealer 
for resale to a State or local government for its exclusive use, even 
though it is known at the time of sale by the manufacturer that the 
article will be so resold. A sale of an article to a State or local 
government for resale is not considered to be a sale for the ``exclusive 
use'' of the State or local government, within the meaning of section 
4221(a)(4), and, therefore, such sales may not be made tax free. Such 
sales are not exempt regardless of whether the resales are made to 
government employees, or the fact that the article is an item of 
equipment the employee is required to possess in carrying out his 
duties. For example, pistols or revolvers may not be sold tax free to a 
State or local government for resale to its police officers. See section 
6416(b)(2)(C), and paragraph (b)(3) of Sec. 48.6416(b)-2, for the 
circumstances under which credit or refund of tax is available where 
tax-paid articles are sold for the exclusive use of a State or local 
government.
    (b) State or local government. The term ``State or local 
government'' includes any State, the District of Columbia, and any 
political subdivision of any of the foregoing.
    (c) Evidence required in support of tax-free sales to States or 
local governments. (1) The evidence required in support of a tax-free 
sale to the State or local government shall, except as provided in 
paragraph (c)(2) of this section, consist of a certificate, executed and 
signed by an officer or employee authorized by the State or local 
government to execute and sign the certificate. If it is impracticable 
to furnish a separate certificate for each order or contract because of 
a frequency of purchases, a certificate covering all orders between 
given dates (such period not to exceed 12 calendar quarters) will be 
acceptable. The certificates and proper records of invoices, orders, 
etc., relative to tax-free sales must be retained by the manufacturer as 
provided in section 6001 and the regulations thereunder. The certificate 
shall be in substantially the following form:

                          Exemption Certificate

(For use by States and local governments (section 4221(a)(4) of the 
Internal Revenue Code))
                              (Date) --------------------------, 19----.
    I hereby certify that I am ------------------ (Title of Officer) of 
------------------ (State or local government) that I am authorized to 
execute this certificate; and that:

[[Page 185]]

                 (Check applicable type of certificate)

---- the article or articles specified in the accompanying order, or on 
the reverse side hereof, (or)

---- all orders placed by the purchaser for the period commencing ------
------------ (Date) and ending ------------------ (Date) (period not to 
exceed 12 calendar quarters), are, or will be, purchased from ----------
-------- (Name of manufacturer) for the exclusive use of --------------
---- (Governmental unit) of ------------------ (State or local 
government).
    I understand that the exemption from tax in the case of sales of 
articles under this exemption certificate to a State, etc., is limited 
to the sale of articles purchased for its exclusive use. I understand 
that the fraudulent use of this certificate for the purpose of securing 
this exemption will subject me and all parties making such fraudulent 
use of this certificate to a fine of not more than $10,000, or to 
imprisonment for not more than 5 years, or both, together with costs of 
prosecution.

________________________________________________________________________
                                                             (Signature)
________________________________________________________________________
                                                               (Address)

    (2) A purchase order, provided that all of the information required 
by paragraph (c)(1) of this section is included therein, is acceptable 
in lieu of a separate exemption certificate.
    (d) Resale of articles purchased tax free by a State or local 
government. If articles purchased tax free for the exclusive use of a 
State or local government are prior to use by the State or local 
government resold under circumstances that do not amount to an exclusive 
use by the State or local government (such as tires that are resold by a 
volunteer fire department to volunteer firemen), the parties responsible 
in the State or local government are required to inform the 
manufacturer, producer, or importer from whom the articles were 
purchased that they were disposed of in a manner that did not amount to 
an exclusive use by the State or local government. A willful failure to 
supply the manufacturer, producer, or importer with the information 
required by this subparagraph will subject responsible parties to the 
penalties provided by section 7203.

[T.D. 7536, 43 FR 13522, Mar. 31, 1978, as amended by T.D. 8036, 50 FR 
29963, July 23, 1985; T.D. 8659, 61 FR 10463, Mar. 14, 1996]



Sec. 48.4221-6  Tax-free sales of articles to nonprofit educational organizations.

    (a) In general. An article (excluding an automobile subject to tax 
under section 4064) subject to tax under Chapter 32 of the Code may be 
sold tax free by the manufacturer, pursuant to section 4221(a)(5) and 
this section, to a nonprofit educational organization for its exclusive 
use. See paragraph (b) of this section for the meaning of the term 
``nonprofit educational organization''. An article may be sold tax free 
by the manufacturer under this paragraph only in those cases where the 
sale of an article by the manufacturer is made directly to a nonprofit 
educational organization for its exclusive use. Accordingly, no sale may 
be made tax free to a dealer for resale to a nonprofit educational 
organization for its exclusive use even though it is known at the time 
of sale by the manufacturer that the article will be so resold. See 
section 6416(b)(2)(D), and paragraph (b)(4) of Sec. 48.6416(b)-2, for 
the circumstances under which credit or refund of tax is available where 
tax-paid articles are sold for the exclusive use of a nonprofit 
educational organization.
    (b) Nonprofit educational organization. The term ``nonprofit 
educational organization'' means an organization described in section 
170(b)(1)(A)(ii) that is exempt from income tax under section 501(a). 
Section 170(b)(1)(A)(ii) describes an ``educational organization'' as 
one that normally maintains a regular faculty and curriculum and 
normally has a regularly enrolled body of pupils or students in 
attendance at the place where its educational activities are regularly 
carried on. The term also includes a school operated as an activity of 
an organization described in section 501(c)(3) which is exempt from 
income tax under section 501(a), provided the primary function of such 
school is the presentation of formal instruction and provided such 
school normally maintains a regular faculty and curriculum and normally 
has a regularly enrolled body of pupils or students in attendance at the 
place where its educational activities are regularly carried on.

[[Page 186]]

    (c) Evidence required in support of tax-free sales to nonprofit 
educational organizations. Every nonprofit educational organization 
purchasing tax free under section 4221(a)(5) must furnish the following 
information to the seller:
    (1) The exempt purpose for which the article or articles are being 
purchased, and
    (2) Its registration number, and the district director's office that 
issued the registration number.

Such 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 each sale ``except that a single notification containing 
the information described in this paragraph may cover all sales by the 
seller to the purchaser made during a designated period not to exceed 12 
successive calendar quarters.''. See paragraph (c) of Sec. 48.4221-1 
for the evidence required to establish exemption.

[T.D. 7536, 43 FR 13522, Mar. 31, 1978, as amended by T.D. 7686, 45 FR 
17574, Mar. 19, 1980; T.D. 8036, 50 FR 29963, July 23, 1985]



Sec. 48.4221-7  Tax-free sales of tires and tubes.

    (a) In general. A manufacturer of tires or inner tubes that are 
taxable under section 4071 may sell such articles tax free if the sale 
meets the conditions prescribed in section 4221(e)(2) and paragraph (a) 
(1) and (2) of this section. The following are conditions under which 
articles taxable under section 4071 may be sold tax free:
    (1) The tire or tube is sold for use by the purchaser for sale on or 
in connection with the sale of another article manufactured or produced 
by the purchaser; and
    (2) The other article is to be sold in a tax-free sale by the 
purchaser for export, for use as supplies for vessels or aircraft, to a 
State or local government for its exclusive use, or to a nonprofit 
educational organization for its exclusive use, or the other article is 
to be sold by the purchaser for any of such purposes in a sale which 
would be tax-free but for the fact that the other article is not subject 
to tax under Chapter 32 of the Code.

See section 6416(b)(2)(F) and paragraph (b)(6) of Sec. 48.6416(b)-2 for 
the circumstances under which credit or refund of tax is available for 
tax-paid tires or tubes that are resold for the purposes described in 
this paragraph (a).
    (b) Registration requirements. In order to effect a tax-free sale 
under section 4221(e)(2)(A), both the manufacturer and purchaser (except 
for purchasers who are exempt from the registration requirement under 
Sec. 48.4222(b)-1) must be registered with the District Director of 
Internal Revenue as required in Sec. 48.4222(a)-1. At the time of sale, 
the registration number assigned to the purchaser by the district 
director together with the purpose for which the article was purchased 
must be shown on (or attached to) the invoice, purchase order, or other 
document used for the sale.
    (c) Proof required in support of tax-free sales of tires and tubes--
(1) Cessation of exemption. The exemption allowed under section 
4221(e)(2)(A) and this section on the sale of a tire or inner tube shall 
cease to apply unless, within the 6-month period which begins on the 
date of the tax-free sale by the manufacturer of such article (or, if 
earlier, on the date of shipment by such manufacturer), the manufacturer 
receives proof from the purchaser that such article has been used on or 
in connection with the sale of another article which has been sold for 
one of the tax-exempt purposes referred to in paragraph (a)(2) of this 
section. If the manufacturer has not received the required information 
within such 6-month period, the temporary suspension of the liability 
for the payment of the tax ceases, and the manufacturer shall include 
the tax on the sale of the tire or inner tube in his return for the 
period in which the 6-month period expires. If the required information 
is received after the expiration of the 6-month period, the manufacturer 
may file a claim for credit or refund of tax so paid on his sale of the 
tire or inner tube.
    (2) Required information. The information which the manufacturer 
must receive within the 6-month period, referred to in paragraph (c)(1) 
of this section, shall be in substantially the following form:

[[Page 187]]

                   Statement of Manufacturer's Vendee

(To support tax-free sales of tires or inner tubes by the manufacturer 
          thereof for use on or in connection with the sale of another 
          article (section 4221(e)(2) of the Internal Revenue Code))

                            (Date) ----------------------------, 19----.

    I certify that I, or the ------------------, (Name of purchaser if 
other than undersigned) of which I am ------------------ (Title) am/is 
in the business of selling ------------------ (Products handled) and 
hold(s) certificate of registry No. ---- issued by the District Director 
of Internal Revenue at ------------------; and that the tires or inner 
tubes which were purchased or shipped on --------------------, 19----, 
as specified on the back hereof, have been used on or in connection with 
the sale of ------------------ (Products sold) by such undersigned.

                                Check one

---- for export by ------------------ (Name of carrier) to ------------
------ (Name of foreign country or U.S. possession) and was so exported 
on --------------------, 19---- (Date). (A copy of the bill of lading or 
other proof of exportation is attached.)

---- for use as supplies on ------------------ (Name of vessel or 
aircraft) which is registered in ------------------ (Name of country in 
which vessel or aircraft is registered).

---- to ------------------ (Name of State or local government).

---- to ------------------ (Name and address of the nonprofit 
educational organization).

    I understand that the fraudulent use of this certificate for the 
purpose of substantiating the tax-free sale will subject me and all 
parties making such fraudulent use of this certificate to revocation of 
the privilege of purchasing articles tax free and to a fine of not more 
than $10,000 or to imprisonment for not more than 5 years, or both, 
together with costs of prosecution.

________________________________________________________________________
                                                             (Signature)
________________________________________________________________________
                                                               (Address)



Sec. 48.4221-8  Tax-free sales of tires, tubes, and tread rubber used on intercity, local, and school buses.

    (a) In general. Under section 4221(e)(5), the taxes imposed by 
section 4071(a)(1), (3) and (4) shall not apply to sales by a 
manufacturer, producer, or importer of tires of the type used on highway 
vehicles or inner tubes for tires sold for use by the purchaser on or in 
connection with a qualified bus, or to the sales by a manufacturer, 
producer, or importer of tread rubber sold for use by the purchaser in 
the recapping or retreading of any tire to be used by the purchaser on 
or in connection with a qualified bus if the requirements of this 
section are met.
    (b) Meaning of terms--(1) Qualified bus. ``Qualified bus'' means an 
intercity, local, or school bus.
    (2) Intercity or local bus. ``Intercity or local bus'' means any 
automobile bus which is used predominantly (more than 50 percent) in 
furnishing (for compensation) passenger land transportation available to 
the general public if such transportation is scheduled and along regular 
routes, or if the seating capacity of the bus is at least 20 adults (not 
including the driver). In determining predominant use, mileage travelled 
with passengers as well as mileage travelled incidental to such 
passenger transportation, such as ``deadheading'', is counted. Under the 
first alternative, the size of the bus is not relevant for purposes of 
determining whether or not the use of the bus qualifies for the 
exemption. Under the second alternative, for non-scheduled bus 
operations, such as that provided by charter buses, the exemption is 
available only if the bus has a passenger seating capacity of at least 
20 adults and the transportation is available to the general public. For 
purposes of determining whether the bus has a seating capacity of at 
least 20 adults, the bus driver is not included. Service is available to 
the general public if bus service is used in a passenger transportation 
business in which service is offered to more than a limited number of 
persons, groups, or organizations.
    (3) School bus. ``School bus'' means any automobile bus in which 
``substantially all'' (85 percent or more) of the use involves 
transporting students and employees of a school. Incidental use 
(deadheading) of the school bus without passengers to or from a point to 
which students or employees of school are transported is considered to 
be a use which involves transporting students or employees of schools. A 
school is any educational organization which normally maintains a 
regular faculty and curriculum and normally has a regularly enrolled 
body of pupils or students in attendance at the place

[[Page 188]]

where its educational activities are carried on. Tax-exempt schools, 
taxable schools, and a private contractor who operates a bus for tax-
exempt or a taxable school may qualify for the tax exemption if all the 
requirements of this section are met.
    (b) Registration requirements for tires, tubes, and tread rubber; 
vendees purchasing tax free. The provisions of section 4221(e)(5) do not 
apply with respect to any sale unless the manufacturer and the vendee 
are registered as required under section 4222, and unless they comply 
with all the requirements under that section relating to tax-free sales. 
See Sec. 48.4222 (a)-1. Persons not required to be registered under 
section 4222(b) may purchase articles tax free by following the same 
procedures that apply to them in the case of other tax-free sales. See 
Sec. 48.4222(b)-1. A person's registration and right to sell or 
purchase articles tax free may be revoked or suspended as provided in 
Sec. 48.4222(c).1. Such a revocation or suspension shall be in addition 
to any other penalties that may apply.
    (c) Cross reference. For credit or refund, see section 6416(b)(2).
    (d) Information; records--(1) Information to be furnished to 
purchaser. A manufacturer selling tires, tubes, or tread rubber tax free 
under section 4221(e)(5) shall indicate to the purchaser that the 
purchaser is obtaining the tires or tubes tax free for the purpose of 
use on or in connection with a qualified bus, and that the purchaser is 
obtaining the tread rubber tax free for use in the recapping or 
retreading of tires to be used by the purchaser on or in connection with 
a qualified bus. The manufacturer may transmit this information by any 
convenient means, such as coding of sales invoices, provided that the 
information is presented with sufficient particularity so that the 
purchaser is informed that the purchaser has obtained the tires, tubes, 
and tread rubber tax free.
    (2) Records of manufacturer. A manufacturer selling tires, tubes, or 
tread rubber tax free under section 4221(e)(5) shall maintain in its 
records the identity of the purchaser, a signed statement of the exempt 
purpose for purchasing the tires, tubes, or tread rubber, and the 
quantity of tires, tubes, or tread rubber sold tax free to each 
purchaser.
    (3) Records of purchaser. A person purchasing tires, tubes, or tread 
rubber tax free under section 4221(e)(5) must maintain sufficient 
records to establish that the tires, tubes, or tread rubber purchased 
tax free has actually been used for that purpose.
    (e) Duty of selling manufacturer to ascertain validity of tax-free 
sale. The selling manufacturer is not relieved of liability under the 
provisions of section 4221(e)(5) by reason of section 4221(c) for the 
tax imposed by section 4061(b) if at the time of sale the selling 
manufacturer has knowledge or reason to believe that the tires, tubes, 
or tread rubber sold by it to the purchaser are not intended for use on 
an intercity, local, or school bus, or that the purchaser has failed to 
register, or that its registration has been revoked or suspended.
    (f) Effective date. Section 4221(e)(5) (relating to tires, tubes, 
and tread rubber) applies to sales on or after December 1, 1978. The 
sale of tires, tubes, or tread rubber sold prior to that date is not 
exempt from tax under section 4221(e)(5).

[T.D. 7834, 47 FR 42346, Sept. 27, 1982. Redesignated by T.D. 8659, 61 
FR 10463, Mar. 14, 1996]



Sec. 48.4222(a)-1  Registration.

    (a) General rule. Except as provided in Sec. 48.4222(b)-1, tax-free 
sales under section 4221 may be made only if the manufacturer, first 
purchaser, and second purchaser, as the case may be, have been 
registered by the Internal Revenue Service.
    (b) Application instructions. Application for registration under 
section 4222 must be made in accordance with instructions for Form 637 
(or such other form as the Commissioner may designate).
    (c) Evidence required in support of tax-free sales. See subparagraph 
(1) of Sec. 48.4221-1(c) for evidence required in support of tax-free 
sales to purchasers who are required to be registered.
    (d) Failure to register. If either the seller or purchaser is not 
registered as required by this section of the regulations, tax-free 
sales may not be made, except as indicated in Sec. 48.4222(b)-1.

[[Page 189]]

    (e) Cross references. (1) For exceptions to the requirement for 
registration, see section 4222(b) and Sec. 48.4222(b)-1.
    (2) For revocation or suspension of registration, see Sec. 
48.4222(c)-1.
    (3) For applicability of section 4222 and these regulations to 
exemptions provided by sections 4063(b), 4182(b), and 4293, see Sec. 
48.4222(d)-1

[T.D. 7536, 43 FR 13522, Mar. 31, 1978, as amended by T.D. 8659, 61 FR 
10463, Mar. 14, 1996]



Sec. 48.4222(b)-1  Exceptions to the requirement for registration.

    (a) State and local governments. The Internal Revenue Service will 
not register State or local governments under section 4222. To establish 
the right to sell articles tax free to a State or local government, the 
manufacturer must obtain the information described in Sec. 48.4221-
5(c).
    (b) Sales or resales to foreign purchasers for export. Persons whose 
principal place of business is not within the United States may, but are 
not required to, register in order to purchase articles tax free for 
export. To establish the right to sell articles tax free for export to a 
purchaser who is not registered and who is located in a foreign country 
or a possession of the United States, the manufacturer must obtain the 
evidence required by paragraph (b) of Sec. 48.4221-3.
    (c) United States. Except as provided in paragraph (b) of Sec. 
48.4222(d)-1 (relating to sales to the American Red Cross) the 
registration requirements of the regulations in this part do not apply 
to purchases and sales by the United States or any of its agencies or 
instrumentalities. The evidence required in support of such tax-free 
purchases and sales is a notation on the purchase order or other 
document furnished to the seller clearly indicating that the article or 
articles are being purchased tax free as authorized by Chapter 32 of the 
Code.
    (d) Supplies for vessels and aircraft. An article subject to an 
excise tax imposed by Chapter 32 of the Code may be sold tax free by the 
manufacturer under the provisions of Sec. 48.4221-4 for use by the 
purchaser as supplies for a vessel or aircraft if both the manufacturer 
and the purchaser are registered under the provisions of Sec. 
48.4222(a)-1. The article also may, on or after July 1, 1965, be sold 
tax free for such use even though neither the manufacturer nor the 
purchaser is so registered if the provisions of paragraph (d) of Sec. 
48.4221-4 are satisfied.

[T.D. 7536, 43 FR 13522, Mar. 31, 1978, as amended by T.D. 8659, 61 FR 
10463, Mar. 14, 1996; T.D. 8879, 65 FR 17160, Mar. 31, 2000]



Sec. 48.4222(c)-1  Revocation or suspension of registration.

    The district director or the Director of International Operations, 
as the case may be, is authorized to revoke or temporarily suspend, upon 
written notice, the registration of any person and the right of such 
person to sell or purchase articles tax free under section 4221 of the 
Code in any case in which he finds that (1) the registrant is not a bona 
fide manufacturer, or a purchaser reselling direct to manufacturers or 
exporters; (2) the registrant is for some other reason not eligible 
under these regulations to retain a Certificate of Registry; (3) the 
registrant has used his registration to avoid the payment of any tax 
imposed by Chapter 32 of the Code, or to postpone or interfere in any 
manner with the collection of such tax; (4) such revocation or 
suspension is necessary to protect the revenue; or (5) the registrant 
failed to comply with the requirements of paragraph (c) of Sec. 48.4222 
(a)-1, relating to the evidence required to support a tax-free sale. The 
revocation or suspension of registration is in addition to any other 
penalty that may apply under the law for any act or failure to act.

(Secs. 4222 (72 Stat. 1284; 26 U.S.C. 4222) and 7805 (68A Stat. 917; 26 
U.S.C. 7805) of the Internal Revenue Code of 1954); secs. 4051, 4052, 
4061 and 7805 of the Internal Revenue Code of 1954 (96 Stat. 2174, 2175 
and 2173; 68A Stat. 917; 26 U.S.C. 4051, 4052, 4061, and 7805) and secs. 
522 and 523 of the Highway Revenue Act of 1982 (Pub. L. 97-424, 96 Stat. 
2185, 2186))

[T.D. 7536, 43 FR 13522, Mar. 31, 1978, as amended by T.D. 7753, 46 FR 
2999, Jan. 13, 1981; T.D. 7882, 48 FR 14362, Apr. 4, 1983]



Sec. 48.4222(d)-1  Registration in the case of certain other exemptions.

    The registration procedure set forth in Sec. 48.4222 (a)-1 also 
applies in the following cases:

[[Page 190]]

    (a) Tax-free sales on or after March 10, 1980, under section 
4064(b)(1)(C) (relating to emergency vehicles). Both the vendor and 
vendee (other than a State or local government) must be registered.
    (b) Tax-free sales under section 4293 to any corporation created by 
Act of Congress to act in matters of relief under the treaty of Geneva 
of August 22, 1864 (American Red Cross) for its exclusive use. Both the 
vendor and the vendee must be registered.

[T.D. 7536, 43 FR 13522, Mar. 31, 1978, as amended by T.D. 7834, 47 FR 
42347, Sept. 27, 1982; T.D. 8036, 50 FR 29963, July 23, 1985; T.D. 8659, 
61 FR 10463, Mar. 14, 1996]



Sec. 48.4223-1  Special rules relating to further manufacture.

    (a) Purchasing manufacturer to be treated as the manufacturer. For 
purposes of Chapter 32, a manufacturer or producer to whom an article is 
sold or resold tax free under section 4221(a)(1) of the Code for use by 
it in further manufacture shall be treated as the manufacturer or 
producer of such article. If a manufacturer who purchases an article tax 
free for further manufacture does not use the article for further 
manufacture, the sale of the article by it, or its use of the article 
other than in further manufacture, shall, for purposes of the taxes 
imposed by Chapter 32 of the Code, be treated as a sale or use of the 
article by the manufacturer thereof. See paragraphs (b) and (c) of this 
section for determination of taxable sale price where an article 
purchased tax free for further manufacture is resold, or used other than 
in further manufacture.
    (b) Computation of tax. Except as provided in paragraph (c) of this 
section, the tax liability referred to in paragraph (a) of this section 
shall be based on the price for which the article was sold by the 
purchasing manufacturer, or, where the manufacturer uses the article for 
a purpose other than which it was purchased, the tax shall be based on 
the price at which such or similar articles are sold, in the ordinary 
course of trade by manufacturers, producers, or importers thereof. See 
section 4218(e) and Sec. 48.4218-5.
    (c) Election. (1) Instead of computing the tax as described under 
paragraph (b) of this section, the purchasing manufacturer who has 
incurred liability for tax on its sale or use of an article as provided 
by paragraph (a) of this section may compute the tax incurred under 
Chapter 32 by using as the tax base either the price for which the 
article was sold to it by the first purchaser, if any, or the price for 
which such article was sold by the actual manufacturer, producer, or 
importer of such article. The purchasing manufacturer must have in its 
possession information upon which to substantiate such basis for tax. 
For purposes of this paragraph, the price for which the article was sold 
by the actual manufacturer or by the first purchaser shall be determined 
as provided in section 4216 and the regulations thereunder. However, 
such price shall not be adjusted for any discount, rebate, allowance, 
return, or repossession of a container or covering, or otherwise.
    (2) The election under this paragraph shall be in the form of a 
statement attached to the return reporting the tax applicable to the 
sale or use of the article which gave rise to such tax liability. Such 
election, once made, may not be revoked.



Sec. 48.4225-1  Exemption of articles manufactured or produced by Indians.

    The exemption provided under section 4225 applies to articles 
taxable under Chapter 32 of the Code that are of native Indian 
handicraft and are manufactured or produced by Indians on Indian 
reservations or in Indian schools, or manufactured or produced by 
Indians who are under the jurisdiction of the United States Government 
in Alaska. For purposes of this section, Indians who reside on 
allotments of land adjacent to an Indian reservation and are subject to 
the supervision, control, and jurisdiction of the Bureau of Indian 
Affairs are considered to be ``Indians on Indian reservations''.

[[Page 191]]



    Subpart O_Refunds and Other Administrative Provisions of Special 
            Application to Retailers and Manufacturers Taxes



Sec. 48.6412-1  Floor stocks credit or refund.

    (a) In general. This section sets forth the procedures to be 
followed in claiming the credit or refund authorized by section 6412 for 
manufacturers excise taxes paid in respect of certain articles held by 
dealers as floor stocks on October 1, 1988. See Sec. 48.6412-2 for 
definitions of the following terms when used in this section: ``floor 
stocks'', ``inventory date'', ``dealer'', ``held by a dealer'', ``old 
rate'', ``new rate'', ``dealer request limitation date'', ``claim 
limitation date'', and ``tax paid''. See Sec. 48.6412-3 for determining 
the amount of tax paid on articles that are held as floor stocks. The 
manufacturers excise taxes for which credit or refund may be claimed 
under this section are those imposed by section 4071, relating to tires 
of the type used on highway vehicles; and section 4081, relating to 
gasoline. For definition of the term ``highway vehicle'', see Sec. 
48.4061(a)-1(d).
    (b) Computation of the amount of floor stocks credit or refund. The 
amount of floor stocks credit or refund which may be claimed by the 
manufacturer under section 6412(a)(1) may not exceed an amount equal to 
the difference between the tax paid by the manufacturer on the sale of 
the article and the amount of tax made applicable to the article on the 
inventory date. No interest is allowable with respect to any amount of 
tax credited or refunded under section 6412 and this section. In 
applying the floor stocks credit or refund provisions, the date on which 
the manufacturer paid the tax with respect to the article held as floor 
stocks is not relevant. Thus, the period of limitations provided in 
section 6511 with respect to claims for credit or refund does not apply; 
however, see paragraph (f) of this section. For definition of the term 
``manufacturer'', see Sec. 48.0-2(a)(4).
    (c) Limitation. Except as provided in Sec. 48.6412-3, no credit or 
refund is allowable under this section for an amount paid as tax which 
may be credited or refunded under any provisions of law other than 
section 6412(a)(1), or which was allowable as a credit or refund under 
section 6412 with respect to an earlier inventory date.
    (d) Relationship between credits or refunds for floor stocks and 
credits or refunds for price readjustments. The amount which may be 
credited or refunded for floor stocks and for price readjustments on an 
article may not in the aggregate exceed the tax paid in respect of the 
article. A credit or refund computed on the basis of the old tax rate 
will be allowed with respect to a price readjustment of an article on 
which a floor stock credit or refund was allowed, but only if the amount 
of the floor stock credit or refund otherwise allowable was reduced by 
taking into account such price readjustment, as determined under Sec. 
48.6412-3(e). The manufacturer must keep readily available for 
inspection sufficient records to enable examining officers of the 
Internal Revenue Service to ascertain the correctness of any claim for 
credit or refund for a price readjustment of an article on which a floor 
stock refund was claimed.
    (e) Participation of dealers--(1) Request by dealer. On or before 
the dealer request limitation date, a dealer may submit to a 
manufacturer a request with respect to a credit or refund allowable 
under this section for tax paid by the manufacturer with respect to 
articles held by the dealer as floor stocks. This request may be 
submitted directly to the manufacturer, or it may be submitted to him 
indirectly through another dealer in the distribution chain if the 
request is received by the manufacturer or an authorized agent of the 
manufacturer on or before the dealer request limitation date.
    (2) Requirements for claim by manufacturer. No amount of credit or 
refund under this section may be claimed by a manufacturer with respect 
to articles held by a dealer as floor stocks unless--
    (i) The claim for the amount is based upon a request submitted by 
the dealer to the claimant on or before the dealer request limitation 
date;
    (ii) The amount is paid by the claimant to the dealer, or the 
dealer's written consent to allowance of the credit or refund has been 
received by the

[[Page 192]]

claimant, on or before the claim limitation date; and
    (iii) The request by the dealer is supported by an inventory 
statement, made under the penalties of perjury and signed by the dealer 
or by the dealer's authorized representative, setting forth the 
following information:
    (A) The name and address of the dealer and of the applicable 
manufacturer, (if the name and address of the applicable manufacturer is 
unknown to the dealer, these items may be added by any person in the 
chain of distribution);
    (B) The identification number, if any, of the article, such as a 
serial, stock, model, type, or class number, or some other suitable 
means of identification;
    (C) A brief description of the article, such as its common name or 
designation; and
    (D) The quantity of articles held by the dealer as floor stocks on 
the inventory date.
    (3) Actual manufacturer unknown. If a dealer addresses a request to 
the person, who from markings on the article the dealer presumes to be 
the manufacturer, the request may be treated as made to the actual 
manufacturer if the actual manufacturer accepts the dealer's request.
    (4) Payment to dealer by claimant. Payment may be made directly to 
the dealer or to the dealer's authorized agent or representative by the 
claimant or by the claimant's authorized agent or representative. If a 
claimant pays a dealer through the claimant's agent or representative, 
the evidence must show that the dealer actually received the payment. If 
a dealer authorizes the claimant to pay the dealer through the dealer's 
agent or representative, evidence showing receipt of the payment by the 
agent or representative will be accepted as proof of actual payment to 
the dealer. Payment shall be made, at the manufacturer's option, in 
cash, by check, or by credit to the dealer's account as maintained by 
the claimant. The amount of the payment which may be made by crediting 
the dealer's account may not exceed the undisputed debit balance due at 
the time the credit is made. However, payment may be made in merchandise 
at the dealer's option with the concurrence of the manufacturer.
    (5) Date of performance. The date on which any act described in this 
paragraph (e) is performed by an agent or representative on behalf of a 
claimant or dealer is deemed to be the date on which the act is 
performed by the principal.
    (6) Record of inventories. For provisions relating to the record of 
a dealer's inventories to be kept by the claimant, see paragraph (g) of 
this section.
    (7) Sample written consent. No particular form is prescribed or 
required for the written consent of the dealer described in paragraph 
(e)(2)(ii) of this section. However, the following is an example of an 
acceptable consent statement by a dealer:

                       Consent Statement of Dealer

    (For use by dealer in requesting manufacturer, producer, or importer 
to obtain credit under section 6412 of the Internal Revenue Code of 1954 
with respect to floor stocks.)
    I hereby consent to the allowance to the manufacturer, producer, or 
importer of the floor stocks credit or refund of the excise tax imposed 
by the Internal Revenue Code of 1954 with respect to the articles in my 
inventory on ----------.

________________________________________________________________________

(Name)

By______________________________________________________________________

(Signature of Officer)

________________________________________________________________________

(Title)

________________________________________________________________________

(Date)

    (f) Procedure for claiming credit or refund--(1) In general. Each 
claim for credit or refund under this section shall be filed on or 
before the applicable claim limitation date, in the manner and subject 
to the conditions stated in this section and in Sec. 301.6402-2 of this 
chapter (Regulations on Procedure and Administration). Either credit or 
refund, or a combination thereof, may be claimed, but the amount which 
may be claimed as a credit on a return shall not exceed the total tax 
liability shown on the return, reduced by the amount of any deposits 
made under Sec. 48.6302(c)-1 with respect to the return and by any 
amount of credit claimed on the return pursuant to any provision of law 
other

[[Page 193]]

than section 6412. If the total amount which may be claimed exceeds the 
amount that may be claimed as credit on a return, the excess amount may 
be claimed on or before the applicable claim limitation date either as a 
refund or as a credit on a subsequent return. If credit is claimed the 
amount of the credit shall be entered as a credit on a timely-filed 
return of tax. The statement described in paragraph (f)(2) of this 
section must show the amount and date of each previous and concurrent 
claim for credit or refund under this section and indicate whether any 
future claims are expected to be filed.
    (2) Supporting evidence to be submitted by the manufacturer. No 
credit or refund shall be allowed under this section unless there is 
submitted, in support of the claim for credit or refund, a statement 
signed by the person making the claim, that describes in general terms 
the articles covered by the claim, sets forth the method of computing 
the amount claimed (including a description of any procedures used 
pursuant to Sec. 48.6412-3), and states that--
    (i) The claimant paid to the district director or the director of 
the internal revenue service center the tax for which credit or refund 
is claimed;
    (ii) The total amount claimed represents payments requested by 
dealers before the dealer request limitation date;
    (iii) The total amount claimed either was paid by the claimant to 
the dealers, or the claimant received the written consent of the dealers 
to the allowance of the amount claimed:
    (iv) The claimant has in his possession, and available for 
inspection by internal revenue officers, the evidence with respect to 
inventories required by paragraph (g)(2) of this section, and any 
written consents referred to in paragraph (f)(2)(iii) of this section; 
and
    (v) No other claim for credit or refund under this section has been 
or will be made by the claimant with respect to any amount covered by 
the claim.
    (g) Evidence to be retained in the manufacturer's records. Every 
person filing a claim for credit or refund pursuant to this section 
shall support the claim by keeping as part of the claimant's records--
    (1) The dealer's inventory statements required by paragraph 
(e)(2)(iii) of this section, to the extent that the articles are covered 
by the claim;
    (2) Records, in respect of the articles held by each dealer, 
showing--
    (i) The name and address of the dealer,
    (ii) The quantities of each article held by the dealer as floor 
stocks by taxable category, for example, by model or type number,
    (iii) The amount of tax considered to be paid by the manufacturer 
with respect to each article held by the dealer, as determined under 
Sec. 48.6412-3,
    (iv) The amount of tax, if any, which the claimant would pay on the 
sale of each article held by the dealer if the tax were computed at the 
new rate,
    (v) The total amount of reimbursement due the dealer,
    (vi) The date on which the claimant received from the dealer the 
request described in paragraph (e)(1) of this section, but only if 
payment was not made to the dealer before the dealer request limitation 
date, and
    (vii) The date and amount of each payment to a dealer, or the date 
of receipt by the claimant from the dealer of a written consent, as set 
forth in paragraph (e)(2)(ii) of this section; and
    (3) Any such written consent received from a dealer.
    (h) Special rules where the presumed manufacturer is the agent of 
the actual manufacturer. For purposes of this section, if a manufacturer 
sells articles tax-paid to a second manufacturer for resale by the 
second manufacturer under its own brand name, the second manufacturer 
may perform any acts and keep any records which are a prerequisite to 
the first manufacturer's filing a claim for floor stocks credit or 
refund with respect to the articles. If such a procedure is followed, 
the claim filed by the first manufacturer shall include a statement 
indicating the name and address of the second manufacturer and the 
amount of its claim which relates to articles sold to the second 
manufacturer.
    (i) Effect on other claims for credit or refund. If a claim for 
credit or refund is made pursuant to section 6416 and the regulations 
thereunder, relating in part to returned sales, sales for export

[[Page 194]]

or for exempt use, sales to States, etc., with respect to a tax imposed 
by section 4071 or section 4081, and if the claim is made with respect 
to articles sold by the claimant before the date on which the tax is 
reduced in rate or terminated, the claim shall be based on the new rate 
of tax unless the claimant can establish that the tax was imposed at the 
old rate and that no refund or credit under this section was allowed 
with respect to the articles. See, however, paragraph (d) of this 
section.
    (j) Other applicable provisions. All provisions of law, including 
penalties, applicable in respect of the taxes imposed by sections 4071 
and 4081 shall, insofar as applicable and not inconsistent with section 
6412, apply in respect to the credits and refunds provided for in 
section 6412 to the same extent as if the credits or refunds constituted 
overpayments of the taxes. For provisions under which timely mailing is 
treated as timely filing, and for provisions applicable to the time for 
performance of acts when the last day falls on Saturday, Sunday, or a 
legal holiday, see Sec. Sec. 301.7502-1 and 301.7503-1, respectively, 
of this chapter (Regulations on Procedure and Administration).

[T.D. 8043, 50 FR 32019, Aug. 8, 1985]



Sec. 48.6412-2  Definitions for purposes of floor stocks credit or refund.

    For purposes of section 6412 and the regulations thereunder--
    (a) Floor stocks. The term ``floor stocks'' means any article 
subject to the tax imposed by section 4071 or section 4081 which--
    (1) Is sold by the manufacturer (otherwise than in a tax-free sale) 
before October 1, 1988,
    (2) Is held by a dealer at the first moment on October 1, 1988, and 
has not been used, and
    (3) Is intended for sale.

However, the term ``floor stocks'' does not include gasoline in retail 
stocks held at the place where intended to be sold at retail, nor with 
respect to gasoline held for sale by a producer or importer of gasoline.
    (b) Inventory date. The term ``inventory date'' means the first 
moment on the date on which an article is treated as floor stocks within 
the meaning of paragraph (a) of this section.
    (c) Dealer. The term ``dealer'' includes a wholesaler, jobber, 
distributor, or retailer.
    (d) Held by a dealer--(1) In general. (i) An article is considered 
as ``held by a dealer'' if title to the article has passed to the dealer 
(whether or not delivery to the dealer has been made), and if, for 
purposes of consumption, title to or possession of the article has not 
at any time been transferred to any person other than a dealer.
    (ii) Floor samples, demonstrators, and articles undergoing repair 
(whether or not on the dealer's premises) that are carried in stock to 
be sold as new articles, and articles purchased tax-paid by a 
manufacturer or a sales subsidiary and held by the person on the 
inventory date for resale as such, will be considered as unused and held 
by a dealer, if title to or possession of the article has not at any 
time been transferred to any person for purposes of consumption.
    (iii) Articles sold by a dealer to a consumer before the inventory 
date and thereafter repossessed by the dealer, and articles purchased 
tax-paid by a manufacturer for use in further manufacture within the 
meaning of section 4221(d)(6), will not be considered as held by a 
dealer.
    (iv) The determination as to the time title or possession passes for 
purposes of consumption shall be made under applicable local law.
    (2) Examples. The application of this paragraph (d) may be 
illustrated by the following examples:

    Example (1). If, under local law, title to an article sold by a 
dealer under a conditional sales contract is in the dealer on the 
inventory date, but the consumer has physical possession of the article 
on that date, the article is not considered as held by the dealer.
    Example (2). If, under local law, title to an article is in the 
consumer on the inventory date because the article is specifically 
identified with a contract, but on that date the dealer still has 
physical possession of the article, for example, in his will-call 
department, the article is not considered as held by the dealer on that 
date because title to the article has passed to the consumer for 
purposes of consumption.
    Example (3). If, under local law, title to an article is in the 
consumer on the inventory date because the dealer transferred the 
article to a common carrier for delivery to the

[[Page 195]]

consumer, the article in transit is not considered as held by the dealer 
on that date because title has passed to the consumer for purposes of 
consumption, even though neither the dealer nor the consumer has 
physical possession of the article.
    Example (4). If, under local law, title to an article is in the 
dealer on the inventory date and does not pass to the consumer until 
delivery by a common carrier, the article in transit shall be considered 
as held by the dealer on that date because neither the title nor 
possession has passed to the consumer for purposes of consumption.
    Example (5). If an article has been mortgaged or otherwise 
hypothecated by a dealer as security for a loan and, under local law, 
title to the article is in the creditor on the inventory date, and 
physical possession is in the dealer, the article shall be considered as 
held by the dealer on that date because neither title nor possession has 
passed to the consumer for purposes of consumption.

    (e) Old rate. The term ``old rate'' means the rate of tax in effect 
with respect to the sale of an article before the date designated in 
paragraph (a) or (b) of this section on which the tax is reduced in rate 
or is terminated.
    (f) New rate. The term ``new rate'' means the rate of tax, if any, 
in effect with respect to the sale of an article on the date designated 
in paragraph (a) or (b) of this section on which the tax is reduced in 
rate or is terminated.
    (g) Dealer request limitation date. The term ``dealer request 
limitation date'' is the date prescribed by section 6412(a)(1) before 
which the request on which the manufacturer's claim is based must be 
submitted to the manufacturer by the dealer who held the floor stocks on 
the inventory date. In the case of an article held by a dealer on 
October 1, 1988, the dealer request limitation date is January 1, 1989.
    (h) Claim limitation date. The term ``claim limitation date'' means 
the last date prescribed by section 6412(a)(1) on which refund or credit 
with respect to floor stocks may be claimed by a manufacturer. In the 
case of an article held by a dealer on October 1, 1988, the claim 
limitation date is March 31, 1989.
    (i) Tax paid. A tax is considered paid if it was paid or was offset 
by an allowable credit on the return on which it was reported.

[T.D. 8043, 50 FR 32021, Aug. 8, 1985]



Sec. 48.6412-3  Amount of tax paid on each article.

    (a) General rule. For purposes of making the claim for credit or 
refund under Sec. 48.6412-1 in respect of floor stocks held by a 
dealer, the tax paid on each article must be separately computed. If 
desired, the procedures set forth in paragraphs (b) through (g) of this 
section may be used in making the computation. The procedure used in 
determining the tax paid on an article must also be used in determining 
the amount of tax, if any, made applicable to the article on the 
effective date of reduction or repeal of the tax involved. Prior 
approval of the Internal Revenue Service for the method of computation 
need not be obtained and should not be requested.
    (b) Selling price. In determining the price of an article on which 
the tax paid is to be computed, the average of the gross selling prices 
of identical articles sold during a representative period may be used. 
For example, truck chassis of the same model that are sold by the 
manufacturer with the same equipment and accessories are identical 
articles whose selling prices may be computed on the basis of an 
average.
    (c) Transportation charges. In determining the price of an article 
on which the tax paid is to be computed, the average of the exclusions 
authorized by section 4216(a) for transportation, delivery, insurance, 
installation, etc., for a reasonable category of articles during a 
representative period may be used.
    (d) Credits for tax paid on inner tubes. The average of the credits 
authorized by section 6416(c) for tax paid on tires or inner tubes may 
be averaged for a reasonable category of articles during a 
representative period. The credits shall be subtracted from the gross 
excise tax to arrive at the net excise tax paid.
    (e) Price readjustments. (1) In determining the price on which the 
tax paid is to be computed, there must be taken into account any price 
readjustments with respect to which the manufacturer has filed a claim 
for credit or refund under section 6416(b). Other price readjustments 
which have been, or are reasonably expected to be, made with

[[Page 196]]

respect to the article may, at the option of the manufacturer, be taken 
into account in computing the price of the article.
    (2) Price readjustments which cannot be attributed to specific 
articles as of the inventory date (as, for example, a price readjustment 
of a flat dollar amount which is made to dealers who meet a sales quota) 
may be taken into account on the basis of an average of the adjustments 
which is computed for a reasonable category of articles over a 
representative period.
    (3) Price readjustments related to specific items (as, for example, 
an automatic rebate of a specific percentage of the price of each unit 
sold to a dealer) may not be averaged, and in such a case only the 
actual price readjustment attributable to a particular article may be 
taken into account in computing the tax on that article.
    (4) If, because of the facts in a case, a price readjustment can be 
attributed to specific articles for purposes of consumer refunds but 
cannot be attributed to specific articles for purposes of floor stocks 
credits or refunds, the price adjustment may be averaged for purposes of 
both consumer refunds and floor stocks credits and refunds.
    (f) Representative period. A period will be considered a 
representative period if--
    (1) It covers (i) at least four consecutive calendar quarters, the 
last of which ends with a period of six calendar months immediately 
preceding the effective date of the tax reduction or repeal involved or 
(ii) any other period of time which the taxpayer can demonstrate 
constitutes a representative period for the particular category, and
    (2) The number of articles in the category involved sold by the 
manufacturer during the period either (i) equals or exceeds the number 
of articles in the category to which the average amount is to be applied 
or (ii) can be demonstrated by the taxpayer to be a representative 
quantity.
    (g) Reasonable category. Examples of a reasonable category of 
articles are articles that are identified by a common stock or class 
number or which are of the same model, class, or line. For the purpose 
of averaging exclusions, another example of a reasonable category of 
articles is a grouping of articles that are shipped in the same 
container. If a manufacturer sells articles bearing his own trademark 
and also sells articles as private brands, separate computations of the 
two brands must be made under this section.

[T.D. 8043, 50 FR 32022, Aug. 8, 1985]



Sec. 48.6416(a)-1  Claims for credit or refund of overpayments of taxes on 

special fuels and manufacturers taxes.

    Any claims for credit or refund of an overpayment of a tax imposed 
by chapter 31 or chapter 32 shall be made in accordance with the 
applicable provisions of this subpart and the applicable provisions of 
Sec. 301.6402-2 of this chapter (Regulations on Procedure and 
Administration). A claim on Form 843 is not required in the case of a 
claim for credit, but the amount of the credit shall be claimed by 
entering that amount as a credit on a return of tax under this subpart 
filed by the person making the claim. In this regard, see Sec. 
48.6416(f)-1.

[T.D. 8043, 50 FR 32022, Aug. 8, 1985]



Sec. 48.6416(a)-2  Credit or refund of tax on special fuels.

    (a) Overpayments not described in section 6416(b)(2)--(1) Claims 
included. This paragraph applies only to claims for credit or refund of 
an overpayment of tax imposed by section 4041(a)(1)(A) (relating to tax 
on the sale of diesel fuel), section 4041(a)(2)(A) (relating to tax on 
the sale of special motor fuels), section 4041(c)(1)(A) (relating to tax 
on the sale of fuel for use in noncommercial aviation), or section 
4041(c)(2)(A) (relating to the tax on sale of gasoline for use in 
noncommercial aviation). It does not apply, however, to a claim for 
credit or refund of any overpayment described in paragraph (b) of this 
section which arises by reason of the application of section 6416(b)(2).
    (2) Supporting evidence required. No credit or refund of any 
overpayment to which this paragraph (a) applies shall be allowed unless 
the person who paid the tax submits with the claim a written consent of 
the ultimate purchaser to the allowance of the credit or refund, or 
submits with the claim a

[[Page 197]]

statement, supported by sufficient available evidence, asserting that--
    (i) The person has neither included the tax in the price of the fuel 
with respect to which it was imposed nor collected the amount of the tax 
from a vendee, and identifying the nature of the evidence available to 
establish these facts, or
    (ii) The person has repaid the amount of the tax to the ultimate 
purchaser of the fuel.
    (3) Ultimate purchaser. The term ``ultimate purchaser'', as used in 
paragraph (a)(2) of this section, means the vendee to whom the fuel was 
sold tax-paid by the person claiming credit or refund.
    (b) Overpayments determined under section 6416(b)(2)--(1) Claims 
included. This paragraph applies only to claims for credit or refund of 
amounts paid as tax under section 4041(a)(1)(A) (relating to tax on the 
sale of diesel fuel) or section 4041(a)(2)(A) (relating to tax on the 
sale of special motor fuels) that are determined to be overpayments by 
reason of section 6416(b)(2) (relating to tax payments in respect of 
certain uses, sales, or resales of a taxable article).
    (2) Supporting evidence required. No credit or refund of an 
overpayment to which this paragraph (b) applies shall be allowed unless 
the person who paid the tax submits with the claim a statement, 
supported by sufficient available evidence, asserting that--
    (i) The person has neither included the tax in the price of the fuel 
with respect to which it was imposed nor collected the amount of the tax 
from a vendee, and identifying the nature of the evidence available to 
establish these facts, or
    (ii) The person has repaid, or agreed to repay, the amount of the 
tax to the ultimate vendor of the fuel, or
    (iii) The person has secured, and will submit upon request of the 
Service, the written consent of the ultimate vendor to the allowance of 
the credit or refund.
    (3) Ultimate vendor. The term ``ultimate vendor'', as used in 
paragraph (b)(2) of this section, means the seller making the sale which 
gives rise to the overpayment or which last precedes the exportation or 
use which gives rise to the overpayment.
    (c) Nonapplication to tax on use of special fuels. This section 
shall not have any effect on overpayments of tax under section 
4041(a)(1)(B) (relating to tax on the use of diesel fuel), section 
4041(a)(2)(B) (relating to tax on the use of special motor fuels), 
section 4041(c)(1)(B) (relating to tax on the use of fuel other than 
gasoline in noncommercial aviation), section 4041(c)(2)(B) (relating to 
tax on the use of gasoline in noncommercial aviation), or section 4042 
(relating to tax on fuel used in commercial transportation on inland 
waterways).

[T.D. 8043, 50 FR 32022, Aug. 8, 1985]



Sec. 48.6416(a)-3  Credit or refund of manufacturers tax under chapter 32.

    (a) Overpayment not described in section 6416(b)(3)(C) or (4) (prior 
to April 1, 1983) and section 6416(b)(2)--(1) Claims included. This 
paragraph applies only to claims for credit or refund of an overpayment 
of manufacturers tax imposed by chapter 32. It does not apply, however, 
to a claim for credit or refund on any overpayment described in 
paragraph (b) of this section which arises by reason of the application 
of section 6416(b)(2), (3)(C), or (4).
    (2) Supporting evidence required. No credit or refund of any 
overpayment to which this paragraph (a) applies shall be allowed unless 
the person who paid the tax submits with the claim a written consent of 
the ultimate purchaser to the allowance of the credit or refund, or 
submits with the claim a statement, supported by sufficient availabe 
evidence, asserting that--
    (i) The person has neither included the tax in the price of the 
article with respect to which it was imposed nor collected the amount of 
the tax from a vendee, and identifying the nature of the evidence 
available to establish these facts, or
    (ii) The person has repaid the amount of the tax to the ultimate 
purchaser of the article.
    (3) Ultimate purchaser--(i) General rule. The term ``ultimate 
purchaser'', as used in paragraph (a)(2) of this section, means the 
person who purchased the article for consumption, or for use in the 
manufacture of other articles and not for resale in the form in which 
purchased.

[[Page 198]]

    (ii) Special rule under section 6416(a)(3)--(A) Conditions to be 
met. If tax under chapter 32 is paid in respect of an article and the 
Commissioner determines that the article is not subject to tax under 
chapter 32, the term ``ultimate purchaser'', as used in paragraph (a)(2) 
of this section, includes any wholesaler, jobber, distributor, or 
retailer who, on the 15th day after the date of the determination, holds 
for sale any such article with respect to which tax has been paid, if 
the claim for credit or refund of the overpayment in respect of the 
articles held for sale by the wholesaler, jobber, distributor, or 
retailer is filed on or before the date on which the person who paid the 
tax is required to file a return for the period ending with the first 
calendar quarter which begins more than 60 days after the date of the 
determination by the Commissioner.
    (B) Supporting statement. A claim for credit or refund of an 
overpayment of tax in respect of an article as to which a wholesaler, 
jobber, distributor, or retailer is the ultimate purchaser, as provided 
in this paragraph (a)(3)(ii), must be supported by a statement that the 
person filing the claim has a statement, by each wholesaler, jobber, 
distributor, or retailer whose articles are covered by the claim, 
showing total inventory, by model number and quantity, of all such 
articles purchased tax-paid and held for sale as of 12:01 a.m. of the 
15th day after the date of the determination by the Commissioner that 
the article is not subject to tax under chapter 32.
    (C) Inventory requirement. The inventory shall not include any such 
article, title to which, or possession of which, has previously been 
transferred to any person for purposes of consumption unless the entire 
purchase price was repaid to the person or credited to the person's 
account and the sale was rescinded or any such article purchased by the 
wholesaler, jobber, distributor, or retailer as a component part of, or 
on or in connection with, another article. An article in transit at the 
first moment of the 15th day after the date of the determination is 
regarded as being held by the person to whom it was shipped, except that 
if title to the article does not pass until delivered to the person the 
article is deemed to be held by the shipper.
    (b) Overpayments described in section 6416(b) (3)(C) or (4) (prior 
to April 1, 1983) and section 6416(b)(2)--(1) Claims included. This 
paragraph applies only to claims for credit or refund of amounts paid as 
tax under chapter 32 that are determined to be overpayments by reason of 
section 6416(b)(2) (relating to tax payments in respect of certain uses, 
sales, or resales of a taxable article), section 6416(b)(3)(C) (relating 
to tax-paid tires or inner tubes used for further manufacture), or 
section 6416(b)(4) (relating to tires or inner tubes used by the 
manufacturer on another manufactured article).
    (2) Supporting evidence required. No credit or refund of an 
overpayment to which this paragraph (b) applies shall be allowed unless 
the person who paid the tax submits with the claim a statement, 
supported by sufficient available evidence, asserting that--
    (i) The person neither included the tax in the price of the article 
with respect to which it was imposed nor collected the amount of the tax 
from a vendee, and identifying the nature of the evidence available to 
establish these facts, or
    (ii) The person repaid, or agreed to repay, the amount of the tax to 
the ultimate vendor of the article, or
    (iii) The person has secured, and will submit upon request of the 
Service, the written consent of the ultimate vendor to the allowance of 
the credit or refund.
    (3) Ultimate vendor--(i) General rule-- The term ``ultimate 
vendor'', as used in paragraph (b)(2) of this section, means the seller 
making the sale which gives rise to the overpayment or which last 
precedes the exportation or use which has given rise to the overpayment.
    (ii) Special rule under section 6416(a)(3)(B) prior to revision by 
the Highway Revenue Act of 1982. In the case of an overpayment 
determined under section 6416(b) (2)(F), (3)(C), or (4) in respect of 
tires or inner tubes, where the taxable article is used as a component 
part of, or sold on or in connection with or with the sale of, a second 
article which is exported, sold to a nonprofit educational organization 
for its exclusive use, sold to a State or local

[[Page 199]]

government for the exclusive use of a State or local government or used 
or sold for use as supplies for vessels or aircraft, the term ``ultimate 
vendor'', as used in paragraph (b)(2) of this section, means the 
ultimate vendor of the second article.
    (c) Overpayments not included. This section does not apply to any 
overpayment determined under section 6416(b)(1) (relating to price 
readjustments), section 6416(b)(3)(A) (relating to certain cases in 
which refund or credit is allowable to the manufacturer who uses, in the 
further manufacture of a second article, a taxable article purchased by 
the manufacturer tax-paid), section 6416(b)(3)(B) prior to April 1, 1983 
(relating to parts or accessories taxable under section 4061(b) and used 
by a subsequent manufacturer or producer as material or a component part 
of any other article manufactured or produced by him), section 
6416(b)(4) after March 31, 1983 (relating to tires), section 6416(b)(5) 
(relating to the return to the seller of certain installment accounts 
which the seller had previously sold) or section 6416(b)(6) (relating to 
truck chassis, bodies, and semi-trailers used for further manufacture). 
In this regard, see Sec. Sec. 48.6416(b)(1)-1, 48.6416(b)(3)-1, and 
48.6416(b)(5)-1.

[T.D. 8043, 50 FR 32023, Aug. 8, 1985, as amended by T.D. 8748, 63 FR 
15292, Mar. 31, 1998]



Sec. 48.6416(b)(1)-1  Price readjustments causing overpayments of manufacturers tax.

    In the case of any payment of tax under chapter 32 that is 
determined to be an overpayment by reason of a price readjustment within 
the meaning of section 6416(b)(1) and Sec. 48.6416(b)(1)-2 or Sec. 
48.6416(b)(1)-3, the person who paid the tax may file a claim for refund 
of the overpayment or may claim credit for the overpayment on any return 
of tax under this subpart which the person subsequently files. Price 
readjustments may not be anticipated. However, if the readjustment has 
actually been made before the return is filed for the period in which 
the sale was made, the tax to be reported in respect of the sale may, at 
the election of the taxpayer, be based either (a) on the price as so 
readjusted or (b) on the original sale price and a credit or refund 
claimed in respect of the price readjustment. A price readjustment will 
be deemed to have been made at the time when the amount of the 
readjustment has been refunded to the vendor or the vendor has been 
informed that the vendor's account has been credited with the amount. No 
interest shall be paid on any credit or refund allowed under this 
section. For provisions relating to the evidence required in support of 
a claim for credit or refund, see Sec. 301.6402-2 of this chapter 
(Regulations on Procedure and Administration), Sec. 48.6416(a)-3(a)(2), 
and Sec. 48.6416(b)(1)-4. For provisions authorizing the taking of a 
credit in lieu of filing a claim for refund, see section 6416(d) and 
Sec. 48.6416(f)-1.

[T.D. 8043, 50 FR 32024, Aug. 8, 1985]



Sec. 48.6416(b)(1)-2  Determination of price readjustments.

    (a) In general--(1) Rules of usual application--(i) Amount treated 
as overpayment. If the tax imposed by chapter 32 has been paid and 
thereafter the price of the article on which the tax was based is 
readjusted, that part of the tax which is proportionate to the part of 
the price which is repaid or credited to the purchaser is considered to 
be an overpayment. A readjustment of price to the purchaser may occur by 
reason of--
    (A) The return of the article,
    (B) The repossession of the article,
    (C) The return or repossession of the covering or container of the 
article, or
    (D) A bona fide discount, rebate, or allowance against the price at 
which the article was sold.
    (ii) Requirements of price readjustment. A price readjustment will 
not be deemed to have been made unless the person who paid the tax 
either--
    (A) Repays part or all of the purchase price in cash to the vendee,
    (B) Credits the vendee's account for part or all of the purchase 
price, or
    (C) Directly or indirectly reimburses a third party for part or all 
of the purchase price for the direct benefit of the vendee.

In addition, to be deemed a price readjustment, the payment or credit 
must be contractually or economically related to the taxable sale that 
the payment or credit purports to adjust. Thus, commissions or bonuses 
paid to a

[[Page 200]]

manufacturer's own agents or salesperson for selling the manufacturer's 
taxable products are not price readjustments for purposes of this 
section, since those commissions or bonuses are not paid or credited 
either to the manufacturer's vendee or to a third party for the vendee's 
benefit. On the other hand, a bonus paid by the manufacturer to a 
dealer's salesperson for negotiating the sale of a taxable article 
previously sold to the dealer by the manufacturer is considered to be a 
readjustment of the price on the original sale of the taxable article, 
regardless of whether the payment to the salesperson is made directly by 
the manufacturer or to the salesperson through the dealer. In such a 
case, the payment is related to the sale of a taxable article and is 
made for the benefit of the dealer because it is made to the dealer's 
salesperson to encourage the sale of a product owned by the dealer. 
Similarly, payments or credits made by a manufacturer to a vendee as 
reimbursement of interest expense incurred by the vendee in connection 
with a so-called ``free flooring'' arrangement for the purchase of 
taxable articles is a price readjustment, regardless of whether the 
payment or credit is made directly to the vendee or to the vendee's 
creditor on behalf of the vendee.
    (iii) Limitation on credit or refund. The credit or refund allowable 
by reason of a price readjustment in respect of the sale of a taxable 
article may not exceed an amount which bears the same ratio to the total 
tax originally due and payable on the article as the amount of the tax-
included readjustment bears to the original tax-included sale price of 
the article.

    Example. A manufacturer sells a taxable article for $100 plus $10 
excise tax, and reports and pays tax liability accordingly. Thereafter, 
the manufacturer credits the customer's account for $11 (tax included) 
in readjustment of the original sale price. The overpayment of tax is 
$1, determined as follows:

Tax-included readjustment x
Tax-included sale price
Original tax due =
Tax overpayment.
$11 x $10 =
$1 tax overpaid.
$110

    (2) Rules of special application--(i) Constructive sale price. If, 
in the case of a taxable sale, the tax imposed by chapter 32 is based on 
a constructive sale price determined under any paragraph of section 
4216(b) and the regulations thereunder, as determined without reference 
to section 4218, then any price readjustment made with respect to the 
sale may be taken into account under this section only to the extent 
that the price readjustment reduces the actual sale price of the article 
below the constructive sale price.

    Example. (A) A manufacturer sells a taxable article at retail for 
$110 tax included. Under section 4216(b)(1) the constructive sale price 
(tax included) of the article is determined to be $93. Thereafter, the 
manufacturer grants an allowance of $10 to the purchaser, which reduces 
the actual selling price (tax included) to $100. Since the readjustment 
price still exceeds the amounts of the constructive sale price, this 
readjustment is not recognized as a price readjustment under this 
section.
    (B) Subsequently, the manufacturer extends to the purchaser an 
additional price allowance of $10, thereby reducing the actual sale 
price to $90. Since the actual sale price is now $3 less than the 
constructive sale price of $93, the manufacturer has overpaid by the 
amount of tax attributable to the $3. Assuming the tax rate involved is 
10 percent, and the prices involved are tax-included, the overpayment of 
tax would be $0.27, determined as follows:
[GRAPHIC] [TIFF OMITTED] TC05OC91.031

    (ii) Price determined under section 4223(b)(2). If a manufacturer 
(within the meaning of section 4223(a)) to whom an article is sold or 
resold free of tax in accordance with the provisions of section 
4221(a)(1) for use in further manufacture diverts the article to a 
taxable use or sells it in a taxable sale, and

[[Page 201]]

pursuant to the provisions of section 4223(b)(2) computes the tax 
liability in respect of the use or sale on the price for which the 
article was sold to the manufacturer or on the price at which the 
article was sold by the actual manufacturer, a reduction of the price on 
which the tax was based does not result in an overpayment within the 
meaning of section 6416(b)(1) of this section. Moreover, if a 
manufacturer purchases an article tax free and computes the tax in 
respect of a subsequent sale of the article pursuant to the provisions 
of section 4223(b)(2), an overpayment does not arise by reason of 
readjustment of the price for which the article was sold by the 
manufacturer except where the readjustment results from the return or 
repossession of the article by the manufacturer, and all of the purchase 
price is refunded by the manufacturer. See, however, paragraph (b)(4) of 
this section as to repurchased articles.
    (b) Return of an article--(1) Price readjustment. If a taxable 
article is returned to the manufacturer who paid the tax imposed by 
chapter 32 on the sale of the article, a price readjustment giving rise 
to an overpayment results--
    (i) If the article is returned before use, and all of the purchase 
price is repaid to the vendee or credited to the vendee's account, or
    (ii) If the article is returned under an express or implied warranty 
as to quality or service, and all or a part of the purchase price is 
repaid to the vendee or credited to the vendee's account, or
    (iii) If title is still in the seller, as, for example, in the case 
of certain installment sales contracts, and all or a part of the 
purchase price is repaid to the vendee or credited to the vendee's 
account.
    (2) Return of purchase price. For purposes of paragraph (b)(1) of 
this section, if all of the purchase price of an article has been 
returned to the vendee, except for an amount retained by the 
manufacturer pursuant to contract as reimbursement of expense incurred 
in connection with the sale (such as a handling or restocking charge), 
all of the purchase price is considered to have been returned to the 
vendee.
    (3) Taxability of subsequent sale or use. If, under any of the 
conditions described in paragraph (b)(1) of this section, an article is 
returned to the manufacturer who paid the tax and all of the purchase 
price is returned to the vendee, the sale is considered to have been 
rescinded. Any subsequent sale or use of the article by the manufacturer 
will be considered to be an original sale or use of the article by the 
manufacturer which is subject to tax under chapter 32 unless otherwise 
exempt. If under any such condition an article is returned to the 
manufacturer who paid the tax and only part of the purchase price is 
returned to the vendee, a subsequent sale of the article by the 
manufacturer will be subject to tax to the extent that the sale price 
exceeds the adjusted sale price of the first taxable sale.
    (4) Treatment of other transactions as repurchases. Except as 
provided in paragraph (b)(1) of this section, a price readjustment will 
not result when a taxable article is returned to the manufacturer who 
paid the tax on the sale of the article, even though all or a part of 
the purchase price is repaid to the vendee or credited to the vendee's 
account, since such a transaction will be considered to be a repurchase 
of the article by the manufacturer.
    (c) Repossession of an article. If a taxable article is repossessed 
by the manufacturer who paid the tax imposed by chapter 32 on the sale 
of the article, and all or a part of the purchase price is repaid to the 
vendee or credited to the vendee's account, a price readjustment giving 
rise to an overpayment will result. However, if the manufacturer later 
resells the repossessed article for a price in excess of the original 
adjusted sale price, the manufacturer will be liable for tax under 
chapter 32 to the extent that the resale price exceeds the original 
adjusted sale price.
    (d) Return or repossession of covering or container. If the covering 
or container of a taxable article is returned to, or repossessed by the 
manufacturer who paid the tax imposed by chapter 32 on the sale of the 
article, and all or a portion of the purchase price is repaid to the 
vendee or credited to the vendee's account by reason of the return or 
repossession of the covering or container, a price adjustment giving 
rise to an overpayment will result. If a taxable

[[Page 202]]

article is considered to have been repurchased, as provided in paragraph 
(b)(4) of this section, and the covering or container accompanies the 
taxable article as part of the transaction, the covering or container 
will also be considered to have been repurchased.
    (e) Bona fide discounts, rebates, or allowances--(1) In general. 
Except as provided in Sec. 48.6416(b)(1)-3 (relating to readjustments 
in respect of local advertising), the basic consideration in 
determining, for purposes of this section, whether a bona fide discount, 
rebate, or allowance has been made is whether the price actually paid 
by, or charged against, the purchaser has in fact been reduced by 
subsequent transactions between the parties. Generally, the price will 
be considered to have been readjusted by reason of a bona fide discount, 
rebate, or allowance, only if the manufacturer who made the taxable sale 
repays a part of the purchase price in cash to the vendee, or credits 
the vendee's account, or directly or indirectly reimburses a third party 
for part or all of the purchase price for the direct benefit of the 
vendee, in consideration of factors which, if taken into account at the 
time of the original transaction, would have resulted at that time in a 
lower sale price. For example, a price readjustment will be considered 
to have been made when a bona fide discount, rebate, or allowance is 
given in consideration of such factors as prompt payment, quantity 
buying over a specified period, the vendee's inventory of an article 
when new models are introduced, or a general price reduction affecting 
articles held in stock by the vendee as of a certain date. On the other 
hand, repayments made to the vendee do not effectuate price 
readjustments if given in consideration of circumstances under which the 
vendee has incurred, or is required to incur, an expense which, if 
treated as a separate item in the original transaction, would have been 
includible in the price of the article for purposes of computing the 
tax.
    Examples. The provisions of paragraph (e)(1) of this section may be 
illustrated by the following examples:

    Example (1). B, a manufacturer of fishing rods, bills its 
distributors in a specified amount per fishing rod purchased by them. 
Thereafter, B issues to each distributor a credit memorandum in the 
amount of X dollars for each demonstration by the distributor of the 
fishing rods at a sporting goods exhibition. The credit which B allows 
the distributor for demonstration of B's product does not effect a 
readjustment of price.
    Example (2). C, a manufacturer of automobiles, bills its dealers in 
a specified amount per automobile purchased by them. Thereafter, C 
remits to the dealer X dollars of the original sale price for each 
automobile sold by the dealer in the last month of the model year. An 
additional amount of Y dollars is paid to the dealer upon a showing by 
the dealer that the dealer has paid Y dollars to the salesperson who 
made the sale. In this case, the X dollars paid to the dealer by C 
constitutes a bona fide discount, rebate, or allowance since payment of 
such amount is in the nature of a price reduction by reason of the 
dealer's inventory when new models are introduced. In addition, the Y 
dollars paid to the dealer in reimbursement for the amount paid by the 
dealer to the salesperson who made the sale, also constitutes a bona 
fide discount, rebate, or allowance.

    (2) Inability to collect price. A charge-off of an amount 
outstanding in an open account, due to inability to collect, is not a 
bona fide discount, rebate, or allowance and does not, in and of itself, 
give rise to a price readjustment within the meaning of this section.
    (3) Loss or damage in transit. If title to an article has passed to 
the vendee, the subsequent loss, damage, or destruction of the article 
while in the possession of a carrier for delivery to the vendee does 
not, in and of itself, affect the price at which the article was sold. 
However, if the article was sold under a contract providing that, if the 
article was lost, damaged, or destroyed in transit, title would revert 
to the vendor and the vendor would reimburse the vendee in full for the 
sale price, then the original sale is considered to have been rescinded. 
The vendor is entitled to credit or refund of the tax paid upon 
reimbursement of the full tax-included sale price to the vendee.

[T.D. 8043, 50 FR 32024, Aug. 8, 1985; 50 FR 42518, Oct. 21, 1985]



Sec. 48.6416(b)(1)-3  Readjustment for local advertising charges.

    (a) In general. If a manufacturer has paid the tax imposed by 
chapter 32 on the price of any article sold by the manufacturer and 
thereafter has repaid

[[Page 203]]

a portion of the price to the purchaser or any subsequent vendee in 
reimbursement of expenses for local advertising of the article or any 
other article sold by the manufacturer which is taxable at the same rate 
under the same section of chapter 32, the reimbursement will be 
considered a price readjustment constituting an overpayment which the 
manufacturer may claim as a credit or refund. The amount of the 
reimbursement may not, however, exceed the limitation provided by 
section 4216(e)(2) and Sec. 48.4216(e)-2, determined as of the close of 
the calendar quarter in which the reimbursement is made or as of the 
close of any subsequent calendar quarter of the same calendar year in 
which it is made. The term ``local advertising'', as used in this 
section, has the same meaning as prescribed by section 4216(e)(4) and 
includes generally, advertising which is broadcast over a radio station 
or television station, or appears in a newspaper or magazine, or is 
displayed by means of an outdoor advertising sign or poster.
    (b) Local advertising charges excluded from taxable price in one 
year but repaid in following year--(1) Determination of price 
readjustments for year in which charge is repaid. If the tax imposed by 
chapter 32 was paid with respect to local advertising charges that were 
excluded in computing the taxable price of an article sold in any 
calendar year but are not repaid to the manufacturer's purchaser or any 
subsequent vendee before May 1 of the following calendar year, the 
subsequent repayment of those charges by the manufacturer in 
reimbursement of expenses for local advertising will be considered a 
price readjustment constituting an overpayment which the manufacturer 
may claim as a credit or refund. The amount of the reimbursement may 
not, however, exceed the limitation provided by section 4216(e)(2) and 
Sec. 48.4216(e)-(2), determined as of the close of the calendar quarter 
in which the reimbursement is made or as of the close of any subsequent 
calendar quarter of the same calendar year in which it is made.
    (2) Redetermination of price readjustments for year in which charge 
was made. If the tax imposed by chapter 32 was paid with respect to 
local advertising charges that were excluded in computing the taxable 
price of an article sold in any calendar year but are not repaid to the 
manufacturer's purchaser or any subsequent vendor before May 1 of the 
following calendar year, the manufacturer may make a redetermination, in 
respect of the calendar year in which the charge was made, of the price 
readjustments constituting an overpayment which the manufacturer may 
claim as a credit or refund. This redetermination may be made by 
excluding the local advertising charges made in the calendar year that 
became taxable as of May 1 of the following calendar year.

[T.D. 8043, 50 FR 32026, Aug. 8, 1985]



Sec. 48.6416(b)(1)-4  Supporting evidence required in case of price readjustments.

    No credit or refund of an overpayment arising by reason of a price 
readjustment described in Sec. 48.6416(b)(1)-2 or Sec. 48.6416(b)(1)-3 
shall be allowed unless the manufacturer who paid the tax submits a 
statement, supported by sufficient available evidence--
    (a) Describing the circumstances which gave rise to the price 
readjustment,
    (b) Identifying the article in respect of which the price 
readjustment was allowed,
    (c) Showing the price at which the article was sold, the amount of 
tax paid in respect of the article, and the date on which the tax was 
paid,
    (d) Giving the name and address of the purchaser to whom the article 
was sold, and
    (e) Showing the amount repaid to the purchaser or credited to the 
purchaser's account.

[T.D. 8043, 50 FR 32026, Aug. 8, 1985]



Sec. 48.6416(b)(2)-1  Certain exportations, uses, sales, or resales causing 

overpayments of tax.

    In the case of any payment of tax under section 4041 (a)(1) or 
(a)(2) (diesel fuel and special fuels tax) or under chapter 32 
(manufacturers tax) that is determined to be an overpayment by reason of 
certain exportations, uses, sales, or resales described in section

[[Page 204]]

6416(b)(2) and Sec. 48.6416(b)(2)-2, the person who paid the tax may 
file a claim for refund of the overpayment or, in the case of 
overpayments under chapter 32, may claim credit for the overpayment on 
any return of tax under this subpart which the person subsequently 
files. However, under the circumstances described in section 6416(c) and 
Sec. 48.6416(e)-1, the overpayments under chapter 32 may be refunded to 
an exporter or shipper. No interest shall be paid on any credit or 
refund allowed under this section. For provisions relating to the 
evidence required in support of a claim for credit or refund under this 
section, see Sec. 301.6402-2 of this chapter (Regulations on Procedure 
and Administration) and Sec. Sec. 48.6416(b)(2)-3 and 48.6416(b)(2)-4. 
For provisions authorizing the taking of a credit in lieu of filing a 
claim for refund, see section 6416(d) and Sec. 48.6416(f)-1.

[T.D. 8043, 50 FR 32026, Aug. 8, 1985, as amended by T.D. 8879, 65 FR 
17160, Mar. 31, 2000]



Sec. 48.6416(b)(2)-2  Exportations, uses, sales, and resales included.

    (a) In general. The tax paid under chapter 32 (or under section 
4041(a) or (d) in respect of sales or under section 4051) with respect 
to any article is considered to be an overpayment in the case of any 
exportation, use, sale, or resale described in this section. This 
section applies only in those cases in which the exportation, use, sale, 
or resale (or any combination thereof) referred to in this section 
occurs before any other use. In addition, the following restrictions 
must be taken into account in applying the regulations under section 
6416(b)(2):
    (1) Sections 6416(b)(2)(C) and (D) do not apply to any tax paid 
under section 4064 (gas guzzler tax).
    (2) Sections 6416(b)(2)(B), (C), and (D) do not apply to any tax 
paid under section 4131 (vaccine tax) and section 6416(b)(2)(A) applies 
only to the extent prescribed in paragraph (b)(2) of this section.
    (3) Section 6416(b)(2) does not apply to any tax paid under section 
4041(a)(1) or 4081 on diesel fuel or kerosene, section 4091 (aviation 
fuel tax), or section 4121 (coal tax).
    (b) Exportation of tax-paid articles--(1) In general. Subject to the 
limitations of section 6416(b)(2) and paragraph (b)(2) of this section, 
tax paid under chapter 31 or 32 on the sale of any article will be 
considered to be an overpayment under section 6416(b)(2)(A) if the 
article is exported by any person. Except in the case of articles 
subject to the tax imposed by section 4061(a), prior to April 1, 1983, 
it is immaterial for purposes of this paragraph (b), whether the person 
who made the taxable sale had knowledge at the time of the sale that the 
article or fuel was being purchased for export to a foreign country or 
shipment to a possession of the United States. See Sec. 48.6416(e)-1 
for the circumstances under which a claim for refund by reason of the 
exportation of an article may be claimed by the exporter or shipper, 
rather than by the person who paid the tax. For definition of the term 
``possession of the United States'', see Sec. 48.0-2(a)(11).
    (2) Rule for exportation of vaccines. Paragraph (b)(1) of this 
section applies to tax paid under section 4131 on the sale of a vaccine, 
but only if the sale by the manufacturer occurs after August 10, 1993, 
and, in the case of vaccine sold to the United States or any of its 
agencies or instrumentalities, the condition of Sec. 48.4221-3(e)(2) is 
satisfied.
    (c) Supplies for vessels or aircraft. A payment of tax under chapter 
32 on the sale of any article, or under section 4041 (a)(1) or (a)(2) on 
the sale of diesel fuel or special motor fuel, will be considered to be 
an overpayment under section 6416(b)(2)(B) if the article or fuel is 
used by any person, or is sold by any person for use by the purchaser, 
as supplies for vessels or aircraft.
    The term ``supplies for vessels or aircraft'', as used in this 
paragraph, has the same meaning as when used in sections 4041(g), 
4221(a)(3), 4221(d)(3), and 4221(e)(1), and the regulations thereunder.
    (d) Use by State or local government. A payment of tax under chapter 
32 on the sale of any article, or under section 4041 (a)(1) or (a)(2) on 
the sale of diesel fuel or special motor fuel, will be considered to be 
an overpayment under section 6416(b)(2)(C) if the article of fuel is 
sold by any person to a State, any political subdivision thereof, or

[[Page 205]]

the District of Columbia for the exclusive use of a State, any political 
subdivision thereof, or the District of Columbia. For provisions 
relating to tax-free sales to a State, any political subdivision 
thereof, or the District of Columbia, see section 4221(a)(4) and the 
regulations thereunder.
    (e) Use by nonprofit educational organization. A payment of tax 
under chapter 32 on the sale of any article, or under section 4041 
(a)(1) or (a)(2) on the sale of diesel fuel or special motor fuel, will 
be considered to be an overpayment under section 6416(b)(2)(D) if the 
article or fuel is sold by any person to a nonprofit educational 
organization for its exclusive use. The term ``nonprofit educational 
organization'', as used in this paragraph (e), has the same meaning as 
when used in section 4221 (a)(5) or (d)(5), whichever applies, and the 
regulations thereunder.
    (f) Tax-paid tires or inner tubes resold for use in further 
manufacture. A payment of tax under section 4071 on the sale of a tire 
or, prior to January 1, 1984, on the sale of an inner tube will be 
considered to be an overpayment under section 6416(b)(2)(E) if--
    (1) The tire or inner tube is, after the original sale of the 
article by the manufacturer, resold by any person to another 
manufacturer;
    (2) The other manufacturer sells the tire or inner tube on or in 
connection with, or with the sale of, any other article manufactured or 
produced by the other manufacturer; and
    (3) That other article is by any person either--
    (i) Exported to a foreign country or to a possession of the United 
States,
    (ii) Sold to a State, any political subdivision thereof, or the 
District of Columbia for the exclusive use of a State, any political 
subdivision thereof, or the District of Columbia,
    (iii) Sold to a nonprofit educational organization for its exclusive 
use, or
    (iv) Used or sold for use as supplies for vessels or aircraft.

The overpayment described in this paragraph (f) is to be distinguished 
from the overpayment described in section 6416(b)(3)(C) prior to 
amendment by the Highway Revenue Act of 1982 and section 6416(b)(3) as 
amended by the Highway Revenue Act of 1982, and Sec. 48.6416(b)(3)-2 
(d) in that the overpayment here described arises from a ``resale'' for 
the use described in this paragraph, while the section 6416(b)(3)(C) 
overpayment arises from the ``use'' of tires or inner tubes in the 
manufacture of other articles by a subsequent manufacturer who purchases 
tax-paid tires or tubes and disposes of finished articles on the basis 
of one of the exemptions set forth in section 6416(B)(3)(C). A 
manufacturer claiming a credit or refund under this paragraph (f) must 
have substantially the same information available in support of the 
claim as is required under Sec. 48.4221-7(c)(2) in support of exempt 
sales of tires or inner tubes under the provisions of section 
4221(e)(2), except that none of the parties involved need be registered 
under section 4222.

[T.D. 8043, 50 FR 32027, Aug. 8, 1985, as amended by T.D. 8561, 59 FR 
43045, Aug. 22, 1994; T.D. 8659, 61 FR 10463, Mar. 14, 1996; T.D. 8879, 
65 FR 17160, Mar. 31, 2000]



Sec. 48.6416(b)(2)-3  Supporting evidence required in case of manufacturers 

tax involving exportations, uses, sales, or resales.

    (a) Evidence to be submitted by claimant. No claim for credit or 
refund of an overpayment, within the meaning of section 6416(b)(2) and 
Sec. 48.6416(b)(2)-2, of tax under chapter 32 shall be allowed unless 
the person who paid the tax submits with the claim the evidence required 
by paragraph (b)(2) of Sec. 48.6416(a)-3 and a statement, supported by 
sufficient available evidence--
    (1) Showing the amount claimed in respect of each category of 
exportations, uses, sales, or resales on which the claim is based and 
which give rise to a right of credit or refund under section 6416(b)(2) 
and Sec. 48.6416(b)(2)-1,
    (2) Identifying the article, both as to nature and quantity, in 
respect of which credit or refund is claimed,
    (3) Showing the amount of tax paid in respect of the article or 
articles and the dates of payment, and
    (4) In the case of an overpayment determined under section 
6416(b)(2)(A) and paragraph (b) of Sec. 48.6416(b)(2)-2 in respect of 
an article which was taxable prior to April 1, 1983 under section 
4061(a), indicating that, pursuant to

[[Page 206]]

section 6416(g), the person claiming a credit or refund possessed at the 
time that person shipped the article or at the time title to the article 
passed to the vendee, whichever is earlier, evidence that the article 
was to be exported to a foreign country or shipped to a possession of 
the United States, or
    (5) In the case of any overpayment other than an overpayment 
determined under section 6416(b)(2)(E) and paragraph (f) of Sec. 
48.6416(b)(2)-2, indicating that the person claiming a credit or refund 
possesses evidence (as set forth in paragraph (b)(1) of this section) 
that the article has been exported, or has been used, sold, or resold in 
a manner or for a purpose which gives rise to an overpayment within the 
meaning of section 6416(b)(2) and Sec. 48.6416(b)(2)-2, or
    (6) In the case of an overpayment determined under section 
6416(b)(2)(E) and paragraph (f) of Sec. 48.6416(b)(2)-2, relating to a 
tax-paid tire or inner tube sold on or in connection with, or with the 
sale of, a second article that has been manufactured, indicating that 
the person claiming credit or refund possesses (i) evidence (as set 
forth in paragraph (b)(2) of this section) that the second article has 
been exported, or has been used or sold as provided in Sec. 
48.6416(b)(2)-2(f), and (ii) a statement, executed and signed by the 
ultimate purchaser of the tire or inner tube, that the ultimate 
purchaser purchased the tire or inner tube from a person other than the 
person who paid the tax on the sale of the tire or inner tube.
    (b) Evidence required to be in possession of claimant--(1) Evidence 
required under paragraph (a)(5)--(i) In general. The evidence required 
to be retained by the person who paid the tax, as provided in paragraph 
(a)(5) of this section, must, in the case of an article exported, 
consist of proof of exportation in the form prescribed in the 
regulations under section 4221 or must, in the case of other articles 
sold tax-paid by that person, consist of a certificate, executed and 
signed by the ultimate purchaser of the article, in the form prescribed 
in paragraph (b)(1)(ii) of this section. However, if the article to 
which the claim relates has passed through a chain of sales from the 
person who paid the tax to the ultimate purchaser, the evidence required 
to be retained by the person who paid the tax may consist of a 
certificate, executed and signed by the ultimate vendor of the article, 
in the form provided in paragraph (b)(1)(iii) of this section, rather 
than the proof of exportation itself or the certificate of the ultimate 
purchaser.
    (ii) Certificate of ultimate purchaser.
    (A) The certificate executed and signed by the ultimate purchaser of 
the article to which the claim relates must identify the article, both 
as to nature and quantity; show the address of the ultimate purchaser of 
the article, and the name and address of the ultimate vendor of the 
article; and describe the use actually made of the article in sufficient 
detail to establish that credit or refund is due, except that the use to 
be made of the article must be described in lieu of actual use if the 
claim is made by reason of the sale or resale of an article for a 
specified use which gives rise to the overpayment.
    (B) If the certificate sets forth the use to be made of any article, 
rather than its actual use, it must show that the ultimate purchaser has 
agreed to notify the claimant if the article is not in fact used as 
specified in the certificate.
    (C) The certificate must also contain a statement that the ultimate 
purchaser understands that the ultimate purchaser and any other party 
may, for fraudulent use of the certificate, be subject under section 
7201 to a fine of not more than $10,000, or imprisonment for not more 
than 5 years, or both, together with the costs of prosecution.
    (D) A purchase order will be acceptable in lieu of a separate 
certificate of the ultimate purchaser if it contains all the information 
required by this paragraph (b)(1)(ii).
    (iii) Certificate of ultimate vendor. Any certificate executed and 
signed by an ultimate vendor as evidence to be retained by the person 
who paid the tax, as provided in paragraph (a)(5) of this section, may 
be executed with respect to any one or more overpayments by the person 
which arose under section 6416(b)(2) and Sec. Sec. 48.6416(b)(2)-2 by 
reason of exportations, uses, sales or resales, occurring within any 
period of not more than 12 consecutive calendar quarters, the beginning 
and ending

[[Page 207]]

dates of which are specified in the certificate.
    The certificate must be in substantially the following form:

                      Statement of Ultimate Vendor

    (For use in claiming credit or refund of overpayment determined 
under section 6416(b)(2) (other than section 6416(b)(2)(E)) of the 
Internal Revenue Code.)
    The undersigned or the

________________________________________________________________________

(Name of ultimate vendor if other than undersigned) of which the 
undersigned is (Title), is the ultimate vendor of the article specified 
below or on the reverse side hereof.
    The article was purchased by the ultimate vendor tax-paid and was 
thereafter exported, used, sold, or resold (as indicated below or on the 
reverse side hereof).
    The ultimate vendor possesses

________________________________________________________________________

(Proof of exportation in respect of the article, or a certificate as to 
use executed by the ultimate purchaser of the article)

The_____________________________________________________________________

(Proof of exportation or certificate)
    (1) is retained by the ultimate vendor, (2) will, upon request, be 
forwarded to

________________________________________________________________________

(Name or person who paid the tax)
at any time within 3 years from the date of this statement for use by 
that person to establish that credit or refund is due in respect of the 
article, and (3) will otherwise be held by the ultimate vendor for the 
required 3-year period.
    According to the best knowledge and belief of the undersigned, no 
statement in respect of the
________________________________________________________________________

(Proof of exportation or certificate)
has previously been executed, and the undersigned understands that the 
fraudulent use of this statement may, under section 7201, subject the 
undersigned or any other party making such fraudulent use to a fine of 
not more than $10,000, or imprisonment for not more than 5 years, or 
both, together with the costs of prosecution.

________________________________________________________________________

(Signature)

________________________________________________________________________

(Address)

________________________________________________________________________

(Date)

----------------------------------------------------------------------------------------------------------------
                                                                                                Exported or use
        Vendor's invoice               Articles         Date of resale         Quantity       made or to be made
                                                                                                   (specify)
----------------------------------------------------------------------------------------------------------------
 
 
 
----------------------------------------------------------------------------------------------------------------

    (2) Evidence required under paragraph (a)(6)--(i) In general-- The 
evidence required to be retained by the person who paid the tax, as 
provided in paragraph (a)(6) of this section, must, in the case of an 
exportation of the second article, consist of proof of exportation of 
the second article in the form prescribed in the regulations under 
section 4221 or must, in other cases, consist of a certificate, executed 
and signed by the ultimate purchaser of the second article, in the form 
prescribed in paragraph (b)(2)(ii) of this section. However, the 
evidence required to be retained by the person who paid the tax may 
consist of a certificate, executed and signed by the ultimate vendor of 
the second article, in the form provided in paragraph (b)(2)(iii) of 
this section, rather than the proof of exportation itself or the 
certificate of the ultimate purchaser.
    (ii) Certificate of ultimate purchaser-- The certificate of the 
ultimate purchaser of the second article must contain the same 
information as that required in paragraph (b)(1)(ii) of this section, 
except that the information must be furnished in respect of the second 
article, rather than the article to which the claims relates.
    (iii) Certificate of ultimate vendor-- Any certificate executed and 
signed by an ultimate vendor as evidence to be retained by the person 
who paid the tax, as provided in paragraph (a)(6) of this section, may 
be executed with respect to any one of more overpayments by that person 
which arose under section 6416(b)(2)(E) and Sec. 48.6416(b)(2)-2 (f) by 
reason of exportations, uses, sales, or resales of a second article 
occurring within any period of not more than 12 consecutive calendar 
quarters, the beginning and ending dates of which are specified in the 
certificate. The certificate must be in substantially the following 
form:

[[Page 208]]

                      STATEMENT Of ULTIMATE VENDOR

    (For use in claiming credit or refund of overpayment determined 
under section 6416 (b)(2)(E), Internal Revenue Code, involving tires or 
inner tubes sold on or with another article.)
    The undersigned or the

________________________________________________________________________

(Name of ultimate vendor of second article if other than undersigned)

of which the undersigned is (Title), is the

ultimate vendor of an article, specified below or on the reverse side 
hereof, on which or with which a tax-paid tire or inner tube was sold.

    The ultimate vendor possesses

________________________________________________________________________

(Proof of exportation in respect of the article on which or with which 
the tire or inner tube was sold, or a certificate as to use of the 
article executed by the ultimate purchaser of the article)
The

________________________________________________________________________

(Proof of exportation or certificate) (1) is retained by the ultimate 
vendor, (2) will, upon request, be forwarded to

________________________________________________________________________

(Name of person who paid the tax on the tire or inner tube)

at any time within 3 years from the date of this statement for use in 
establishing that credit or refund is due in respect of the tire or 
inner tube, and (3) will otherwise be held by the ultimate vendor for 
the required 3-year period.

    According to the best knowledge and belief of the undersigned, no 
statement in respect of the
________________________________________________________________________

(Proof of exportation or certificate)

has previously been executed, and the undersigned understands that the 
fraudulent use of this statement may, under section 7201, subject the 
undersigned or any other party making such fraudulent use to a fine of 
not more than $10,000, or imprisonment for not more than 5 years, or 
both, together with the costs of prosecution.

________________________________________________________________________

(Signature)

________________________________________________________________________

(Address)

________________________________________________________________________

(Date)

----------------------------------------------------------------------------------------------------------------
                                         Vendor's                              Date of   Exported or use made of
  Tires or inner tubes (specify and     invoice on   Second article (specify   sale of    or to be made (specify
           state quantity)                second       and state quantity)      second     in respect of second
                                         article                               article           article)
----------------------------------------------------------------------------------------------------------------
 
 
 
 
----------------------------------------------------------------------------------------------------------------

    (3) Repayment or consent of ultimate vendor. If the person claiming 
credit or refund of an overpayment to which this section applies has 
repaid, or agreed to repay, the amount of the overpayment to the 
ultimate vendor or if the ultimate vendor consents to the allowance of 
the credit or refund, a statement to that effect, signed by the ultimate 
vendor, must be shown on, or made a part of, the evidence required under 
this section to be retained by the person claiming the credit or refund. 
In this regard, see Sec. 48.6416(a)-3(b)(2).

[T.D. 8043, 50 FR 32028, Aug. 8, 1985]



Sec. 48.6416(b)(2)-4  Supporting evidence required in case of special

fuels tax involving exportations, uses, sales, or resales of special fuels.

    (a) Evidence to be submitted by claimant. No claim for credit or 
refund of an overpayment, within the meaning of section 6416(b)(2) and 
Sec. 48.6416(b)(2)-2 of tax under section 4041 (a)(1) or (b)(2) shall 
be allowed unless the person who paid the tax submits with the claim the 
evidence required by paragraph (b)(2) of Sec. 48.6416(a)-2 and a 
statement, supported by sufficient available evidence--
    (1) Showing the amount claimed in respect of each category of 
exportations, uses, sales, or resales on which the claim is based and 
which give rise to right of credit or refund under section 6416(b)(2) 
and Sec. 48.6416(b)(2)-1,
    (2) Identifying the fuel, both as to nature and quantity, in respect 
of which credit or refund is claimed,
    (3) Showing the amount of tax paid in respect of the fuel and the 
dates of payment, and

[[Page 209]]

    (4) Indicating that the fuel has been exported, or has been used, 
sold, or resold in a manner or for a purpose which gives rise to an 
overpayment within the meaning of section 6416(b)(2) and Sec. 
48.6416(b)(2)-2.
    (b) Evidence required to be in possession of claimant. (1) The 
evidence required to be retained by the person who paid the tax, as 
provided in paragraph (a)(4) of this section, must, in the case of fuel 
exported, consist of proof of exportation or must, in the case of other 
fuel sold tax-paid by that person, consist of a certificate, executed 
and signed by the person who purchased the fuel in a resale or for the 
use which gave rise to the overpayment.
    (2) The certificate must identify the fuel, both as to nature and 
quantity, in respect of which credit or refund is claimed; show the 
address of the purchaser; show the name and address of the person from 
whom the fuel was purchased and the date or dates on which the fuel was 
purchased; and show that the fuel was resold and the date of the resale.
    (3) If the claim is not based on resale of the fuel, the certificate 
must describe the use actually made of the fuel in sufficient detail to 
establish that credit or refund is due. However, the use to be made of 
the fuel must be described in lieu of actual use if the claim is made by 
reason of the sale of the fuel for a specified use which gives rise to 
an overpayment under Sec. 48.6416(b)(2)-2.
    (4) If the certificate sets forth the use to be made of the fuel, 
rather than its actual use, it must show that the purchaser has agreed 
to notify the claimant if the fuel is not in fact used as specified in 
the certificate.
    (5) The certificate must also contain a statement that the purchaser 
has not previously executed a certificate in respect of the fuel and 
understands that any party may, for fraudulent use of the certificate, 
be subject under section 7201 to a fine of not more than $10,000, or 
imprisonment for not more than 5 years, or both, together with the costs 
of prosecution.

[T.D. 8043, 50 FR 32030, Aug. 8, 1985]



Sec. 48.6416(b)(3)-1  Tax-paid articles used for further manufacture and causing overpayments of tax.

    In the case of any payment of tax under chapter 32 that is 
determined to be an overpayment under section 6416(b)(3) and Sec. 
48.6416(b)(3)-2 by reason of the sale of an article (other than coal 
taxable under section 4121), directly or indirectly, by the manufacturer 
of the article to a subsequent manufacturer who uses the article in 
further manufacture of a second article or who sells the article with, 
or as a part of, the second article manufactured or produced by the 
subsequent manufacturer, the subsequent manufacturer may file claim for 
refund of the overpayment or may claim credit for the overpayment on any 
return of tax under this subpart subsequently filed. No interest shall 
be paid on any credit or refund allowed under this section. For 
provisions relating to the evidence required in support of a claim for 
credit or refund, see Sec. 301.6402-2 of this chapter (Regulations on 
Procedure and Administration) and Sec. Sec. 48.6416(a)-3 and 
48.6416(b)(3)-3. For provisions authorizing the taking of a credit in 
lieu of filing a claim for refund, see section 6416(d) and Sec. 
48.6416(f)-1.

[T.D. 8043, 50 FR 32030, Aug. 8, 1985]



Sec. 48.6416(b)(3)-2  Further manufacture included.

    (a) In general. The payment of tax imposed by chapter 32 on the sale 
of any article (other than coal taxable under section 4121) by a 
manufacturer of the article will be considered to be an overpayment by 
reason of any use in further manufacture, or sale as part of a second 
manufactured article, described in any one of paragraphs (b) through (f) 
of this section. This section applies in those cases where the 
exportation, use, or sale (or any combination of those activities) 
referred to in any one or more of those paragraphs occurs before any 
other use. For provisions relating to overpayments arising by reason of 
resales of tax-paid articles for use in further manufacture as provided 
in this section, see section 6416(b)(2)(E) and paragraph (f) of Sec. 
48.6416(b)(2)-2.
    (b) Use of tax-paid articles in further manufacture described in 
section 6416(b)(3)(A). A payment of tax under

[[Page 210]]

chapter 32 on the sale of any article (other than coal taxable under 
section 4121), directly or indirectly, by the manufacturer of the 
article to a subsequent manufacturer will be considered to be an 
overpayment under section 6416(b)(3)(A) if the article is used by the 
subsequent manufacturer as material in the manufacture or production of, 
or as a component part of, a second article manufactured or produced by 
the subsequent manufacturer which is--
    (1) Taxable under chapter 32, or
    (2) An automobile bus chassis or an automobile bus body.

For this purpose it is immaterial whether the second article is sold or 
otherwise disposed of, or if sold, whether the sale is a taxable sale. 
Any article to which this paragraph (b) applies which would have been 
used in the manufacture or production of a second article, except for 
the fact that it was broken or rendered useless in the process of 
manufacturing or producing the second article, will be considered to 
have been used as a component part of the second article. This paragraph 
(b) does not apply to articles sold and used as provided in any of 
paragraphs (c) through (f) of this section.
    (c) Use of truck, bus, etc., parts or accessories. A payment of tax 
under section 4061 (b) on the sale prior to January 7, 1983, of any 
truck, bus, etc., part or accessory, directly or indirectly, by the 
manufacturer of the article to a subsequent manufacturer will be 
considered to be an overpayment under section 6416(b)(3)(B) if the part 
or accessory is used by the subsequent manufacturer as material in the 
manufacture or production of, or as a component part of, a second 
article manufactured or produced by the subsequent manufacturer. For 
this purpose it is immaterial whether the second article is or is not 
taxable under chapter 32. Any article to which this paragraph (c) 
applies which would have been used in the manufacture or production of a 
second article, except for the fact that it was broken or rendered 
useless in the process of manufacturing or producing the second article, 
will be considered to have been used as a component part of the second 
article.
    (d) Tax-paid tires or inner tubes used in further manufacture. (1) A 
payment of tax under section 4071 on the sale prior to January 1, 1984, 
of a tire or inner tube, directly or indirectly, by the manufacturer of 
the article to a subsequent manufacturer will be considered to be an 
overpayment under section 6416(b)(3)(C) if the subsequent manufacturer 
sells the tire or inner tube on or in connection with, or with the sale 
of, any other article manufactured or produced by the subsequent 
manufacturer and if the other article is--
    (i) An automobile bus chassis or automobile bus body, or
    (ii) By any person (A) exported to a foreign country or to a 
possession of the United States, (B) sold to a State, any political 
subdivision thereof, or the District of Columbia for the exclusive use 
of a State, any political subdivision thereof, or the District of 
Columbia, (C) sold to a nonprofit educational organization for its 
exclusive use, or (D) used or sold for use as supplies to vessels or 
aircraft.
    For tax-paid tires used in further manufacture after December 31, 
1983, see section 6416(b)(3)(A) and the regulations thereunder.
    (2) The overpayment in this paragraph (d) is to be distinguished 
from that overpayment described in section 6416(b)(2)(E) and Sec. 
48.6416(b)(2)-2(f) in that this overpayment arises from the ``use'' 
described in this paragraph, whereas the overpayment under section 
6416(b)(2)(E) arises from the ``resale'' of tax-paid tires or inner 
tubes by any person to a subsequent manufacturer who disposes of the 
articles on or in connection with, or with the sale of, a second article 
manufactured or produced by the subsequent manufacturer which is 
disposed of on the basis of one of the exemptions set forth in section 
6416(b)(3)(C).
    (3) If the second article is exported or shipped as provided in this 
paragraph (d), it is immaterial whether the subsequent manufacturer sold 
the article with the knowledge that it would be exported or shipped.
    (4) An overpayment arises under paragraph (d)(1) of this section 
only if the tire or inner tube constitutes a part of, or is associated 
with, the second article at the time the second article is exported, 
shipped, sold, used, or

[[Page 211]]

sold for use, as prescribed in this paragraph.
    (5) For definition of certain terms used in this paragraph, see 
section 4221 and the regulations thereunder.
    (6) For provisions relating to overpayments arising by reason of 
tires or inner tubes sold tax-paid by the manufacturer of the same, on 
or in connection with, or with the sale of, any article manufactured or 
produced by that manufacturer and exported, sold, or used or sold for 
use, as provided in this paragraph (d), see section 6416(b)(4).
    (7) For provisions relating to credit allowable in respect of tires 
and inner tubes sold on or in connection with, or with the sale of, 
another article taxable under chapter 32, prior to January 1, 1984, see 
section 6416(c) and Sec. 48.6416(c)-1.
    (8) If a second article referred to in paragraph (d)(1) of this 
section is sold for a use described in that paragraph and is not so 
used, this paragraph (d) is in all respects inapplicable.
    (e) Use of bicycle tires or tubes in further manufacture. A payment 
of tax under section 4071 on the sale, prior to January 1, 1984, of a 
bicycle or tricycle tire or inner tube, directly or indirectly, by the 
manufacturer of the same to a subsequent manufacturer will be considered 
to be an overpayment under section 6416(b)(3)(E) if the tire or tube is 
used by the subsequent manufacturer as material in the manufacture or 
production of, or as a component part of, a bicycle or tricycle 
manufactured or produced by the subsequent manufacturer which is not a 
rebuilt or reconditioned bicycle or tricycle. For definition of the term 
``bicycle tire'', see section 4221(e)(4)(B) and the regulations 
thereunder.
    (f) Use of gasoline in further manufacture. A payment of tax under 
section 4081 on the sale of gasoline, directly or indirectly, by the 
manufacturer of the same to a subsequent manufacturer will be considered 
an overpayment under section 6416(b)(3)(B) if the gasoline is used for 
nonfuel purposes by the subsequent manufacturer as a material in the 
manufacture or production of any other article manufactured or produced 
by the subsequent manufacturer. For this purpose it is immaterial 
whether the other article is or is not taxable under chapter 32. For 
provisions relating to the use of gasoline for nonfuel purposes, see 
section 4221 and the regulations thereunder.

[T.D. 8043, 50 FR 32030, Aug. 8, 1985, as amended by T.D. 8748, 63 FR 
15292, Mar. 31, 1998]



Sec. 48.6416(b)(3)-3  Supporting evidence required in case of tax-paid articles

used for further manufacture.

    (a) Evidence to be submitted by claimant. No claim for credit or 
refund of an overpayment, within the meaning of section 6416(b)(3) and 
Sec. 48.6416(b)(3)-2 shall be allowed unless the subsequent 
manufacturer submits with the claim the evidence required by Sec. 
48.6416(a)-3 and a statement, supported by sufficient available 
evidence--
    (1) Showing the amount claimed in respect of each category of 
exportations, uses, or sales on which the claim is based and which give 
rise to a right of credit or refund under section 6416(b)(3) and Sec. 
48.6416(b)(3)-1,
    (2) Showing the name and address of the manufacturer, producer, or 
importer of the article in respect of which credit or refund is claimed,
    (3) Identifying the article, both as to nature and quantity, in 
respect of which credit or refund is claimed,
    (4) Showing the amount of tax paid in respect of the article by the 
manufacturer or producer of the article and the date of payment,
    (5) Indicating that the article was used by the claimant 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,
    (6) Identitying the second article, both as to nature and quantity, 
and
    (7) In the case of an overpayment determined under section 
6416(b)(3)(C) as it existed prior to January 1, 1984, and paragraph 
(d)(1) of Sec. 48.6416(b)(3)-2 in respect of a tire or inner tube 
taxable under section 4071, indicating that the manufacturer has 
evidence available (as set forth in paragraph (b) of this section) that 
the second article is an automobile bus chassis or automobile bus body, 
or has been exported, used, or sold as provided in section

[[Page 212]]

6416(b)(3)(C)(ii) and Sec. 48.6416(b)(3)-2(d)(1)(ii).
    (b) Evidence required to be in possession of claimant--(1) In 
general. The evidence required to be retained by the person claiming 
credit or refund, as provided in paragraph (a)(7) of this section, must, 
in the case of an exportation of the second article, consist of proof of 
exportation of the second article in the form prescribed in the 
regulations under section 4221, or must, in other cases (except when the 
second article is an automobile bus chassis or automobile bus body), 
consist of a certificate, executed and signed by the ultimate purchaser 
of the second article, in the form prescribed in paragraph (b)(2) of 
this section. However, if the second article has passed through a chain 
of sales from the manufacturer of the second article to the ultimate 
purchaser of the second article, the evidence may consist of a 
certificate, executed and signed by the ultimate vendor of the second 
article, in the form provided in paragraph (b)(3) of this section, 
rather than the proof of exportation itself of the second article or the 
certificate of the ultimate purchaser of the second article.
    (2) Certificate of ultimate purchaser of second article. The 
certificate executed and signed by the ultimate purchaser of the second 
article must contain the same information as that required in paragraph 
(b)(1)(ii) of Sec. 48.6416(b)(2)-3, except that the information must be 
furnished in respect of the second article, rather than the article to 
which the claim relates.
    (3) Certificate of ultimate vendor of second article. Any 
certificate executed and signed by an ultimate vendor as evidence to be 
retained by the person claiming credit or refund must be executed in the 
same form and manner as that provided in paragraph (b)(2)(iii) and Sec. 
48.6416(b)(2)-3.
    (4) Repayment or consent of ultimate vendor. If the person claiming 
credit or refund of an overpayment to which this section applies has 
repaid, or agreed to repay, the amount of the overpayment to the 
ultimate vendor or if the ultimate vendor consents to the allowance of 
the credit or refund, a statement to that effect, signed by the ultimate 
vendor, must be shown on, or made a part of, the evidence required to be 
retained by the person claiming the credit or refund. In this regard, 
see Sec. 48.6416(a)-3(b)(2).

[T.D. 8043, 50 FR 32032, Aug. 8, 1985]



Sec. 48.6416(b)(5)-1  Return of installment accounts causing overpayments of tax.

    (a) In general. In the case of any payment of tax under section 
4216(d)(1) in respect of the sale of any installment account that is 
determined to be an overpayment under section 6416(b)(5) and paragraph 
(b) of this section upon return of the installment account, the person 
who paid the tax may file a claim for refund of the overpayment or may 
claim credit for the overpayment on any return of tax under this subpart 
which that person subsequently files. No interest shall be paid on any 
credit or refund allowed under this section. For provisions relating to 
the evidence required in support of a claim for credit or refund under 
this section, see Sec. 301.6402-2 of this chapter (Regulations on 
Procedure and Administration) and paragraph (c) of this section. For 
provisions authorizing the taking of a credit in lieu of filing a claim 
for refund, see section 6416(d) and Sec. 48.6416(f)-1.
    (b) Overpayment of tax allocable to repaid consideration. The 
payment of tax imposed by section 4216(d)(1) on the sale of an 
installment account by the manufacturer will be considered to be an 
overpayment under section 6416(b)(5) to the extent of the tax allocable 
to any consideration repaid or credited to the purchaser of the 
installment account upon the return of the account to the manufacturer 
pursuant to the agreement under which the account originally was sold, 
if the readjustment of the consideration occurs pursuant to the 
provisions of the agreement. The tax allocable to the repaid or credited 
consideration is the amount which bears the same ratio to the total tax 
paid under section 4216(d)(1) with respect to the installment account as 
the amount of consideration repaid or credited to the purchaser bears to 
the total consideration for which the account was sold. This paragraph 
(b) does not apply where an installment account is originally sold 
pursuant to the order of, or subject to the approval of,

[[Page 213]]

a court of competent jurisdiction in a bankruptcy or insolvency 
proceeding.
    (c) Evidence to be submitted by claimant. No claim for credit of 
refund of an overpayment, within the meaning of section 6416(b)(5) and 
paragraph (b) of this section, of tax under section 4216(d)(1) shall be 
allowed unless the person who paid the tax submits with the claim a 
statement supported by sufficient available evidence, indicating--
    (1) The name and address of the person to whom the installment 
account was sold,
    (2) The amount of tax due under section 4216(d)(1) by reason of the 
sale of the installment account, the amount of the tax paid under 
section 4216(d)(1) with respect to the sale, and the date of payment,
    (3) The amount for which the installment account was sold,
    (4) The amount which was repaid or credited to the purchaser of the 
account by reason of the return of the account to the person claiming 
the credit or refund, and
    (5)(i) The fact that the amount repaid or credited to the purchaser 
of the account was so repaid or credited pursuant to the agreement under 
which the account was sold, and
    (ii) The fact that the account was returned to the manufacturer 
pursuant to that agreement.

[T.D. 8043, 50 FR 32033, Aug. 8, 1985]



Sec. 48.6416(c)-1  Credit for tax paid on tires or, prior to January 1, 1984, inner tubes.

    (a) Allowance of credit against tax on sale of taxable article. If 
tax has been paid under section 4071 on the sale, or under section 4218 
on the use, of a tire or inner tube, and the manufacturer of another 
article taxable under chapter 32 sells the tire or inner tube on or in 
connection with the sale of that other article, a credit in respect of 
the tire or inner tube is allowable under section 6416(c) against the 
tax imposed on the sale of that other article. The amount of the credit 
is to be determined as provided in paragraph (b) or (c) of this section.
    (b) Tires or tubes purchased by manufacturer of the other article. 
If the manufacturer of the other article purchased the tire or inner 
tube tax-paid, the amount of the credit shall be determined by applying 
to the purchase price of the tire or inner tube the percentage rate of 
tax applicable to the sale of the other article. For this purpose, the 
purchase price shall be determined by including any tax passed on to the 
manufacturer and, in the case of a tire, by excluding any part of the 
price attributable to the metal rim or rim base. For example, if the 
selling price of an automobile truck is $24,000, tax equivalent to 10 
percent of the price (i.e., $2,400) is imposed under section 4601(a) on 
the sale (before April 1, 1983) of the automobile truck. If the tires or 
inner tubes sold on or in connection with the automobile truck are 
purchased by the manufacturer of the automobile truck for $1,500 
(computed as provided in this paragraph) a credit of $150 (10 percent of 
$1,500) is allowable against the tax imposed on the sale of the 
automobile truck.
    (c) Tires or tubes manufactured by manufacturer or other articles. 
If the manufacturer of the other article is also the manufacturer of the 
tire or inner tube and incurs tax liability under section 4218 on the 
use by that manufacturer of the tire or inner tube, the amount of the 
credit shall be determined by applying to the fair market price of the 
tire or inner tube, the percentage rate of tax applicable to the sale of 
the other article. For this purpose, the fair market price of the tire 
or inner tube shall be the price at which the same or similar tires or 
inner tubes are sold by manufacturers of tires or inner tubes in the 
ordinary course of trade, as determined by the Commissioner, and by 
excluding, in the case of a tire, any part of the price attributable to 
the metal rim or rim base. The determination of the Commissioner shall 
be made in the same manner as determinations made under section 4218.
    (d) Other applicable rules. (1) For purposes of this section, the 
term ``manufacturer'' includes the original manufacturer of the other 
article and any succeeding purchaser of the article who further 
manufactures the article so as to become liable as a manufacturer of an 
article taxable under chapter 32. Therefore, the credit provided by 
section 6416(c) and this section is available

[[Page 214]]

both to the original manufacturer of the other article and also to every 
succeeding purchaser of that article who sells that article on or in 
connection with, or with the sale of, another article taxable under 
chapter 32.
    (2) No interest shall be paid on any credit allowed under this 
section.
    (3) If credit is not claimed under this section against the tax 
applicable to the sale of the other article, the manufacturer of the 
other article may claim refund of an amount equivalent to the credit or 
may claim credit on any return of tax under this subpart subsequently 
filed.

[T.D. 8043, 50 FR 32034, Aug. 8, 1985]



Sec. 48.6416(e)-1  Refund to exporter or shipper.

    (a) In general. Any payment of tax imposed by sections 4041, 4051 or 
chapter 32 that is determined to be an overpayment within the meaning of 
section 6416(b)(2) (A) or (E), section 6416(b)(3)(C) (prior to January 
7, 1983), or section 6416(b)(4), and the regulations thereunder, by 
reason of the exportation of any article may be refunded to the exporter 
or shipper of the article pursuant to section 6416(c) of this section, 
if--
    (1) The exporter or shipper files a claim for refund of the 
overpayment, and
    (2) The person who paid the tax waives the right to claim credit or 
refund of the tax.

No interest shall be paid on any refund allowed under this section. For 
provisions relating to the evidence required in support of a claim under 
this paragraph (a), see Sec. 301.6402 of this chapter (Regulations on 
Procedure and Administration) and paragraph (b) of this section.
    (b) Supporting evidence required. No claim for refund of any 
overpayment of tax to which this section applies shall be allowed unless 
the exporter or shipper submits with that claim proof of exportation in 
the form prescribed by the regulations under section 4221, and a 
statement, signed by the person who paid the tax, showing--
    (1) That the person who paid the tax waives the right to claim 
credit or refund of the tax,
    (2) In the case of an overpayment determined under section 
6416(b)(2)(A) and paragraph (b) of Sec. 48.6416(b)(2)-2 in respect of a 
truck, bus, tractor, etc., taxable under section 4061(a), that, pursuant 
to section 6416(g), the person who paid the tax possessed at the time 
that person shipped the article or at the time title to the article 
passed to that perons's vendee, whichever is earlier, evidence that the 
article was to be exported to a foreign country or shipped to a 
possession of the United States.
    (3) The amount of tax paid on the sale of the article and the date 
of payment, and
    (4) The internal revenue service office to which the tax was paid.

[T.D. 8043, 50 FR 32034, Aug. 8, 1985]



Sec. 48.6416(f)-1  Credit on returns.

    Any person entitled to claim refund of any overpayment of tax 
imposed by section 4041, 4042, 4051 or chapter 32 may, in lieu of 
claiming refund of the overpayment, claim credit for the overpayment on 
any return of tax under this subpart subsequently filed. Any such credit 
claimed on a return must be supported by the evidence prescribed in the 
applicable regulations in this subpart and Sec. 301.6402 of this 
chapter (Regulations on Procedure and Administration).

[T.D. 8043, 50 FR 32034, Aug. 8, 1985]



Sec. 48.6416(h)-1  Accounting procedures for like articles.

    (a) Identification of manufacturer. In applying section 6416 and the 
regulations thereunder, a person who has purchased like articles from 
various manufacturers may determine the particular manufacturer from 
whom that person purchased any one of those articles by a first-in-
first-out (FIFO) method, by a last-in-first-out (LIFO) method, or by any 
other consistent method approved by the district director. For the first 
year for which a person makes a determination under this section, the 
person may adopt any one of the following methods without securing prior 
approval by the district director.
    (1) FIFO method.
    (2) LIFO method.

[[Page 215]]

    (3) Any method by which the actual manufacturer of the article is in 
fact identified.

Any other method of determining the manufacturer of a particular article 
must be approved by the district director before its adoption. After any 
method for identifying the manufacturer has been properly adopted, it 
may not be changed without first securing the consent of the district 
director.
    (b) Determining amount of tax paid. In applying section 6416 and the 
regulations thereunder, if the identity of the manufacturer of any 
article has been determined by a person pursuant to a method prescribed 
in paragraph (a) of this section, that manufacturer of the article must 
determine the tax paid under chapter 32 with respect to that article 
consistently with the method used in identifying the manufacturer.

[T.D. 8043, 50 FR 32035, Aug. 8, 1985]



Sec. 48.6420-1  Credits or payments to ultimate purchaser of gasoline used on a farm.

    (a) In general. If gasoline is used on a farm for farming purposes 
after June 30, 1965, a credit (under the circumstances described in 
paragraph (b) of this section) or a payment (under the circumstances 
described in paragraph (c) of this section) in respect of the gasoline 
shall be allowed or made to the ultimate purchaser of the gasoline in an 
amount determined by multiplying (1) the number of gallons of gasoline 
so used by (2) the rate of tax on gasoline under section 4081 that 
applied on the date the gasoline was purchased by the ultimate 
purchaser. No interest shall be paid on any payment, allowed under 
paragraph (c) of this section. However, interest may be paid on any 
overpayment (as defined by section 6401) arising from a credit allowed 
under paragraph (b) of this section. See section 34(a), relating to 
credit for certain uses of gasoline and special fuels, and lubricating 
oil used prior to January 7, 1983). See Sec. 48.6420-2 for the time 
within which a claim for credit or payment must be made. See section 
4081 and the regulations thereunder for the rates of tax on gasoline. 
See Sec. 48.6420-2 for meaning of the terms ``Used on a farm for 
farming purposes,'' ``farm,'' ``gasoline,'' ``ultimate purchaser,'' and 
``taxable year.''
    (b) Allowance of income tax credit in lieu of payment. With respect 
to persons subject to income tax, repayment of the tax paid under 
section 4081 on gasoline used on a farm for farming purposes may be 
obtained only by claiming a credit for the amount of this tax against 
the income tax imposed by subtitle A of the Code. The amount of the 
credit shall be an amount equal to the payment which would be made under 
section 6420 with respect to gasoline used during the taxable year on a 
farm for farming purposes if section 6420(g)(1) and paragraph (c) of 
this section did not apply. See section 34(a)(1).
    (c) Allowance of payment. Payments in respect of gasoline upon which 
tax was paid under section 4081 that is used on a farm for farming 
purposes shall be made only to--
    (1) The United States or agency or instrumentality thereof, a State, 
a political subdivision of a State, or an agency or instrumentality of 
one or more States or political subdivisions of a State, or the District 
of Columbia, or
    (2) An organization which is exempt from tax under section 501(a) 
and is not required to made a return of the income tax imposed under 
subtitle A for its taxable year.
    (d) Use of gasoline. (1) The credit or payment described in 
paragraph (a) of this section is allowable only in respect of gasoline 
used on a farm in the United States for farming purposes. The credit or 
payment is not allowable with respect to gasoline used for nonfarming 
purposes, or gasoline used off a farm, regardless of the nature of the 
use. If a vehicle or other equipment is used both on a farm and off the 
farm, or if it is used on a farm both for farming and nonfarming 
purposes, the credit or payment is allowable only with respect to that 
portion of the gasoline which was ``used on a farm for farming 
purposes'' as defined in paragraph (a) of Sec. 48.6420-4. In 
determining if this requirement is met, neither the type of equipment or 
vehicle used nor its registration for highway use is material. However, 
the actual use of the equipment or vehicle and the place where it is 
used are material. For example, if a

[[Page 216]]

truck used on a farm for farming purposes is also used on the highways, 
gasoline used in connection with operating the truck on the highways is 
not taken into account in computing the credit or payment.
    (2) For purposes of determining the allowable credit or payment in 
respect of gasoline used on a farm for farming purposes, gasoline on 
hand shall be considered used in the order in which it was purchased. 
Thus, if the owner, tenant, or operator of a farm has on hand gasoline 
acquired in two purchases made at different times and subject to 
different rates of tax, in determining credit or payment for gasoline 
used on a farm for farming purposes, it will be assumed that the 
gasoline purchased first was the first gasoline used, and the rate 
applicable to that purchase will apply in determining the credit or 
payment, until all that gasoline is accounted for.

[T.D. 8043, 50 FR 32035, Aug. 8, 1985]



Sec. 48.6420-2  Time for filing claim for credit or payment.

    (a) In general. A claim for credit or payment described in Sec. 
48.6420-1 with respect to gasoline used after June 30, 1965, on a farm 
for farming purposes, shall cover only gasoline used during the taxable 
year on a farm for farming purposes. Therefore, gasoline on hand at the 
end of a taxable year as, for example, in fuel supply tanks of farm 
machinery or in storage tanks or drums, must be excluded from a claim 
filed for that taxable year (but may be included in a claim filed for a 
later taxable year if used during that later year on a farm for farming 
purposes). Gasoline used during a taxable year may be covered by a claim 
filed for that taxable year although the gasoline was not paid for at 
the time the claim is filed. For purposes of applying this section, a 
governmental unit or exempt organization described in Sec. 48.6420-1 
(c) is considered to have as its taxable year, the calendar year or 
fiscal year on the basis of which it regularly keeps its books; see 
paragraph (h) of this section.
    (b) Time for filing. (1) A claim for credit with respect to gasoline 
used on a farm for farming purposes shall not be allowed unless it is 
filed no later than the time prescribed by section 6511 and the 
regulations thereunder for filing a claim for credit or refund of income 
tax for the particular taxable year.
    (2) A claim for payment of a governmental unit or exempt 
organization described in Sec. 48.6420-1(c) must be filed no later than 
3 years following the close of its taxable year. (See paragraph (h) of 
this section.)
    (3) See Sec. 301.7502-1 of this chapter (Regulations on Procedure 
and Administration) for provisions treating timely mailing as timely 
filing and Sec. 301.7502-1 of this chapter for time for performance of 
an act where the last day falls on Saturday, Sunday, or a legal holiday.
    (c) Limit of one claim per taxable year. Not more than one claim may 
be filed under section 6420 by any person with respect to gasoline used 
during the same taxable year.
    (d) Form and content of claim--(1) Claim for credit. (i) The claim 
for credit with respect to gasoline used on a farm for farming purposes 
must be made by attaching a Form 4136 to the income tax return of an 
individual or a corporation. Form 4136 must be executed in accordance 
with the instructions prescribed for the preparation of the form. A 
partnership may not file Form 4136. When a partnership files Form 1065, 
U.S. Partnership Return of Income, it must include a statement showing 
how many gallons of gasoline are allocated to each partner and the use 
made of the gasoline.
    (ii) If an individual dies during the taxable year, the claim for 
credit may be made only for that portion of the individual's taxable 
year ending with the date of death. If a sole proprietorship, a 
partnership or corporation is terminated or liquidated during the 
taxable year, the claim for credit may be made only for the portion of 
its year ending with the date of the termination or liquidation.
    (2) Claim for payment. The claim for payment with respect to 
gasoline used on a farm for farming purposes by a governmental unit or 
exempt organization described in Sec. 48.6420-1(c) must be made on Form 
843 in accordance with the instructions prescribed for the preparation 
of the form. The claim by such a unit or organization must be

[[Page 217]]

filed with the service center for the internal revenue region in which 
the principal place of business or principal office of the claimant is 
located.

[T.D. 8043, 50 FR 32035, Aug. 8, 1985]



Sec. 48.6420-3  Exempt sales; other payments or refunds available.

    (a) Exempt sales. Credits or payments are allowable only for 
gasoline that was sold by the producer or importer in a transaction that 
was subject to tax under section 4081. No credit or payment shall be 
allowed or made under Sec. 48.6420-1 with respect to gasoline which was 
exempt from the tax imposed by section 4081. For example, a State or 
local government may not file a claim with respect to any gasoline which 
it purchased tax free from the producer, even though the State or local 
government used the gasoline on a farm for farming purposes. Similarly, 
payment may not be made with respect to gasoline purchased by a State 
tax free for its exclusive use, as provided in section 4221, which is 
used on a State prison farm for farming purposes.
    (b) Other payments or refunds available. Any amount which, without 
regard to the second sentence of section 6420(d) and this paragraph (b), 
would be allowable as a credit or payable to any person under Sec. 
48.6420-1 with respect to any gasoline is reduced by any other amount 
which is allowable as a credit or payable under section 6420, or is 
refundable under any other provision of the Code, to any person with 
respect to the same gasoline. Thus, a person who is the ultimate 
purchaser of gasoline may not file a claim for credit or payment with 
respect to that gasoline if another person is entitled to claim a 
payment, credit, or refund with respect to the same gasoline. For 
example, a State or local government may not file a claim for payment if 
it has executed, or intends to execute, a written consent to enable the 
producer to claim a credit or refund for the tax that was paid. See, for 
example, Sec. Sec. 48.6416(a)-3(b)(2), 48.6416(b)(2)-2(d), and 
48.6416(b)(2)-3(b)(1).

[T.D. 8043, 50 FR 32036, Aug. 8, 1985]



Sec. 48.6420-4  Meaning of terms.

    For purposes of the regulations under section 6420, unless otherwise 
expressly indicated--
    (a) Used on a farm for farming purposes. The term ``used on a farm 
for farming purposes'' applies only to gasoline which is used (1) in 
carrying on a trade or business of farming, (2) on a farm in the United 
States, and (3) for farming purposes. Gasoline used in an aircraft will 
qualify if its use otherwise satisfies these requirements. For the 
meaning of the term ``trade or business of farming,'' see paragraph (b) 
of this section. For the definition of the term ``farm,'' see paragraph 
(c) of this section. For the definition of the term ``farming 
purposes,'' see paragraphs (d) through (g) of this section. The term 
``United States'' has the meaning assigned to it by section 7701(a)(9).
    (b) Trade or business of farming. A person will be considered to be 
engaged in the trade or business of farming if the person cultivates, 
operates, or manages a farm for gain or profit, either as an owner or a 
tenant. A person engaged in forestry or the growing of timber is not 
thereby engaged in the trade or business of farming. A person who 
operates a garden plot, orchard, or farm for the primary purpose of 
growing produce for the person's own use is not considered to be engaged 
in the trade or business of farming. Generally, the operation of a farm 
does not constitute the carrying on of a trade or business if the farm 
is occupied by a person primarily for residential purposes or is used 
primarily for pleasure, such as for the entertainment of guests or as a 
hobby.
    (c) Farm. The term ``farm'' is used in its ordinary and accepted 
sense, and generally means land used for the production of crops, 
fruits, or other agricultural products or for the sustenance of 
livestock or poultry. The term ``livestock'' includes cattle, hogs, 
horses, mules, donkeys, sheep, goats, and captive fur-bearing animals. 
The term ``poultry'' includes chickens, turkeys, geese, ducks, and 
pigeons. Thus, a farm includes livestock, dairy, poultry, fish, fruit, 
fur-bearing animals, and truck farms, plantations, ranches, nurseries, 
ranges, orchards, feed yards for fattening cattle, and greenhouses

[[Page 218]]

and other similar structures used primarily for the raising of 
agricultural or horticultural commodities. Greenhouses and other similar 
structures that are used primarily for purposes other than the raising 
of agricultural or horticultural commodities do not constitute farms, 
as, for example, structures that are used primarily for the display, 
storage, fabrication, or sale of wreaths, corsages, and bouquets. A fish 
farm is an area where fish are grown or raised, as opposed to merely 
caught or harvested.
    (d) Gasoline used in cultivating, raising, or harvesting. Gasoline 
is used for ``farming purposes'' when it is used on a farm by the owner, 
tenant, or operator of the farm in connection with cultivating the soil, 
raising or harvesting any agricultural or horticultural commodity, or 
raising, shearing, feeding, caring for, training, or managing livestock, 
poultry, bees, or wildlife. Examples of operations which are considered 
to be operations for ``farming purposes'' within the meaning of this 
paragraph include plowing, seeding, fertilizing, weed killing, corn or 
cotton picking, threshing, combining, baling, silo filling, and chopping 
silage.
    (e) Gasoline used in handling, packing, or storing. (1) Gasoline is 
used for ``farming purposes'' when it is used by the owner, tenant, or 
operator of the farm in handling, drying, packing, grading, or storing 
any agricultural or horticultural commodity in its unmanufactured state, 
but only if the owner, tenant, or operator produced more than one-half 
of the commodity which was so treated during the taxable year for which 
claim for credit or payment is filed.
    (2) Gasoline used in connection with canning, freezing, packaging, 
or processing operations will not be considered to be used for farming 
purposes, even though these operations are performed on a farm. Thus, 
for example, although gasoline used on a farm in connection with the 
production or harvesting of maple sap or oleoresin from a living tree is 
considered to be used for farming purposes under paragraph (d) of this 
section, gasoline used in the processing of maple sap into maple syrup 
or maple sugar or used in the processing of oleoresin into gum spirits 
of turpentine or gum resin is not used for farming purposes, even though 
these processing operations are conducted on a farm.
    (3) Gasoline used in connection with processing operations which 
change a commodity from its raw or natural state, or operations 
performed with respect to a commodity after its character has been 
changed from its raw or natural state by a processing operation, will 
not be considered to be used for farming purposes. For example, gasoline 
used for the extraction of juices from fruits or vegetables is used in a 
processing operation which changes the character of the fruits or 
vegetables from their raw or natural state and will not be considered to 
be used for ``farming purposes.''
    (4) The term ``commodity,'' as used in this paragraph (e), refers to 
a single agricultural or horticultural product. For example, all apples 
are treated as a single commodity while apples and peaches are treated 
as two separate commodities. Operations with respect to each commodity 
are to be considered separately in applying the ``one-half'' production 
test described in paragraph (e)(1) of this section.
    (f) Gasoline used in planting, cultivating, or caring for trees. 
Gasoline is used ``for farming purposes'' when it is used by the owner, 
tenant, or operator of the farm in connection with the planting, 
cultivating, caring for, or cutting of trees that is incidental to the 
farming operations of the farm on which it is performed or incidental to 
the farming operations of the owner, tenant, or operator of the farm, or 
in connection with the preparation (other than milling) of trees for 
market that is incidental to these farming operations. These operations 
include the felling of trees and cutting them into logs or firewood but 
do not include sawing logs into lumber, chipping, or other milling 
operations. Operations of the prescribed character will be considered 
incidental to farming operations only if they are of a minor nature in 
comparison with the total farming operations involved. Therefore, a tree 
farmer or timber grower may not claim credit or payment under Sec. 
48.6420-1 with respect to gasoline used in connection

[[Page 219]]

with the trade or business of tree farming or timber growing.
    (g) Gasoline used in the maintenance of a farm or farm equipment. 
Gasoline is used ``for farming purposes'' when it is used by the owner, 
tenant, or operator of a farm in connection with the operation, 
management, conservation, improvement, or maintenance of the farm and 
its tools and equipment. The activities included are those which 
contribute in any way to the conduct of the farm as such, as 
distinguished from any other enterprise in which the owner, tenant, or 
operator may be engaged. Examples of included operations are clearing 
land, repairing fences and farm buildings, building terraces or 
irrigation ditches, cleaning tools or farm machinery, and painting farm 
buildings. Since the gasoline must be used by the owner, tenant, or 
operator of the farm to which the operations relate, gasoline used by an 
organization which contracts with a farmer to renovate his farm 
properties is not used for farming purposes. Gasoline used in a 
gasoline-powered lawn mower for maintaining a lawn is not used for 
farming purposes.
    (h) Taxable year. The ``taxable year'' of a governmental unit or 
tax-exempt organization described in Sec. 48.6420-1(c) is the calendar 
or fiscal year on the basis of which it regularly keeps its books. The 
``taxable year'' of persons subject to income tax shall have the meaning 
as it has under section 7701(a)(23).
    (i) Gasoline. The term ``gasoline'' has the same meaning given to 
this term by section 4082(b) and the regulations thereunder.
    (j) Ultimate purchaser. The term ``ultimate purchaser'' includes 
only a person who is an owner, tenant, or operator of a farm. A person 
who is an owner, tenant, or operator of a farm is an ultimate purchaser 
of gasoline only with respect to such gasoline as is purchased by the 
person and used for farming purposes on a farm of which the person is 
the owner, tenant, or operator. Thus the owner of a farm who purchases 
gasoline which is used on the farm by its owner, tenant, or operator for 
farming purposes is generally the ultimate purchaser of the gasoline. 
If, however, the cost of gasoline supplied by an owner, tenant, or 
operator of a farm, is by agreement or other arrangement borne by a 
second person who is an owner, or operator of the farm, the second 
person who bore the cost of the gasoline is considered to be the 
ultimate purchaser of the gasoline.
    (k) Certain farming use by persons other than the owner, tenant or 
operator--(1) In general. Except as provided in paragraph (l) of this 
section, the owner, tenant, or operator of a farm on which gasoline is 
used by any other person for the purposes described in section 
6420(c)(3)(A) and paragraph (d) of this section (relating to gasoline 
used in cultivating, raising, or harvesting) will be treated, for the 
purposes of Sec. 48.6420-1 (a), as the ultimate purchaser who used the 
gasoline on the farm for farming purposes.
    (2) Example. The rule of paragraph (k)(1) of this section may be 
illustrated by the following example.

    Example. Farmer A hired custom operator B to cultivate the soil on 
A's farm. B used 200 gallons of gasoline which B had purchased in 
performing the work on A's farm. In addition, A hired Farmer C to do 
some plowing on A's farm, using C's own tractor and 50 gallons of 
gasoline which C had purchased. A is deemed to be the ultimate purchaser 
and user of the gasoline used on A's farm by B and C, and A is entitled 
to take a credit in respect of the gasoline. Accordingly, no credit in 
respect to the gasoline may be taken by either B or C.

    (l) Aerial applicators treated as ultimate purchasers--(1) General 
rule. Section 6420(c)(3)(A) provides that only the owner, tenant, or 
operator of a farm is entitled to be treated as a user and ultimate 
purchaser. Section 6420(c)(4) provides that, under section 
6420(c)(3)(A), an aerial applicator or other applicator is entitled to 
be treated as the user and ultimate purchaser of gasoline used by it on 
a farm for the purposes described in section 6420(c)(3)(A), but only if 
the owner, tenant, or operator who is otherwise entitled to treatment as 
the user and ultimate purchaser waives the right to credit or payment. 
See paragraph (l)(2) of this section.
    (2) Form and manner of waiver. To waive the right to be treated as 
user and ultimate purchaser of gasoline which is used on a farm by an 
aerial applicator or other applicator, the

[[Page 220]]

owner, tenant, or operator of a farm who is otherwise entitled to 
treatment as user and ultimate purchaser must execute an irrevocable 
written agreement (as here described) no later than the date on which 
the aerial applicator or other applicator claiming the credit or payment 
files its return for the taxable year in which the gasoline is used. The 
agreement must identify the period for which the owner, tenant, or 
operator waives the right to credit or payment. The effective period of 
the waiver cannot extend beyond the last day of the taxable year of the 
owner, tenant, or operator of the farm on which the gasoline was used. 
If the owner, tenant, or operator's taxable year extends beyond the 
taxable year of the applicator, the applicator can only claim a credit 
or payment for periods included in the applicator's taxable year. 
Periods after the last day of the applicator's taxable year which are 
included under the agreement must be claimed on the applicator's return 
for the next succeeding taxable year. The waiver may be in the form 
shown under paragraph (l)(6) of this section or in any other form that 
meets the requirements of this paragraph and clearly states that the 
owner, tenant, or operator of the farm knowingly waives the right to 
receive the credit or payment.
    (3) Agreement included on aerial applicator's invoice. The agreement 
waiving a right to receive a credit or payment under section 6420 may be 
a separate document or may appear on the invoice for aerial application 
services or other unrelated document from the aerial applicator or other 
applicator to the owner, tenant, or operator of the farm. If the waiver 
agreement appears on an invoice or other unrelated document, however, it 
must be printed in a section of the invoice or other document clearly 
set off from all other material contained in the invoice or other 
document, and it must be printed in type sufficiently large to put the 
owner, tenant, or operator of the farm on notice that the person has 
waived the right to receive a credit or payment under section 6420. 
Additionally, if the waiver agreement appears as part of any invoice or 
other unrelated document, it must be executed separately from any other 
item included in the invoice or other document which requires the owner, 
tenant, or operator's signature.
    (4) Copies of agreement waiving right to credit or payment. No 
copies of any agreement waiving a right to credits or payments under 
section 6420 are to be submitted to the Internal Revenue Service unless 
a request is made by the Service to the taxpayer for the waivers. Aerial 
applicators must, however, retain copies of all waivers, and a copy of 
each waiver must be supplied by the aerial applicator to the owner, 
tenant, or operator of the farm who waives the right to receive a credit 
or payment. See regulations Sec. 48.6420-6 for general requirements for 
records to be kept.
    (5) Waiver on behalf of owner, tenant, or operator of farm. An agent 
of the owner, tenant, or operator of a farm who is expressly authorized 
to act on behalf of and to bind the owner, tenant, or operator may waive 
that person's rights to a credit or payment under section 6420 by 
signing the waiver on the person's behalf.
    (6) Sample form of agreement. While no specific form is required for 
an effective waiver, an acceptable form waiving the right to receive a 
credit or payment under section 6420 follows:

    I hereby waive my right as owner/tenant/operator of a farm located 
at ------------ (address) ------------ to receive credit or payment from 
the United States for gasoline used by ---------- (aerial applicator) --
---------- on the farm in connection with cultivating the soil, or the 
raising or harvesting of any agricultural or horticultural commodity. 
This waiver applies to gasoline used during the period ------------ both 
dates inclusive. I understand that by signing this waiver, I give up my 
right to claim any credit or payment for gasoline used by the aerial 
applicator during the period indicated, and I acknowledge that I have 
not previously claimed any credit for that gasoline.

________________________________________________________________________

(Signature of Owner/Tenant/Operator)


[T.D. 8043, 50 FR 32036, Aug. 8, 1985, as amended by T.D. 8152, 52 FR 
31621, Aug. 21, 1987]



Sec. 48.6420-5  Applicable laws.

    (a) Penalties, excessive claims, etc. All provisions of law, 
including penalties, applicable in respect of the tax imposed by section 
4081 shall, to the extent applicable and consistent with section 6420, 
apply in respect of the

[[Page 221]]

payments provided for in section 6420 to the same extent as if these 
payments were refunds of overpayments of the tax imposed on the sale of 
gasoline under section 4081. For special rules applicable to the 
assessment and collection of amounts constituting excessive payments 
under section 6420, see section 6206 and the regulations thereunder. For 
the civil penalty assessable in the case of excessive claims under 
section 6420, see section 6675 and the regulations thereunder. For the 
treatment as an overpayment of an amount allowable as an excessive 
credit under section 39 with respect to amounts payable under section 
6420, see section 6401(b).
    (b) Examination of books and witnesses. For the purpose of 
ascertaining (1) the correctness of any claim made under section 6420 or 
(2) the correctness of any credit or payment made in respect of the 
claim, the Commissioner shall have the same authority granted by 
paragraphs (1), (2), and (3) of section 7602, relating to examination of 
books and witnesses, as if the person claiming credit or payment under 
section 6420 were the person liable for tax.
    (c) Fractional part of a dollar. Section 6420(e)(3) provides that 
section 7504, relating to fractional parts of a dollar, shall not apply 
with respect to the allowance of any amount as a credit or payment under 
section 6420. Accordingly, credits or payments authorized by section 
6420 shall be made in the exact amount to which the claimant is entitled 
and shall not be rounded to the nearest whole dollar amount.

[T.D. 8043, 50 FR 32038, Aug. 8, 1985]



Sec. 48.6420-6  Records to be kept in substantiation of credits or payments.

    (a) In general. Every person making a claim for credit or payment 
under section 6420 must keep records sufficient to enable the district 
director to determine whether the person is entitled to credit or 
payment under section 6420 and, if so, the amount of the credit or 
payment. No particular form is prescribed for keeping the records, but 
the records must include a copy of the income tax return or claim and a 
copy of any statement or document submitted with the return or claim. 
The records must also show with respect to the taxable year covered by 
the claim--
    (1) The number of gallons of gasoline purchased and the dates of 
purchase,
    (2) The name and address of each vendor from whom gasoline was 
purchased and the total number of gallons purchased from each,
    (3) The number of gallons of gasoline purchased by the claimant and 
used during the taxable year for farming purposes on a farm of which the 
claimant is the owner, tenant, or operator,
    (4) The number of gallons of gasoline used during the taxable year 
for the purposes described in section 6420(c)(3)(A) and Sec. 48.6420-
4(d) (relating to cultivating, raising, or harvesting) by a person other 
than the owner, tenant, or operator on a farm of which the claimant is 
the owner, tenant, or operator, and
    (5) Other information as necessary to establish the correctness of 
the claim.
    (b) Acceptable records. (1) Evidence of purchases of gasoline, and 
the purposes for which it was used, to substantiate claims may include 
paid duplicate sales invoices or tickets from the gasoline dealer or 
other vendor, and detailed records of all fuel used which show the 
amount consumed on a farm for farming purposes and the amount used for 
other purposes.
    (2) Records maintained for Federal or State income tax purposes, or 
to support claims for refund of a State tax on gasoline, may be used to 
the extent that they contain the information necessary to substantiate 
the accuracy of the claim for credit under section 6420. However, the 
records must show separately the number of gallons of gasoline used on a 
farm for farming purposes.
    (3) If trucks or other vehicles are used both on and off the farm, 
an allocation of gasoline used in the vehicle will be required to show 
separately the number of gallons of gasoline used on a farm for farming 
purposes in respect of which the claim is made.
    (4) If the owner, tenant, or operator is entitled under section 
6420(c)(4)(A) to claim credit or payment in respect of gasoline used on 
the person's farm by another person other than an owner, tenant, or 
operator of the farm for a purpose described in section

[[Page 222]]

6420(c)(3)(A) and Sec. 48.6420-4(d), the claimant must have records 
showing (i) the name and address of the person who performed the farming 
operation, (ii) a description of the type of work (such as plowing, 
threshing, combining, etc.) and the type of equipment used, (iii) the 
date or dates on which the work was done, and (iv) the number of gallons 
of gasoline so used on the claimant's farm.
    (c) Place and period for keeping records. (1) All records required 
by this section must be kept by the claimant at a convenient and safe 
location within the United States which is accessible to internal 
revenue officers and shall during normal business hours be available for 
inspection by internal revenue officers. If the claimant has a principal 
place of business in the United States, the records must be kept at that 
place of business.
    (2) Records required to substantiate a claim under section 6420 must 
be maintained for a period of at least 3 years from the last date 
prescribed for the filing of the claim for credit or payment.

[T.D. 8043, 50 FR 32038, Aug. 8, 1985]



Sec. 48.6420(a)-2  Gasoline includible in claim.

    Payment may be claimed under section 6420 only in respect of 
gasoline used on a farm in the United States for farming purposes. No 
payment is allowable under section 6420 with respect to gasoline used 
for nonfarming purposes, or gasoline used off a farm, regardless of the 
nature of such use. If a vehicle or other equipment is used both on a 
farm and off the farm, or if it is used on a farm both for farming and 
nonfarming purposes, payment is allowable only with respect to that 
portion of the gasoline which was ``used on a farm for farming 
purposes'' as defined in paragraph (a) of Sec. 48.6420(c)-1. The type 
of equipment or vehicle and whether or not it is registered for highway 
use is immaterial. However, the actual use of the equipment or vehicle 
and place where it is used are material. For example, if a truck used on 
a farm for farming purposes is also used on the highways (even though in 
connection with operating the farm), the gasoline used in operating the 
truck on the highways is not to be taken into account in computing the 
payment for which a claim is filed, since such gasoline was used off the 
farm.

[T.D. 6433, 24 FR 10395, Dec. 22, 1959]



Sec. 48.6421-0  Off-highway business use.

    For purposes of the regulations under section 6421, after March 31, 
1983, the term ``off-highway business use'' is used in lieu of the term 
``qualified business use'' and has the same meaning as ``qualified 
business use'' under Sec. 48.6421-4(b).

[T.D. 8043, 50 FR 32039, Aug. 8, 1985]



Sec. 48.6421-1  Credits or payments to ultimate purchaser of gasoline used for 

certain nonhighway purposes.

    (a) In general. (1) If gasoline is used in a qualified business use 
or as fuel in an aircraft (other than aircraft in noncommercial 
aviation), a credit (under the circumstances described in paragraph (b) 
of this section) or a payment (under the circumstances described in 
paragraph (c) of this section) in respect of the gasoline shall be 
allowed or made to the ultimate purchaser of the gasoline. For gasoline 
used in a qualified business use prior to April 1, 1983, the credit or 
payment under this section shall be an amount equal to 1 cent for each 
gallon of gasoline so used on which the tax was paid at the rate of 3 
cents a gallon, and 2 cents for each gallon of gasoline so used on which 
the tax was paid at the rate of 4 cents a gallon. For gasoline used in 
an off-highway business use after March 31, 1983, the credit or payment 
under this section shall be an amount equal to the amount determined by 
multiplying the number of gallons so used by the rate at which tax was 
imposed on such gasoline under section 4081. For gasoline used as a fuel 
in an aircraft (other than aircraft in noncommercial aviation) the 
credit or payment under this section shall be an amount equal to the 
amount determined by multiplying the number of gallons so used by the 
rate at which tax was imposed on the gasoline under section 4081. No 
interest shall be paid on any payment allowed under paragraph (c) of 
this section. However, interest may be paid on any overpayment (as 
defined by section

[[Page 223]]

6401) arising from a credit allowed under paragraph (b) of this section. 
See section 34(a), relating to credit for certain uses of gasoline and 
special fuels (and lubricating oil used prior to January 7, 1983). See 
Sec. 48.6421-3 for the time within which a claim for credit or payment 
must be made under this section. See Sec. 48.6421-4 for the meaning of 
the terms ``gasoline,'' ``qualified business use,'' ``noncommercial 
aviation,'' and ``taxable year.''
    (2) For purposes of determining the allowable credit or payment in 
respect of gasoline used in a qualified business use or as fuel in an 
aircraft (other than aircraft in noncommercial aviation), gasoline on 
hand shall be considered used in the order in which it was purchased. 
Thus, if the ultimate purchaser has on hand gasoline acquired in two 
purchases made at different times and subject to different rates of tax, 
in determining credit or payment for the gasoline used in a qualified 
business use or as fuel in an aircraft (other than aircraft in 
noncommercial aviation), it will be assumed that the gasoline first 
purchased was the first gasoline used, and the rate applicable to that 
purchase will apply in determining the credit or payment, until all that 
gasoline is accounted for.
    (b) Allowance of income tax credit in lieu of payment. Except as 
provided in paragraph (c) of this section, repayment under this section 
of the tax paid under section 4081 on gasoline used in a qualified 
business use or as a fuel in an aircraft (other than aircraft in 
noncommercial aviation) by a person subject to income tax may be 
obtained only by claiming a credit for the amount of this tax against 
the tax imposed by subtitle A of the Code. The amount of the credit 
shall be an amount equal to the payment which would be made under 
section 6421 with respect to gasoline used during the taxable year in a 
qualified business use or as a fuel in an aircraft (other than aircraft 
in noncommercial aviation) if section 6421(i) and paragraph (c) of this 
section did not apply. See section 34(a)(2).
    (c) Allowance of payment. Payments in respect of gasoline upon which 
tax was paid under section 4081 that is used in a qualified business use 
or as a fuel in an aircraft (other than aircraft in noncommercial 
aviation) shall be made only to--
    (1) The United States or any agency or instrumentality thereof, a 
State, a political subdivision of a State, or an agency or 
instrumentality of one or more State political subdivisions of a State, 
or the District of Columbia,
    (2) An organization which is exempt from tax under section 501(a) 
and is not required to make a return of the income tax imposed under 
subtitle A for its taxable year, or
    (3) A person described in section 6421(c)(2) to whom $1,000 or more 
is payable (without regard to paragraph (b) of this section) under this 
section with respect to gasoline used during any of the first three 
quarters of the person's taxable year.
    (d) Dual use of gasoline. (1) No credit or payment may be claimed in 
respect of gasoline used in a highway vehicle used in a trade or 
business or for the production of income solely by reason of the fact 
that the propulsion motor in the vehicle is also used for a purpose 
other than the propulsion of the vehicle. Thus, if the propulsion motor 
of a highway vehicle (used in a trade or business or for the production 
of income) also operates special equipment, such as a mixing unit on a 
concrete mixer truck or a pump for discharging fuel from a tank truck, 
by means of a power takeoff or power transfer, no credit or payment may 
be claimed in respect of the gasoline used to operate the special 
equipment, even though the special equipment is mounted on the highway 
vehicle.
    (2) If a highway vehicle is equipped with a separate motor to 
operate the special equipment used in a trade or business or for the 
production of income, such as a refrigeration unit, pump, generator, or 
mixing unit, credit or payment may be claimed in respect of the gasoline 
used in the separate motor.
    (3) If gasoline used in a separate motor is drawn from the same tank 
as the one which supplies gasoline for the propulsion of the highway 
vehicle, the determination as to the quantity of gasoline used in the 
separate motor operating the special equipment must be

[[Page 224]]

based on operating experience and supported by records.
    (4) Devices to measure the number of miles the highway vehicle has 
traveled, such as hubometers, may be used in making a preliminary 
determination of the number of gallons of gasoline used to propel the 
vehicle. In order to make a final determination of the number of gallons 
of gasoline used to propel the vehicle, there must be added to this 
preliminary determination the number of gallons of gasoline consumed 
while idling or warming up the motor preparatory to propelling the 
vehicle.
    (e) Gasoline lost or destroyed. Gasoline lost or destroyed through 
spillage, fire, or other casualty is not considered to have been 
``used'' in a qualified business use or as fuel in an aircraft (other 
than aircraft in noncommercial aviation) and, accordingly, credit or 
payment in respect of the gasoline may not be claimed.
    (f) Supporting evidence required. Each claim under this section for 
credit or payment must include a statement showing--
    (1) The total number of gallons of gasoline purchased and used 
during the period covered by the claim in a qualified business use 
multiplied by the rate of payment allowable in respect of the gasoline. 
(For the rate of payment allowable, see paragraph (a)(1) of this 
section.)
    (2) The total number of gallons of gasoline purchased and used 
during the period covered by the claim for use as fuel in an aircraft 
(other than aircraft in noncommercial aviation) multiplied by the rate 
of payment allowable in respect of the gasoline.
    (3) The purpose or purposes for which the gasoline was used, 
determined by reference to general categories, and the amount used for 
each purpose; and
    (4) If a claim on Form 843 is being filed, the internal revenue 
district or service center with which the claimant last filed an income 
tax return (if any).

[T.D. 8043, 50 FR 32039, Aug. 8, 1985]



Sec. 48.6421-2  Credits or payments to ultimate purchasers of gasoline used in 

intercity, local, or school buses.

    (a) In general. If gasoline is used in an intercity or local bus 
while engaged in furnishing (for compensation) passenger land 
transportation available to the general public or in a school bus 
engaged in the transportation of students or employees of schools, a 
credit (under the circumstances described in paragraph (b) of this 
section) or a payment (under the circumstances described in paragraph 
(c) of this section) in respect to the gasoline shall be allowed or made 
to the ultimate purchaser of the gasoline. The credit or payment under 
this section shall be an amount equal to the product of the number of 
gallons of gasoline so used multiplied by the rate at which tax was 
imposed on the gasoline by section 4081. No interest shall be paid on 
any payment allowed under paragraph (c) of this section. However, 
interest may be paid on an overpayment (as defined by section 6401) 
arising from a credit allowed under paragraph (b) of this section. See 
section 34(a) relating to credit for certain uses of gasoline and 
special fuels, (and lubricating oil used prior to January 7, 1983). See 
Sec. 48.6421-3 for the time within which a claim for credit or payment 
must be made under this section. See Sec. 48.6421-4 for the meaning of 
``gasoline.''
    (b) Allowance of income tax credit. Except as provided in paragraph 
(c) of this section, repayment under this section of the tax paid under 
section 4081 of gasoline used while engaged in furnishing (for 
compensation) passenger land transportation available to the general 
public or in school bus transportation operations by a person subject to 
income tax may be obtained only by claiming a credit for the amount of 
this tax against the tax imposed by subtitle A of the Code. The amount 
of the credit shall be an amount equal to the payment which would be 
made under section 6421 with respect to gasoline used during the taxable 
year for this passenger land transportation or school bus operations if 
section 6421(i) and paragraph (c) of this section did not apply. See 
section 34(a)(2).
    (c) Allowance of payment. Payments in respect of gasoline upon which 
tax was paid under section 4081 that is used while engaged in furnishing 
(for compensation) passenger land transportation available to the 
general public

[[Page 225]]

or in school bus transportation operations shall be made only to--
    (1) The United States or any agency or instrumentality thereof, a 
State, or political subdivision of a State, or an agency or 
instrumentality of one or more States or political subdivisions of a 
State, or the District of Columbia,
    (2) An organization which is exempt from tax under section 501(a) 
and is not required to make a return of the income tax imposed under 
subtitle A for its taxable year, or
    (3) A person described in section 6421(c)(2) to whom $1,000 or more 
is payable (without regard to paragraph (b) of this section) under this 
section with respect to gasoline used during any of the first three 
quarters of the person's taxable year.
    (d) Supporting evidence required. Each claim under this section for 
credit or payment must include a statement showing--
    (1) The total number of gallons of gasoline purchased and used 
during the period covered by the claim for each intercity or local bus 
while engaged in furnishing (for compensation) passenger land 
transportation available to the general public multiplied by the rate at 
which tax was imposed on the gasoline by section 4081.
    (2) The total number of gallons of gasoline purchased and used in 
each bus while engaged in school bus transportation operations 
multiplied by the rate at which tax was imposed on the gasoline by 
section 4081, and
    (3) If a claim on Form 843 is being filed, the internal revenue 
district or service center with which the claimant last filed an income 
tax return (if any).

[T.D. 8043, 50 FR 32040, Aug. 8, 1985, as amended by T.D. 8879, 65 FR 
17161, Mar. 31, 2000]



Sec. 48.6421-3  Time for filing claim for credit or payment.

    (a) In general. A claim for credit or payment described in Sec. 
48.6421-1 with respect to gasoline used in a qualified business use or 
as a fuel in an aircraft (other than aircraft in noncommercial aviation) 
or in Sec. 48.6421-2 with respect to gasoline used either in an 
intercity or local bus while engaged in furnishing (for compensation) 
passenger land transportation available to the general public or in 
school bus transportation operations, shall cover only gasoline used 
during the taxable year, or when paragraph (b)(2) of this section 
applies, gasoline used during the calendar quarter. Therefore, gasoline 
on hand at the end of a taxable year, or, if applicable, a calendar 
quarter, such as gasoline in fuel supply tanks of vehicles or in storage 
tanks or drums, must be excluded from a claim filed for the taxable year 
or calendar quarter, as the case may be. However, this gasoline may be 
included in a claim filed for a later taxable year or a later calendar 
quarter if it is used during that later year or quarter in a qualified 
business use, as fuel in an aircraft (other than aircraft in 
noncommercial aviation), or in intercity, local, or school buses. 
Gasoline used during the taxable year or calendar quarter may be covered 
by the claim for that period although the gasoline was not paid for at 
the time the claim is filed. For purposes of applying this section, a 
governmental unit or exempt organization described in Sec. 48.6421-1(c) 
or Sec. 48.6421-2(c) is considered to have as its taxable year, the 
calendar year or fiscal year on the basis of which it regularly keeps 
its books; see Sec. 48.6421-4(g).
    (b) Time for filing--(1) Annual claims. (i) A claim under this 
section for credit or payment with respect to gasoline shall not be 
allowed unless it is filed no later than the time prescribed by section 
6511 and the regulations thereunder for filing a claim for credit or 
refund of income tax for the particular taxable year.
    (ii) A claim for payment of a governmental unit or exempt 
organization described in Sec. 48.6421-1(c) or Sec. 48.6421-2(c) must 
be filed no later than 3 years following the close of its taxable year 
(see Sec. 48.6421-4).
    (2) Quarterly claims. A claim for payment of $1,000 or more in 
respect of gasoline used during any of the first three quarters of the 
taxable year, filed either under Sec. 48.6421-1(c)(3) in respect of 
gasoline used in a qualified business use or as a fuel in an aircraft 
(other than aircraft used in noncommercial aviation) or under Sec. 
48.6421-2(c)(3) in respect of gasoline used while engaged in furnishing 
(for compensation) passenger land transportation available to

[[Page 226]]

the general public or in school bus operations, shall not be allowed 
unless the claim is filed on or before the last day of the first 
calendar quarter following the calendar quarter for which the claim is 
filed. No quarterly claim may be filed for the last calendar quarter of 
the taxable year. Amounts for which payment is disallowed under this 
paragraph (b)(2) merely because the claim was not filed on time may be 
included in an annual claim filed under paragraph (b)(1) of this 
section, but other amounts for which a claim for payment has been filed 
under this paragraph (b)(2) may not be included in an annual claim filed 
under paragraph (b)(1) of this section.
    (3) Other applicable rules. See Sec. 301.7502-1 of this chapter 
(Regulations on Procedure and Administration) for provisions treating 
timely mailing as timely filing and Sec. 301.7503-1 of this chapter for 
time for performance of an act where the last day falls on Saturday, 
Sunday, or a legal holiday.
    (c) Limit on claims per taxable year. Not more than one claim may be 
filed under Sec. 48.6421-1 or Sec. 48.6421-2 by any person with 
respect to gasoline used during any taxable year, except to the extent 
that quarterly claims may be filed under paragraph (b)(2) of this 
section with respect to any calendar quarter (other than the last 
calendar quarter) of the taxable year.
    (d) Form and content of claim--(1) Claim for credit. The claim for 
credit to which this section applies must be made by attaching a Form 
4136 to the income tax return of an individual or a corporation. Form 
4136 must be executed in accordance with the instructions prescribed for 
the preparation of the form. A partnership may not file Form 4136. When 
a partnership files Form 1065, U.S. Partnership Return of Income, it 
must include a statement showing how many gallons of gasoline are 
allocated to each partner and the use made of the gasoline.
    (2) Claim for payment. The claim for payment to which this section 
applies must be made on Form 8849 (or on such other form as the 
Commissioner may designate) in accordance with the instructions 
prescribed for the preparation of the form. Each form must designate the 
taxable year, or calendar quarter, for which it is filed.
    (3) Death or termination. (i) If an individual dies, or if a sole 
proprietorship, partnership, or corporation is terminated or liquidated, 
during the taxable year, the claim for credit or payment may be filed in 
respect of gasoline used during the short taxable year in the same 
manner as is provided for gasoline used in a full taxable year. Those 
months which constitute a quarter of a full taxable year will constitute 
the same quarter of the short taxable year. For example, if a 
corporation using the calendar year is liquidated on September 30, 1982, 
and is entitled to $900 under Sec. 48.6421-1 in respect of gasoline 
used in a qualified business use for the calendar quarters ending June 
30 and September 30, it may file a claim for payment in respect of the 
gasoline used during the calendar quarters ending June 30, and September 
30, 1981, and take a credit of $900 on its income tax return for the 
short taxable year in respect of the gasoline used during the calendar 
quarter ending March 31, 1982.
    (ii) A claim for payment on behalf of a decedent may be filed by the 
decedent's executor, administrator, or any other person charged with 
responsibility for the decedent's affairs. Such a claim must be 
accompanied by copies of the letters testamentary, letters of 
administration, or, in the case of a claim filed by other than the 
executor or administrator, the information called for in Form 1310 
(Statement of Person Claiming Refund Due a Deceased Taxpayer). The claim 
may cover only gasoline in respect of which the decedent would have been 
entitled to claim payment. For example, if an individual dies on July 
15, 1982, prior to claiming payment under Sec. 48.6421-1 or $1,000 or 
more applicable to gasoline purchased and used in a qualified business 
use during the calendar quarter ending June 30, 1982, the decedent's 
executor or other legal representative may file a claim for payment 
covering that calendar quarter, and take the credit provided by section 
39(a)(2) against the decedent's income tax on the income tax return for 
the short taxable year in respect of gasoline purchased by the decedent 
and so used

[[Page 227]]

during the period from July 1, 1982 to July 15, 1982, the date of death.
    (e) Restrictions on claims for credit or payment. Credits or 
payments are allowable only in respect of gasoline that was sold by the 
producer or importer in a transaction that was subject to tax under 
section 4081. For example, a State or local government may not file a 
claim with respect to any gasoline which it purchased tax free from the 
producer, even though the State or local government used the gasoline as 
a fuel for the purposes described in paragraph (a) of this section. 
Similarly, a governmental unit or tax-exempt organization that is the 
ultimate purchaser of gasoline may not file a claim for payment if it is 
known that another person is entitled to claim credit, payment, or 
refund with respect to the same gasoline. For example, a State or local 
government may not file a claim for payment if it has executed, or 
intends to execute, a written consent, or other documentation, to enable 
the producer to claim credit or refund for the tax that was paid. See, 
for example, Sec. Sec. 48.6416(a)-3 and 48.6416(b)(2)-3(b)(1).

[T.D. 8043, 50 FR 32041, Aug. 8, 1985, as amended by T.D. 8659, 61 FR 
10463, Mar. 14, 1996; T.D. 8748, 63 FR 26, Jan. 2, 1998]



Sec. 48.6421-4  Meaning of terms.

    For purposes of the regulations under section 6421, unless otherwise 
expressly indicated--
    (a) Gasoline. The term ``gasoline'' has the same meaning given to 
such term by section 4082(b) and regulations thereunder.
    (b) Qualified business use. (1) The term ``qualified business use'' 
means any use by a person in a trade or business of the person or in an 
activity of the person described in section 212 (relating to production 
of income) otherwise than as a fuel in a highway vehicle--
    (i) That at the time of the use is registered, or is required to be 
registered, for highway use under the laws of any state, the District of 
Columbia, or a foreign country, or
    (ii) That, in the case of a highway vehicles owned by the United 
States, is used on the highway.

The term ``qualified business use'' does not include any use in a 
motorboat, other than a vessel used in the fisheries or whaling 
business. See paragraph (c) of this section for the definition of 
``highway vehicle.'' See paragraph (d) of this section for the 
definition of ``highway.''
    (2) Any highway vehicle operated under a dealer's tag, license, or 
permit will be considered to be registered. A highway vehicle is not 
considered to be ``registered'' solely because there has been issued a 
special permit for operation of the vehicle at particular times and 
under specified conditions. However, a highway vehicle that is required 
to be registered and that is also issued a special permit for operation 
of the vehicle under specified conditions, such as carrying an oversize 
load, is still considered to be ``registered.''
    (3) Nonbusiness, off-highway use of gasoline by such vehicles and 
equipment as minibikes, snowmobiles, power lawn mowers, chain saws, and 
other yard equipment does not qualify as gasoline used a qualified 
business use.
    (4) Examples of gasoline used in a qualified business use include:
    (i) Gasoline used (in a trade or business or for the production of 
income) in stationary engines to operate pumps, generators, compressors, 
and power saws;
    (ii) Gasoline used (in a trade or business or for the production of 
income) for cleaning purposes;
    (iii) Gasoline used (in a trade or business or for the production of 
income) in forklift trucks, bulldozers, and earthmovers; and
    (iv) Gasoline used by a nonhighway vehicle in connection with the 
trade or business of construction, mining or logging.
    (5) Illustration. The application of this paragraph (b) may be 
illustrated by the following example:

    Example. M Corporation, a logging company, files its income tax 
return on the basis of the calendar year. During 1982, the company used 
20,000 gallons of gasoline in its logging business. Of this amount, 
12,000 gallons were used as fuel in registered highway vehicles which 
were operated both on the public highways and on the company's private 
roads. Of the remaining 8,000 gallons, 6,000 were used in nonhighway 
vehicles, such as tractors and bulldozers, and 2,000 gallons were used 
in highway vehicles, such as heavy

[[Page 228]]

trucks which, at the time of use, were neither registered nor required 
to be registered under state law for highway use by reason of being 
operated entirely on the company's property. As the ultimate purchaser, 
M may take a credit on its income tax return for 1982 under this section 
in respect of the 6,000 gallons used in the nonhighway vehicles and the 
2,000 gallons used in the unregistered highway vehicles. However, no 
credit may be allowed with respect to the 12,000 gallons used in the 
registered highway vehicles even though a portion of this gasoline was 
used in operating the vehicles on the company's own property.

    (c) Highway vehicle. The term ``highway vehicle'' has the same 
meaning assigned to this term under Sec. 48.4061(a)-1(d).
    (d) Highway. The term ``highway'' includes any road, whether a 
Federal highway, State highway, city street, or otherwise, in the United 
States which is not a private roadway.
    (e) Noncommercial aviation. The term ``non-commercial aviation'' has 
the same meaning given to such term by section 4041(c)(4).
    (f) Calendar quarter. The term ``calendar quarter'' means a period 
of three calendar months ending on March 31, June 30, September 30, or 
December 31.
    (g) Taxable year. The ``taxable year'' of a governmental unit or 
tax-exempt organization described in Sec. 48.6421-1(c) or Sec. 
48.6421-2(c) is the calendar or fiscal year on the basis of which it 
regularly keeps its books. The ``taxable year'' of persons subject to 
income tax shall have the meaning it has under section 7701(a)(23).

[T.D. 8043, 50 FR 32042, Aug. 8, 1985]



Sec. 48.6421-5  Exempt sales; other payments or refunds available.

    (a) Exempt sales. No credit or payment shall be allowed or made 
under Sec. 48.6421-1 or Sec. 48.6421-2 with respect to gasoline which 
was exempt from the tax imposed by section 4081. For example, credit or 
payment may not be allowed or made with respect to gasoline purchased 
tax free for use as supplies for certain vessels and airplanes, or with 
respect to gasoline purchased by a State tax free for its exclusive use, 
as provided in section 4221.
    (b) Other payments or refunds available. Any amount which, without 
regard to the second sentence of section 6421(e)(1) and this paragraph 
(b), would be allowable as a credit or payable to any person under Sec. 
48.6421-1 or Sec. 48.6421-2 is reduced by any other amount which is 
allowable as a credit or payable under section 6421, or is refundable 
under any other provision of the Code, to any person with respect to the 
same gasoline.
    (c) Gasoline used on farms. Payments with respect to gasoline used 
on a farm for farming purposes shall be claimed under section 6420 and 
Sec. 48.6420-1, and no claim in respect of that gasoline may be made 
under section 6421 and the regulations thereunder.

[T.D. 8043, 50 FR 32042, Aug. 8, 1985]



Sec. 48.6421-6  Applicable laws.

    (a) Penalties, excessive claims, etc. All provisions of law, 
including penalties, applicable in respect of the tax imposed by section 
4081 shall, to the extent applicable and consistent with section 6421, 
apply in respect of the payments provided for in section 6421 to the 
same extent as if these payments were refunds of overpayments of the tax 
imposed on the sale of gasoline by section 4081. For special rules 
applicable to the assessment and collection of amounts constituting 
excessive payments under section 6421, see section 6206 and the 
regulations thereunder. For the civil penalty assessable in the case of 
excessive claims under section 6421, see section 6675 and the 
regulations thereunder. For the treatment as an overpayment of an amount 
allowable as an excessive credit under section 34 (section 39 of the 
Internal Revenue Code of 1954 prior to its revision by the Tax Reform 
Act of 1984) with respect to amounts payable under section 6421, see 
section 6401(b).
    (b) Examination of books and witnesses. For the purpose of 
ascertaining (1) the correctness of any claim made under section 6421 or 
(2) the correctness of any credit or payment made in respect of the 
claim, the Commissioner shall have the same authority granted by 
paragraphs (1), (2), and (3) of section 7602, relating to examination of 
books and witnesses, as if the person claiming credits or payment under 
section 6421 were the person liable for tax.

[T.D. 8043, 50 FR 32042, Aug. 8, 1985]

[[Page 229]]



Sec. 48.6421-7  Records to be kept in substantiation of credits or payments.

    (a) In general. Every person making a claim for credit or payment 
under section 6421 must keep records sufficient to enable the district 
director to determine whether the person is entitled to credit or 
payment under section 6421 and, if so, the amount of the credit or 
payment. No particular form is prescribed for keeping the records, but 
the records must include a copy of any statement or document submitted 
with the return or claim. The records must also show with respect to the 
period covered by the claim--
    (1) The number of gallons of gasoline purchased and the dates of 
purchase,
    (2) The name and address of each vendor from whom gasoline was 
purchased and the total number of gallons purchased from each,
    (3) The number of gallons of gasoline purchased by the claimant and 
used during the period covered by the claim for nonhighway purposes or 
in intercity, local or school buses,
    (4) Other information as necessary to establish the correctness of 
the claim.
    (b) Acceptable records. (1) Evidence of purchases of gasoline, and 
the purposes for which it was used, to substantiate claims may include 
paid duplicate sales invoices or tickets from the gasoline dealer or 
other vendor, and detailed records of all fuel used which show the 
amount used for the prescribed purpose and the amount used for other 
purposes.
    (2) Records maintained for Federal or State income tax purposes, or 
to support claims for refund of a State tax on gasoline, may be used to 
the extent that they contain the information necessary to substantiate 
the accuracy of the claim for credit under section 6421. However, the 
records must show separately the number of gallons of gasoline used for 
nonhighway purposes or in intercity, local, or school buses during the 
period covered by the claim.
    (c) Place and period for keeping records. (1) All records required 
by this section must be kept by the claimant at a convenient and safe 
location within the United States which is accessible to internal 
revenue officers and shall during normal business hours be available for 
inspection by internal revenue officers. If the claimant has a principal 
place of business in the United States, the records must be kept at that 
place of business.
    (2) Records required to substantiate a claim under section 6421 must 
be maintained for a period of at least 3 years from the last date 
prescribed for the filing of the claim for credit or payment.

[T.D. 8043, 50 FR 32043, Aug. 8, 1985]



Sec. 48.6427-0  Off-highway business use.

    For purposes of the regulations under section 6427, after March 31, 
1983, the term ``off-highway business use'' is used in lieu of the term 
``qualified business use'' and has the same meaning as ``qualified 
business use'' under Sec. 48.6421-1(b).

[T.D. 8043, 50 FR 32046, Aug. 8, 1985]



Sec. 48.6427-1  Credit or payments to purchaser of special fuels resold

or used for nontaxable, farming, or other purposes.

    (a) Amount of repayment--(1) Nontaxable or other uses. (i) If tax 
has been paid under section 4041(a)(1) on the sale of diesel fuel for 
use as a fuel in a diesel-powered highway vehicle or under section 
4041(a)(2) on the sale of special motor fuel for use as a fuel in a 
motor vehicle or a motorboat and the fuel is used by the purchaser for a 
nontaxable purpose or for a purpose taxable at a lower rate than the 
purposes for which sold, a credit (under the circumstances described in 
paragraph (b) of this section) or a payment (under the circumstances 
described in paragraph (c) of this section) in respect of the fuel shall 
be allowed or made to the purchaser of the fuel in an amount equal to--
    (A) The amount of the tax imposed on the sale of the fuel to the 
purchaser if the purchaser resells the fuel, or
    (B) If the purchaser uses the fuel, the amount of tax imposed on the 
sale of the fuel to the purchaser, less the amount of tax, if any, that 
would have been imposed on the purchaser's use of the fuel if no tax had 
been imposed on the sale of the fuel to the purchaser.
    (ii) For purposes of paragraph (a)(1)(i) of this section, and for 
the regulations

[[Page 230]]

under section 6427 applying such paragraph, tax imposed on the sale of 
fuel will be treated as an overpayment by the purchaser if the person 
resells the fuel or uses it for a nontaxable purpose or for a purpose 
taxable at a lower rate than that for which sold to the purchaser. Thus, 
for example, special motor fuel which was sold tax paid to the purchaser 
for use otherwise than in a qualified business use in a motor vehicle 
will qualify for the payment under section 6427 if the purchaser uses it 
as a fuel in a qualified business use.
    (2) Used for farming purposes. (i) If tax has been paid under 
section 4041(a)(1) on the sale of diesel fuel for use as a fuel in a 
diesel-powered highway vehicle, or under section 4041(a)(2) on the sale 
of special motor fuel for use as a fuel in a motor vehicle or a motor 
boat and the fuel is used on a farm for farming purposes, a credit 
(under the circumstances described in paragraph (b) of this section) or 
a payment (under the circumstances described in paragraph (c) (1) or (2) 
of this section) in respect of the fuel shall be allowed or made to the 
purchaser of the fuel in an amount equal to the amount of tax that was 
imposed under section 4041 on the sale of the fuel. The provisions of 
section 6420(c) (1), (2), and (3) and Sec. 48.6420-4 shall apply under 
this paragraph (a)(2) in determining whether the fuel is used on a farm 
for farming purposes.
    (ii) The term ``purchaser,'' as used in paragraph (a)(2)(i) of this 
section, includes only a person who is an owner, tenant, or operator of 
a farm. A person who is owner, tenant, or operator of a farm is a 
purchaser of fuel only with respect to such fuel as is purchased by the 
person and used for farming purposes on a farm of which the person is 
the owner, tenant, or operator. Thus, the owner of a farm who purchases 
fuel which is used on the farm by its owner, tenant, or operator for 
farming purposes is generally the purchaser of the fuel. If, however, 
the cost of fuel supplied by an owner, tenant, or operator of a farm, is 
by agreement or other arrangement borne by a second person who is an 
owner, tenant, or operator of the farm, the second person who bore the 
cost of the fuel is considered to be the purchaser of the fuel.
    (iii) Except as provided in paragraph (a)(2)(iv) of this section, if 
fuel is used on a farm by any person other than the owner, tenant, or 
operator for the purposes described in section 6420(c)(3)(A) and Sec. 
48.6420-4(d) (relating to gasoline used in cultivating, raising, or 
harvesting), the owner, tenant, or operator (as the case may be) will be 
treated for the purposes of Sec. 48.6427-1(a)(2)(i) as the purchaser 
who used the fuel on the farm for farming purposes.
    (iv) Section 6427(c) provides that an aerial applicator or other 
applicator is entitled to be treated as the user and ultimate purchaser 
of fuel that the applicator uses on a farm for the purposes described in 
section 6420(c)(3)(A), but only if the owner, tenant, or operator of the 
farm who is otherwise entitled to be treated as the ultimate purchaser 
waives the right to credit or payment. The rules contained in section 
6420 and the regulations under the section regarding waivers by owners, 
tenants, and operators of farms of their rights to payments under 
section 6420 for gasoline used by aerial applicators on a farm for 
farming purposes apply to waivers under this section.
    (3) Definitions, uses, and other rules. (i) No interest shall be 
paid on any payment allowed under paragraph (c) of this section. 
However, interest may be paid on any overpayment (as defined by section 
6401) arising from a credit. See section 34(a), relating to credit for 
certain uses of gasoline and special fuels. See section 39(a) of the 
Internal Revenue Code of 1954 prior to its revision by the Highway 
Revenue Act of 1982, relating to credit for certain uses of lubricating 
oil. See section 6611, relating to interest on overpayments.
    (ii) See Sec. 48.6427-3 for the time within which a claim for 
credit or payment must be made under this section.
    (iii) See Sec. 48.6420-4 for the meaning of the terms ``used on a 
farm for farming purposes'' and ``farm.'' The term ``gasoline'' has the 
same meaning given to this term by section 4082(b) and the regulations 
thereunder. For the meaning of the terms ``diesel fuel,'' ``special 
motor fuel,'' ``motor vehicle,'' ``highway vehicle,'' and ``registered'' 
see section 4041 and the regulations thereunder. The term ``fuel'' means 
diesel fuel, special motor fuel, or gasoline, as

[[Page 231]]

the context requires. Where appropriate, the term ``use'' includes a 
resale. See Sec. 48.6421-4 for the meaning of ``calendar quarter'' and 
``taxable year''.
    (iv) For purposes of determining the allowable credit or payment in 
respect of fuel used for nontaxable purposes, on a farm for farming 
purposes, or for purposes taxable at a lower rate, fuel on hand shall be 
considered used in the order in which it was purchased. Thus, if the 
purchaser made purchases at different times and subject to different 
rates of tax, then in determining credit or payment for fuel used for a 
described purpose, it will be assumed that the fuel first purchased was 
the first fuel used, and the rate applicable to that purchase will apply 
in determining the credit of payment, until all of that fuel is 
accounted for.
    (v) Fuel lost or destroyed through spillage, fire, or other casualty 
is not considered to have been ``used'' within the meaning of this 
section, and, accordingly, no credit or payment of the tax paid on the 
sale of the fuel may be made under this section.
    (b) Allowance of income tax credit in lieu of payment. Except as 
provided in paragraph (c) of this section, repayment under this section 
of the tax paid under section 4041 on fuel used by a person subject to 
income tax may be obtained only by claiming a credit for the amount of 
this tax against the tax imposed by subtitle A of the Code. The amount 
of the credit shall be an amount equal to the payment which would be 
made under section 6427 with respect to fuel used during the taxable 
year for nontaxable purposes on a farm for farming purposes, or for 
purposes taxable at a lower rate, if section 6427(i) and paragraph (c) 
of this section did not apply. See section 34(a)(3).
    (c) Allowance of payment. Payments in respect of fuel upon which tax 
was paid under section 4041 that is used for nontaxable purposes, on a 
farm for farming purposes, or for purposes taxable at a lower rate, 
shall be made only to--
    (1) The United States or any agency or instrumentality thereof, a 
State, a political subdivision of a State, or an agency or 
instrumentality of one or more States or political subdivisions of a 
State, or the District of Columbia,
    (2) An organization which is exempt from tax under section 501(a) 
and is not required to make a return of the income tax imposed under 
subtitle A for its taxable year, or
    (3) In the case of fuel used for nontaxable purposes to which 
section 6427(a) applies, to a person described in section 6427(g)(2) to 
whom $1,000 or more is payable (without regard to paragraph (b) of this 
section) under this section with respect to fuel used during any of the 
first three quarters of his taxable year.
    (d) Dual use of fuel. The principles set forth in Sec. 48.4041-7, 
relating to dual use of fuel, for determining whether liability is 
incurred under section 4041 at the time of sale of the fuel, are equally 
applicable in determining whether a credit or payment is to be allowed 
under this section. Thus, if diesel fuel or special motor fuel used in a 
separate motor is drawn from the same tank as the one which supplies 
fuel for the propulsion of the vehicle, a reasonable determination of 
the quantity of the fuel used in the separate motor will be acceptable 
for purposes of computing the payment or credit under this section. The 
determination must be based, however, on the operating experience of the 
person using the fuel, and a statement, signed by the person, evidencing 
the operating experience must be maintained as a part of the records of 
the person claiming the payment or credit.
    (e) Supporting evidence required. Each claim under this section for 
credit or payment must include a statement showing--
    (1) The total number of gallons of fuel purchased and used for 
nontaxable or farming purposes during the period covered by the claim, 
multiplied by the rate of payment allowable under this section with 
respect to such fuel;
    (2) The purpose or purposes for which the fuel was used, determined 
by reference to general categories, and the amount used for each of the 
purposes; and
    (3) If a claim on Form 843 is being filed, the internal revenue 
district or service center with which the claimant last filed an income 
tax return, (if any).

[[Page 232]]

    (f) Illustrations. The application of this section may be 
illustrated by the following example:

    Example. Special motor fuel was sold for use as fuel in a highway 
vehicle that was registered for highway use. Tax was imposed on the sale 
at the rate of 9 cents a gallon under section 4041(a)(2). The special 
motor fuel was eventually used by the purchaser in a qualified business 
use. The credit or payment of tax is to be computed as follows:

------------------------------------------------------------------------
                                                    Cents per gallon
------------------------------------------------------------------------
Rate at which tax was paid...................  9
Less: Rate at which tax would have been        0
 imposed on a qualified business use under
 sec. 4041(b).
                                              --------------------------
Net credit or payment under sec. 6427(a).....  9
------------------------------------------------------------------------


[T.D. 8043, 50 FR 32046, Aug. 8, 1985, as amended by T.D. 8152, 52 FR 
31621, Aug. 21, 1987]



Sec. 48.6427-2  Credits or payments to purchaser of diesel or special

motor fuels used in intercity, local, or school buses.

    (a) In general. (1) If tax has been paid under section 4041(a)(1) on 
the sale of diesel fuel for use as a fuel in a diesel-powered highway 
vehicle or under section 4041(a)(2) on the sale of special motor fuel 
for use as a fuel in a motor vehicle or a motorboat and the fuel is used 
by the purchaser in an intercity or local bus while engaged in 
furnishing (for compensation) passenger land transportation available to 
the general public or in a school bus in the transportation of students 
and employees of schools, a credit (under the circumstances described in 
paragraph (b) of this section) or a payment (under the circumstances 
described in paragraph (c) of this section) in respect of the fuel so 
used shall be allowed or made to the purchaser of the fuel. The credit 
or payment under this section shall be an amount equal to the product of 
the number of gallons of fuel so used multiplied by the rate at which 
tax was imposed on the fuel by section 4041(a)(1) or section 4041(a)(2), 
reduced as limited by section 6427(b)(2). No interest shall be paid on 
any payment allowed under paragraph (c) of this section. However, 
interest may be paid on any overpayment (as defined by section 6401) 
arising from a credit. See section 34(a), relating to credit for certain 
uses of gasoline and special fuels, (and lubricating oil prior to 
January 7, 1983). See section 6611, relating to interest on 
overpayments. See Sec. 48.6427-3 for the time within which a claim for 
credit or payment must be made under this section.
    (2) The terms ``diesel fuel'' and ``special motor fuel'' have the 
same meaning as in section 4041 and the regulations thereunder. The term 
``fuel'' means diesel fuel and special motor fuel. See Sec. 48.6421-4 
for the meaning of ``calendar quarter'' and ``taxable year.''
    (b) Allowance of income tax credit. Except as provided in paragraph 
(c) of this section, repayment under this section of the tax paid under 
section 4041(a)(1) or section 4041(a)(2) on diesel or special motor fuel 
used while engaged in furnishing (for compensation) passenger land 
transportation available to the general public or in school bus 
transportation operations by a person subject to income tax may be 
obtained only by claiming a credit for the amount of this tax against 
the tax imposed by subtitle A of the Code. The amount of the credit 
shall be an amount equal to the payment which would be made under 
section 6427 with respect to fuel used during the taxable year for 
passenger land transportation or school bus operations if section 
6427(i) and paragraph (c) of this section did not apply. See section 
34(a)(3).
    (c) Allowance of payment. Payments in respect of diesel or special 
motor fuel upon which tax was paid under section 4041(a)(1) or section 
4041(a)(2) that is used while engaged in furnishing (for compensation) 
passenger land transportation available to the general public or in 
school bus transportation operations shall be made only to--
    (1) The United States or any agency or instrumentality thereof, a 
State, a political subdivision of a State, or an agency or 
instrumentality of one or more States or political subdivisions of a 
State, or the District of Columbia,
    (2) An organization which is exempt from tax under section 501(a) 
and is not required to make a return of the income tax imposed under 
subtitle A for its taxable year, or
    (3) A person described in section 6427(g)(2) to whom $1,000 or more 
is payable (without regard to paragraph

[[Page 233]]

(b) of this section) under this section with respect to fuel used during 
any of the first three quarters of the person's taxable year.
    (d) Supporting evidence required. Each claim under this section for 
credit or payment must include a statement showing--
    (1) The total number of gallons of fuel purchased and used in each 
intercity or local bus while engaged in furnishing (for compensation) 
passenger land transportation available to the general public multiplied 
by the rate at which tax was imposed on the fuel by section 4041(a)(1) 
or section 4041(a)(2). See, however, section 6427(b)(2) with respect to 
the limitation on the amount of credit for buses other than qualified 
local buses.
    (2) The total number of gallons of fuel purchased and used in each 
bus while engaged in school bus transportation operations multiplied by 
the rate at which tax was imposed on the fuel by subsection (a)(1) or 
(a)(2) of section 4041. See, however, section 6427(b)(2) with respect to 
the limitation on the amount of credit for buses other than qualified 
local buses.
    (3) If a claim on Form 843 is being filed, the internal revenue 
district or service center with which the purchaser last filed an income 
tax return (if any).

[T.D. 8043, 50 FR 32047, Aug. 8, 1985]



Sec. 48.6427-3  Time for filing claim for credit or payment.

    (a) In general. A claim for credit or payment described in Sec. 
48.6427-1 with respect to fuel used for nontaxable, farming, or other 
purposes taxable at a lower rate or in Sec. 48.6427-2 with respect to 
fuel used either in an intercity or local bus while engaged in 
furnishing (for compensation) passenger land transportation available to 
the general public or in school bus transportation operations shall 
cover only fuel used during the taxable year, or when paragraph (b)(2) 
of this section applies, used during the calendar quarter. Therefore, 
fuel on hand at the end of a taxable year, or, if applicable, a calendar 
quarter, such as fuel in supply tanks of vehicles or in storage tanks or 
drums, must be excluded from a claim filed for the taxable year or 
calendar quarter, as the case may be. However, this fuel may be included 
in a claim filed for a later taxable year or a later calendar quarter if 
it is used during that later year or quarter for nontaxable or farming 
purposes, or in an intercity or local bus while engaged in furnishing 
(for compensation) passenger land transportation available to the 
general public or in school bus transportation operations. Fuel used 
during the taxable year or calendar quarter may be covered by the claim 
for that period although the fuel has not been paid for at the time the 
claim is filed. The purposes of applying this section, a governmental 
unit or exempt organization described in Sec. 48.6427-1(c) or Sec. 
48.6427-2(c) is considered to have as its taxable year the calendar year 
or fiscal year on the basis of which it regularly keeps its books; see 
Sec. 48.6421-4.
    (b) Time for filing--(1) Annual claims. (i) A claim under this 
section for credit or payment with respect to fuel used during a taxable 
year shall not be allowed unless it is filed no later than the time 
prescribed by section 6511 and the regulations thereunder for filing a 
claim for credit or refund of income tax for the particular taxable 
year.
    (ii) A claim for payment of a governmental unit or exempt 
organization described in Sec. 48.6427-1(c) or unit or exempt 
organization described in Sec. 48.6427-2(c), must be filed no later 
than 3 years following the close of its taxable year. See Sec. 48.6421-
4.
    (2) Quarterly claims. A claim for payment of $1,000 or more in 
respect to fuel used during any of the first three quarters of the 
taxable year, filed either under Sec. 48.6427-1(c)(3) in respect of 
fuel used for nontaxable purposes or for purposes taxable at a lower 
rate, or under Sec. 48.6427-2(c)(3) in respect of fuel used while 
engaged in furnishing (for compensation) passenger land transportation 
available to the general public or in school bus transportation 
operations, shall not be allowed unless the claim is filed on or before 
the last day of the first calendar quarter following the calendar 
quarter for which the claim is filed. No quarterly claim may be filed 
for the last calendar quarter of the taxable year. Amounts for which 
payment is disallowed under this paragraph (b)(2) merely because the

[[Page 234]]

claim was not filed on time may be included in an annual claim filed 
under paragraph (b)(1) of this section, but other amounts for which a 
claim for payment has been filed under this paragraph (b)(2) may not be 
included in an annual claim filed under paragraph (b)(1) of this 
section.
    (3) Other applicable rules. See Sec. 301.7502-1 of this chapter 
(Regulations on Procedure and Administration) for provisions treating 
timely mailing as timely filing and Sec. 301.7503-1 of this chapter for 
time for performance of an act where the last day falls on Saturday, 
Sunday, or a legal holiday.
    (c) Limit on claims per taxable year. Not more than one claim may be 
filed under Sec. 48.6427-1 or Sec. 48.6427-2 by any person with 
respect to fuel used during any taxable year, except to the extent that 
quarterly claims may be filed under paragraph (b)(2) of this section 
with respect to any calendar quarter (other than the last calendar 
quarter) of the taxable year.
    (d) Form and content of claim--(1) Claim for credit. The claim for 
credit to which this section applies must be made by attaching a Form 
4136, to the income tax return of an individual or a corporation. Form 
4136 must be executed in accordance with the instructions prescribed for 
the preparation of the form. A partnership may not file Form 4136. When 
a partnership files Form 1065, U.S. Partnership Return of Income, it 
must include a statement showing how many gallons of fuel are allocated 
to each partner and the use made of the fuel.
    (2) Claim for payment. The claim for payment to which this section 
applies must be made on Form 8849 (or on such other form as the 
Commissioner may designate) in accordance with the instructions 
prescribed for the preparation of the form. Each form must designate the 
taxable year, or calendar quarter, for which it is filed.
    (3) Death or termination. (i) If an individual dies, or if a sole 
proprietorship, partnership, or corporation is terminated or liquidated, 
during the taxable year, the claim for credit or payment may be filed in 
respect of fuel used during the short taxable year in the same manner as 
is provided for fuel used in a full taxable year. Those months which 
constitute a quarter of a full taxable year will constitute the same 
quarter of the short taxable year. For example, if a corporation using 
the calendar year is liquidated on September 30, 1982, and is entitled 
to $900 under Sec. 48.6427-1 in respect of fuel used for nontaxable 
purposes for the calendar quarter ending March 31 and is also entitled 
to payments of $1,500 for each of the calendar quarters ending June 30 
and September 30, it may file a claim for payment in respect of the fuel 
used for nontaxable purposes during the calendar quarters ending June 
30, and September 30, 1982, and take a credit of $900 on its income tax 
return for the short taxable year in respect of the fuel used during the 
calendar quarter ending March 31, 1982.
    (ii) A claim for payment on behalf of a decedent may be filed by the 
decedent's executor, administrator, or any other person charged with 
responsibility for the decedent's affairs. Such a claim must be 
accompanied by copies of the letters testamentary, letters of 
administration, or, in the case of a claim filed by other than the 
executor or administrator, the information called for in Form 1310 
(Statement of Person Claiming Refund Due a Deceased Taxpayer).
    The claim may cover only fuel in respect of which the decedent would 
have been entitled to claim payments. For example, if an individual dies 
on July 15, 1982, prior to claiming payment under Sec. 48.6427-1 of 
$1,000 or more applicable to fuel purchased and used for nontaxable 
purposes during the calendar quarter ending June 30, 1982, the 
decedent's executor or other legal representative may file a claim for 
payment covering that calendar quarter, and take the credit provided by 
section 39(a)(3) against the decedent's income tax on the income tax 
return for the short taxable year in respect of fuel purchased by the 
decedent and so used during the period from July 1, 1982, to July 15, 
1982, the date of death.
    (e) Restrictions on claims for credit or payment. Credits or 
payments are allowable only in respect of fuel that was sold by the 
producer or importer in a transaction that was subject to tax under 
section 4041. For example, a State or local government may not file

[[Page 235]]

a claim with respect to any fuel which it purchased tax free from the 
producer, even though the State or local government used the fuel for 
the purposes described in paragraph (a) of this section. Similarly, a 
State or local government may not file a claim with respect to the use 
of fuel if it is known that another person is entitled to claim a 
payment, credit, or refund with respect to the same fuel. For example, a 
State or local government may not file a claim in respect of tax-paid 
fuel that has been resold by the purchaser to the State or local 
government.

[T.D. 8043, 50 FR 32048, Aug. 8, 1985, as amended by T.D. 8659, 61 FR 
10464, Mar. 14, 1996; T.D. 8748, 63 FR 26, Jan. 2, 1998]



Sec. 48.6427-4  Applicable laws.

    (a) Penalties, excessive claims, etc. All provisions of law, 
including penalties, applicable in respect of the tax imposed by section 
4041 shall, to the extent applicable and consistent with section 6427, 
apply in respect of the payments provided for in section 6427 to the 
same extent as if these payments constituted refunds of overpayments of 
the tax imposed on the sale of fuels by section 4041. For special rules 
applicable to the assessment and collection of amounts constituting 
excessive payments under section 6427, see section 6206 and the 
regulations thereunder. For the civil penalty assessable in the case of 
excessive claims under section 6427, see section 6675 and the 
regulations thereunder. For the treatment as an overpayment of an amount 
allowable as an excessive credit under section 34 with respect to 
amounts payable under section 6427, see section 6401(b).
    (b) Examination of books and witnesses. For the purpose of 
ascertaining (1) the correctness of any claim made under section 6427 or 
(2) the correctness of any credit or payment made in respect of the 
claim, the Commissioner shall have the same authority granted by 
paragraphs (1), (2), and (3) of section 7602, relating to examination of 
books and witnesses, as if the person clai