[Code of Federal Regulations]
[Title 27, Volume 2]
[Revised as of April 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 27CFR53.115]

[Page 188-189]
 
            TITLE 27--ALCOHOL, TOBACCO PRODUCTS AND FIREARMS
 
 CHAPTER I--ALCOHOL AND TOBACCO TAX AND TRADE BUREAU, DEPARTMENT OF THE 
                                TREASURY
 
PART 53_MANUFACTURERS EXCISE TAXES_FIREARMS AND AMMUNITION--Table of Contents
 
     Subpart J_Special Provisions Applicable to Manufacturers Taxes
 
Sec.  53.115  Computation of tax.

    (a) Tax based on price. 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) of the Code for use by him 
in further manufacture, see section 4223(b) of the Code and the 
regulations thereunder (Sec.  53.143).
    (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) 
and 6416(b)(1) of the Code, 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 L (Sec. Sec.  53.91-53.94 and 
53.173-53.176). 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 appropriate

[[Page 189]]

TTB officer. This price will be established after considering the 
selling practices and price structures of manfacturers, 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) of the Code 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 paragraphs (c) (1) and (2) of this 
section.

The ratio which the cost of the parts in paragraph (c)(1) of this 
section bears to the sum of the cost of such parts and the parts in 
paragraph (c)(2) of this section 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 paragraphs (c) (1) and 
(2) of this section 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 establishment wholesale price 
for the combination article, there shall be included and excluded, as 
applicable, the charges and readjustments specified in sections 4216(a) 
and 6416(b)(1) of the Code, 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 L of this part 
(Sec. Sec.  53.91-53.94 and Sec. Sec.  53.173-53.176). 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 return or repossession of the nontaxable article or its 
covering or container, or by a bona fide discount, rebate, allowance, or 
other factor.

[T.D. ATF-308, 56 FR 303, Jan. 3, 1991, as amended by T.D. ATF-312, 56 
FR 31084, July 9, 1991]

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