WHOLESALER OPPOSES UNIFORM CAPITALIZATION REGULATIONS.

Singel points out that the "primary function of the facility" test in the Conference Report accompanying the 1986 Act is different than the one in the regulations. He states that the primary function test accomplishes the goal of eliminating the potential abuse where a manufacturer or wholesaler arranges for some sales to take place at a warehouse to avoid the requirement to capitalize storage cost. He states, however, that even if the regulations do not apply the primary function test in determining off-site storage and warehouse costs, the regulations should not make a distinction based on the type of sale, if the sales are identical, to determine whether storage costs should be capitalized.

Singel states that there is no policy basis for distinguishing between wholesale and retail sales to determine whether storage costs should be capitalized when the circumstances of the sale are identical. Singel explains that there is generally no basis by which to determine whether a particular sale is a retail sale or is made to a person acquiring merchandise for resale to others. Singel further explains that since many states do not impose sales taxes, a customer who presents a resale card that exempts him or her from state sales tax is not necessarily purchasing the goods for resale.

Singel believes that if prices and credit terms are the same, there is no minimum purchase requirement, orders may not be placed in advance, no delivery is provided, and no other differences in treatment of retail and wholesale customers is present, then taxpayers should not have to capitalize storage costs at the sales facility that may be allocated to wholesale sales. Singel includes in his letter a proposed amendment to regulation 1.263A-1(d)(3) which reflects his position.