[Code of Federal Regulations]
[Title 26, Volume 16]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR48.4216(b)-2]

[Page 149-150]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 48_MANUFACTURERS AND RETAILERS EXCISE TAXES--Table of Contents
 
     Subpart M_Special Provisions Applicable to Manufacturers Taxes
 
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 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

[[Page 150]]

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]