Rev. Rul. 59-17

Advice has been requested whether a manufacturer is entitled to a credit or refund of the manufacturers excise tax, imposed on sales of musical instruments, which was paid on the sale of a piano to a dealer who resold the piano for use on a United States Navy ship.

A dealer who sold a piano for use on a United States Navy ship has requested that the manufacturer of the piano refund to him an amount equal to the manufacturers excise tax paid on the sale of the piano by the manufacturer. The dealer has a purchase order for the piano and an exemption certificate signed by an officer of the ship. The manufacturer feels that credit or refund of the tax will not be allowable since sales of articles for the exclusive use of the United States are no longer exempt from the manufacturers excise tax.

Section 4151 of the Internal Revenue Code of 1954 imposes a tax upon the sale of musical instruments by the manufacturer, producer, or importer.

The general exemption from the manufacturers excise tax previously provided under section 3442 of the Internal Revenue Code of 1939 with respect to articles sold for the exclusive use of the United States was terminated by the Revenue Act of 1943, effective June 1, 1944, except in those cases where the articles are sold to the United States pursuant to a contract entered into prior to that date. See Treasury 1954 Code, prior to its redesignation by and Mimeograph 5681, C.B. 1944, 589.

However, section 4222 of the 1954 CodePrior to its redesignation by the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92, provided that, under regulations prescribed by the Secretary of the Treasury or his delegate, no manufacturers excise tax shall be imposed on articles sold for use as fuel supplies, ships' stores, sea stores, or legitimate equipment on vessels of war of the United States or of any foreign nation, vessels employed in the fisheries or in the whaling business, or actually engaged in foreign trade, or trade between the Atlantic and Pacific ports of the United States, or between the United States and any of its possessions.

Section 316.28(g) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that no sale may be made tax free to a dealer for resale for use as fuel supplies, ships' stores, sea stores, or legitimate equipment for the vessels enumerated, even though it is known at the time of the sale that the article will be resold. However, where any dealer resells a tax paid article for such use, the manufacturer who paid the tax to the United States on his sale of the article may file a claim for credit or refund under section 6416(b)(2)(B) of the Code by complying with the provisions of section 316.204 of the regulations.

It is held that a piano sold for use on a United States Navy ship, under an exemption certificate signed by a ship's officer, is in the nature of ships' stores, sea stores, or legitimate equipment for use on a vessel of the type named in section 4222 of the Code. Accordingly, where a dealer resells a piano for use on a United States Navy ship, the manufacturer of the piano, upon compliance with section 316.204 of Regulations 46, will be entitled to a credit or refund in the amount of the manufacturers excise tax paid on his sale of the piano.