Rev. Rul. 69-73

Advice has been requested concerning the method of computing the tax in the situations described below involving sales by the manufacturer of articles subject to the manufacturers excise taxes where the tax is based upon selling price.

Situation 1. A manufacturer sells a quantity of a taxable article A for $15 and "gives" the purchaser as a "bonus" or "free goods" a quantity of a taxable article B (which has a normal selling price of $5). Articles A and B are taxable at different rates.

Situation 2. A manufacturer sells taxable articles and "gives" the purchaser certain nontaxable articles as a "bonus" or "free goods." The sale price of the shipment is $15. The normal selling price is $20, of which $15 is attributable to the taxable articles and $5 to the nontaxable articles.

Situation 3. A manufacturer sells nontaxable articles and "gives" the purchaser certain taxable articles as a "bonus" or "free goods." The sale price of the shipment is $15. The normal selling price is $20, of which $5 is attributable to the taxable articles and $15 to the nontaxable articles.

The manufacturers excise taxes are imposed under chapter 32 of the Internal Revenue Code of 1954 upon various articles when sold by the manufacturer, producer, or importer.

In situation 1, the sale of both classes of articles for $15 represents a reduction of $5, or one-fourth, in the customary selling price covering both articles. Therefore, the actual sales price of the shipment is three-fourths of the normal selling price. This fraction should be applied equally to each article to determine the actual selling price. This computation results in sale prices attributable to article A of $11.25 and to article B of $3.75. The tax should then be based on these respective prices so determined and at the respective rates provided by law.

In situation 2, the sale price of the entire shipment must be allocated between the taxable and nontaxable articles. The tax is imposed only on the sale price attributable to the taxable articles. Thus, in the example given, the sale involves a reduction in price of one-fourth. Therefore, the tax should be based on three-fourths of $15, or $11.25, and should be computed at the rate provided by law. Likewise, in situation 3, the tax is imposed only on the sale price of the shipment attributable to the taxable articles. Again, the sale involves a reduction in sale price of one-fourth and results in the sale price of the taxable article at three-fourths of $5 or $3.75. The tax is based upon this price at the rate provided by law.