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a taxpayer at an “on-site storage facility” are excepted from
inclusion in inventory.
An on-site storage facility is defined in the regulations as
a storage facility that is physically attached to and that is an
integral part of a “retail sales facility”. Sec. 1.263A-
3(c)(5)(ii)(A), Income Tax Regs.
A “retail sales facility” is further defined as the location
at which merchandise is sold “exclusively to retail customers in
on-site sales”. Sec. 1.263A-3(c)(5)(ii)(B)(1), Income Tax Regs.
With an exception not here relevant, a retail customer is
defined as the final purchaser of merchandise and does not
include a person who resells the merchandise to others. Sec.
1.263A-3(c)(5)(ii)(E)(1), Income Tax Regs.
If a storage facility does not meet the above definition of
an on-site storage facility, it is considered an “off-site
storage facility,” and storage costs relating to property held
for resale are to be included in the taxpayer’s inventory. Sec.
1.263A-3(c)(5)(ii)(F), Income Tax Regs.
Under section 1.263A-1(e)(3)(iii)(A), Income Tax Regs.,
another exception is provided to the inventory requirement of
section 263A for “marketing, selling, advertising, and
distribution costs” relating to property held for resale.
ADI argues that the costs in question qualify as marketing,
selling, or distribution costs of property held for resale that
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Last modified: May 25, 2011