SECTION 4161.-IMPOSITION OF TAX [SPORTING GOODS] Rev. Rul. 59-136 The manufacturers excise tax on sporting goods does not apply to sales of fishing rod "blanks" with ferrules attached, but the tax does apply to such blanks when sold with handles and reel seats affixed. Furthermore, the tax applies to the sale of a fishing rod kit which contains a rod blank and a handle and reel seat. The tax does not apply to sales of detachable handles which may be used on any type fishing rod. A distributor who purchases fishing rod blanks and sends them to a shop to have handles and reel seats attached is considered to be the manufacturer of fishing rods for purposes of the manufacturers excise tax. Advice has been requested concerning the applicability of the manufacturers excise tax on sporting goods, imposed by section 4161 of the Internal Revenue Code of 1954, in the situations described below. Situation (1). A manufacturer cuts fibre glass rods, either solid or tubular, into sections of desired lengths and attaches ferrules to the ends of some of the sections. The manufacturer then sells these fishing rod "blanks" to other companies which produce complete fishing rods. Situation (2). A manufacturer sells detachable handles which may be used on any type of fishing rod. Situation (3). A manufacturer sells fishing rod blanks with handles and reel seats affixed. Some of these blanks have guides attached while others do not. Situation (4). A manufacturer sells a fishing rod kit, consisting of a rod blank, a handle and reel seat, thread, guides, and varnish. Situation (5). A local distributor purchases fishing rod blanks with ferrules, such as are described in situation (1), and sends these blanks to a local shop to have handles and reel seats attached. The local shop returns the blanks to the local distributor and charges him only for the material and labor in attaching the handles and reel seats. The local distributor then sells them to his customers. Section 4161 of the Code imposes a tax upon the sale by the manufacturer, producer, or importer of certain sporting goods, including fishing rods, creels, reels, and artificial lures, baits and flies. Section 316.4 of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, states that the term "manufacturer" includes a person who produces a taxable article from scrap, salvage, or junk material, as well as from new or raw material, (1) by processing, manipulating, or changing the form of the article, or (2) by combining or assembling two or more articles. A rod constitutes a fishing rod within the meaning of section 4161 of the Code where it is designed by the manufacturer for fishing purposes and is suitable for such purposes. See Rev. Rul. 58-425, I.R.B. 1958-34, 19. It is held that since the fishing rod blanks, in situation (1), have not reached such a stage of manufacture that they are suitable for fishing purposes, they are not fishing rods within the meaning of section 4161 of the Code, regardless of whether the blanks are solid or tubular in design. Accordingly, sales by the manufacturer of such rod blanks, with or without ferrules attached, are not subject to the manufacturers excise tax on sporting goods imposed by section 4161 of the Code. In situation (2), the detachable handles are not subject to the manufacturers excise tax imposed by section 4161 of the Code. It is further held that a fishing rod blank with a handle and reel seat affixed constitutes a fishing rod within the meaning of section 4161 of the Code. Accordingly, in situation (3), sales by the manufacturer of fishing rod blanks with handles and reel seats affixed are subject to the manufacturers excise tax on sporting goods. Similarly, in situation (4), since the kit contains all the necessary parts for the assembly of a fishing rod, it is a fishing rod within the meaning of section 4161 of the Code. Accordingly, sales by the manufacturer of such kits are subject to the manufacturers excise tax imposed by that section of the Code. However, if the manufacturer sells a kit consisting only of the guides, silk thread, and varnish, such a sale is not subject to tax. In situation (5), it is held that the distributor is the manufacturer and is liable for the manufacturers excise tax imposed by section 4161 of the Code on his sales of such fishing rods. Rev. Rul. 59-137 The manufacturers excise tax on sporting goods, imposed by section 4161 of the Internal Revenue Code of 1954, does not apply to separate sales by the manufacturer, producer, or importer of stakes which are for use with badminton standards for keeping the net taut. However, where such stakes are sold on or in connection with, or with the sale of badminton standards, they are considered to be parts or accessories of the standards and are subject to the manufacturers excise tax on sporting goods. Advice has been requested whether the manufacturers excise tax on sporting goods is applicable to the sale of stakes which are for use with badminton standards. The stakes are made of wood or metal and are used in conjunction with badminton standards for the purpose of keeping the badminton net taut when it is set up. Section 4161 of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of certain enumerated articles of sporting goods, including in each case parts or accessories of such articles sold on or in connection therewith, or with the sale thereof. Included in the articles enumerated are "badminton nets, rackets and racket frames (measuring 22 inches overall or more in length), racket string, shuttlecocks, and standards". Stakes for badminton standards are not included in the articles enumerated in section 4161 of the Code; therefore, separate sales of such stakes are not subject to the manufacturers excise tax on sporting goods. However, where the stakes are sold on or in connection with, or with the sale of badminton standards, they are considered to be parts or accessories of such standards. Accordingly, sales of stakes by the manufacturer, producer, or importer on or in connection with, or with the sale of badminton standards are subject to the manufacturers excise tax on sporting goods. SECTION 4191.-IMPOSITION OF TAX [BUSINESS MACHINES] Rev. Rul. 59-138 A card punch device, which is operated manually and has no mechanical parts, is not a card punch machine or punch card machine subject to the manufacturers excise tax on business machines, which is imposed by section 4191 of the Internal Revenue Code of 1954. The Internal Revenue Service has been asked whether the manufacturers excise tax on business machines applies to the sale of a device which provides a manual means of punching holes in pre-scored data cards. A manufacturer produces and sells a device which is used for manually punching cards of the type used in business machines. The device consists of a pocket-size card holder and a separate stylus. The card holder has a transparent plastic top with guide holes to assist in punching the proper space. The cards, on which the punching positions previously have been scored, are inserted by hand into the holder and then manually punched with the stylus. When the cards have been punched and removed from the holder, they can be processed through data system machines. Section 4191 of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of certain types of business machines and specifically names card punch machines and punch card machines. Even though this device is used for punching data cards, it does not have the characteristics of an ordinary business machine. Its lack of mechanical parts and its complete manual operation indicate that it is not a machine for purposes of the manufacturers excise tax imposed by section 4191 of the Code. Accordingly, it is held that the device described above is not a card. punch machine or punch card machine as contemplated by section 4191 of the Code. Therefore, sales of this device are not subject to the manufacturers excise tax on business machines. SECTION 4216.-DEFINITION OF PRICE [SPECIAL PROVISIONS APPLICABLE TO MANUFACTURERS TAX] (Also Section 4141.) Rev. Rul. 59-139 For purposes of computing the manufacturers excise tax, import duties, customs handling fees, ocean freight, and other expenses incurred in connection with the purchase and importation of phonograph records are considered merely elements of the cost of such imported records. Therefore any separate charges made by an importer for such expenses with respect to the sale of the records must be included in the tax base. However, charges for expenses actually incurred by the importer for freight and insurance in connection with the shipment of the records from the point of importation in this country direct to the customer may be excluded in determining the price for which the records are sold by the importer. Advice has been requested whether the manufacturers excise tax on the sale of phonograph records by the importer thereof applies to charges for expenses incurred in connection with the purchase and importation of the records, when those charges are billed separately by the importer. A domestic company offers for sale imported phonograph records. When an order for such records is received from a customer, it is relayed by the company from this country to a foreign manufacturer with instructions to ship the records direct to the customer. The company bills the customer separately for the sale price of the records and for the expenses incurred in connection with the importation of the records such as import duties, customs handling fees, and ocean freight. Section 4141 of the Internal Revenue Code of 1954 imposes upon the sale of phonograph records by the manufacturer, producer, or importer thereof, a tax equivalent to a stated percentage of the price for which sold. For the purpose of determining the price for which an article is sold, section 4216 (a) of the Code provides that a transportation, delivery, insurance, installation, or other charge shall be excluded from the price only if the amount thereof is established to the satisfaction of the Secretary of the Treasury or his delegate. In any case involving two movements, either actual or constructive, of the taxable goods from the supplier to the taxpayer vendor, in the instant case the importer, and the other from the vendor to his vendee, no exclusion would be allowable for the charges for the first of these movements but an exclusion would be allowable for the charges for the second. It is held that import duties, customs handling fees, ocean freight, and other expenses incurred by a taxpayer in connection with the purchase and importation of phonograph records are considered merely elements of the cost of the imported records. Therefore, any separate charges made by the importer for such expenses with respect to the sale of the records must be included in the tax base. However, charges made by the importer for expenses actually incurred by the importer for freight and insurance in connection with the shipment of the records from the point of importation in this country direct to the customer may be excluded in determining the sale price for the purpose of computing the tax. PART VI ITEMS OF GENERAL INTEREST REVISION OF EMPLOYER'S QUARTERLY TAX RETURN, FORM 941, APPLICABLE TO CERTAIN INTERNAL REVENUE DISTRICTS Announcement 59-42 The Employer's Quarterly Tax Return, Form 941, now printed on paper stock, will also be printed on a punch card tax return, Form 941-T. This punch card return, together with a separate Schedule A (Form 941-T) for listing employee wage information, will be mailed by the Revenue Service to employers in fifteen of the sixty-four Internal Revenue Districts to be filed for the first quarter of 1959 and thereafter. The change is part of the Internal Revenue Service mechanization program which is designed to provide better and more efficient processing procedures. An explanation of the new forms and filing requirements follows: 1. The punch card Form 941-T is the tax return form which should be filed by the employers involved in reporting income tax withheld and taxes under the Federal Insurance Contributions Act. This card form will be sent to the employers preaddressed and prepunched, and it is the prepunching which will enable the Revenue Service to speed up subsequent processing. It is very important, therefore, that employers use this prepunched form rather than any other not so treated in filing their returns. The format of the new return form is substantially similar to the Form 941 which employers have been filing in the past and should cause no difficulty in its preparation. 2. A paper Form 941-T, the same size as the punch card form, is to be used for the employer's copy of the return and should be retained for record purposes. 3. The employers in the fifteen districts involved will be furnished with two copies of the Schedule A (Form 941-T), one appropriately preaddressed and identified as the copy to be filed and a duplicate thereof for their records. To facilitate its processing, and reshipment by the Revenue Service to the Social Security Administration, it is most important that the employers associate the proper copy of the Schedule A with their Form 941-T (punch card) and file both together. However, the punch card returns should not be stapled to the Schedule A or other documents (validated depositary receipts or remittance) which are submitted with it. The fifteen districts involved are: Boston, Massachusetts Chicago, Illinois Cincinnati, Ohio Columbus, Ohio Jacksonville, Florida Detroit, Michigan U. S. GOVERNMENT PRINTING OFFICE. 1959 |