LEASES OF CERTAIN ARTICLES SUBJECT TO MANUFACTURERS EXCISE TAXES.

SEC. 117. LEASES OF CERTAIN ARTICLES SUBJECT TO MANUFACTURERS EXCISE TAXES. (a) In General.— Section 4217 (lease considered as sale) is amended to read as follows: “SEC. 4217. LEASES. “(a) Lease Considered as Sale.—For purposes of this chapter, the lease of an article (including any renewal or any extension of a lease or any subsequent lease of such article) by the manufacturer, producer, or importer shall be considered a sale of such article. “(b) Limitation on Tax.—In the case of any lease described in subsection (a) of an article taxable under this chapter, if the tax under this chapter is based on the price for which such articles are sold, there shall be paid on each lease payment with respect to such article a percentage of such payment equal to the rate of tax in effect on the date of such payment, until the total of the tax payments under such lease, and any prior lease to which this subsection applies equals the total tax. “(c) Definition of Total Tax.—For purposes of this section, the term ‘total tax’ means— “(1) except as provided in paragraph (2), the tax computed on the constructive sale price for such article which would be determined under section 4216 (b) if such article were sold at retail on the date of the first lease to which subsection (b) applies; or “(2) if the first lease to which subsection (b) applies is not the first lease of the article, the tax computed on the fair market value of such article on the date of the first lease to which subsection (b) applies. Any such computation of tax shall be made at the applicable rate specified in this chapter in effect on the date of the first lease to which subsection (b) applies. “(d) Special Rules.— “(1) Lessor must also be engaged in selling.—Subsection (b) shall not apply to any lease of an article unless at the time of making the lease, or any prior lease of such article to which subsection (b) applies, the person making the lease or prior lease was 72 Stat. 1281 also engaged in the business of selling in arm’s length transactions the same type and model of article. “(2) Sale before total tax becomes payable.— If the taxpayer sells an article before the total tax has become payable, then the tax payable on such sale shall be whichever of the following is the smaller: “(A) the difference between (i) the tax imposed on lease payments under leases of such article to which subsection (b) applies, and (ii) the total tax, or “(B) 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 (B), if the sale is at arm’s length, section 4216 (b) shall not apply. “(3) Sale after total tax has become payable.—If the taxpayer sells an article after the total tax has become payable, no tax shall be imposed under this chapter on such sale. “(4) Transitional rules.— For purposes of this subsection and subsections (b) and (c), in the case of any lease entered into before the effective date of subsection (b) and existing on such date— “(A) such lease shall be considered as having been entered into on such date: “(B) the total tax shall be computed on the fair market value of the article on such date; and “(C) the lease payments under such lease shall include only payments attributable to periods on and after such date.” (b) Repeal of Section 4216 (d); Correction of Cross Reference.—Section 4216 (definition of price) is amended by striking out subsection (d) thereof. Section 4216 (c) (partial payments) is amended by striking out “subsection (d)” and inserting in lieu thereof “section 4217 (b)”. (c) Application of Section.—The amendments made by subsections (a) and (b) shall not apply to any lease of an article if section 4216 (d) of the Internal Revenue Code of 1954 applied to any lease of such article before the effective date specified in section 1 (c) of this Act. (d) Technical Amendment.—The table of sections for subchapter F of chapter 32 is amended by striking out “Lease considered sale.” and inserting in lieu thereof “Leases.”.