Rev. Rul. 59-16

Advice has been requested concerning the applicability of the manufacturers facturers excise tax on musical instruments to a recorder music kit, which is considered by the manufacturer to be a toy because of its low price. The kit consists of a recorder (a wood-wind instrument), a swab, a case, and a song book, all contained in a common carton.

Section 4151 of the Internal Revenue Code of 1954 provides that a tax shall be imposed upon the sale of musical instruments by the manufacturer, producer, or importer.

Section 316.63 of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, states that the term `musical instruments' includes, among other things, `all string, wind, reed, or percussion instruments used in producing music, or in reproducing it, except radios and phonographs.'

Revenue Ruling 57-111, C.B. 1957-1, 376, holds in part that the term `musical instruments' as used in the statute includes all component elements of musical instruments essential to their operation.

In determining whether a particular article is a musical instrument, the Internal Revenue Service takes into consideration the primary purpose for which the article is designed and the quality of the construction of the article, that is, whether it is a type of instrument used in the rendition of musical compositions, whether in solo presentation or in connection with other musical instruments, or for the teaching of music.

Upon examination of the recorder in this case in relation to these factors, it has been determined to be a taxable musical instrument. The price for which such an article is sold is not of itself determinative of whether the article is a musical instrument or a toy.

The swab, case, and song book sold with the recorder do not constitute component elements essential to the operation of the recorder and, therefore, are not subject to tax whether sold separately or with the recorder. See Revenue Ruling 57-147, C.B. 1957-1, 377, relating to a carrying case for a musical instrument.

Where a carton contains taxable and nontaxable articles, any charge attributable to the carton is allocable to both the taxable and nontaxable contents. In such a combination sale, where the taxable and the nontaxable articles are sold separately in substantial quantities at established prices, the tax base should be determined by applying to the manufacturer's sale price of the combination (including the carton) the ratio which the manufacturer's separate sale price of the taxable article bears to the sum of the sale prices of the taxable and nontaxable articles. However, where the articles were not sold separately by the manufacturer and do not have established sales prices, the tax base may be determined by applying to the manufacturer's sale price of the combination (including the carton) the ratio that the manufacturer's cost of the taxable article bears to the sum of his costs of the taxable and nontaxable contents of the carton. Accordingly, if the manufacturer's cost of the taxable recorder is four-fifths of his total cost of the complete combination excluding the carton, the tax attaches to four-fifths of the price charged by the manufacturer for the entire kit including the carton.