Differing Views on Repayments by Manufacturers to Dealers for Expenses Required by the Manufacturers as Price Readjustments Under I.R.C. Section 6416(b)(1)–General Motors Corp. v. United States; Waterman-Bic Pen Corp. v. United States
The Internal Revenue Code of 1954 exacts a manufacturer’s excise tax based on sales price; if the sales price is readjusted by means of a “bona fide discount, rebate or allowance,” the manufacturer is entitled to a tax credit under section 6416(b) (1). In two recent cases, General Motors Corp. v. United States, and Waterman-Bic Pen Corp. v. United States, manufacturers have sought tax credits, claiming that their reimbursements to dealers for expenses which the manufacturers had required the dealers to incur subsequent to the time of sale constituted price readjustments. The Court of Claims in General Motors allowed the tax credit, reasoning that such reimbursements -iv-ere proper price readjustments because a part of the sales price was repaid to the dealer. However, the Court of Appeals for the Second Circuit denied the credit in Waterman-Bic, holding that the reimbursements could not be considered readjustments because the manufacturer could not have excluded the reimbursed expenses from the sales price at the time of the sale.