Rev. Rul. 57-221

Advice has been requested whether credit or refund of manufacturers excise tax is allowable with respect to electric light bulbs sold by the manufacturer thereof to a person who incorporates them into nontaxable subassemblies which, in turn, are sold to a manufacturer of taxable electric freezers for installation thereon.

Under the provisions of section 4220(1) of the Internal Revenue Code of 1954, electric light bulbs may be sold tax free (A) for use by the vendee as components in the manufacture of any article taxable under Chapter 32, or (B) for resale by the vendee for such use by his vendee if the bulbs are in due course so resold. Section 6416(b)(3)(A) of the Code authorizes a credit or refund of tax paid on electric light bulbs purchased and used by a manufacturer as components in the manufacture of an article with respect to which tax under Chapter 32 has been paid, or which has been sold tax free under section 4220 or 4224.

Where the manufacturer of nontaxable subassemblies includes with such subassemblies the number of bulbs required as component parts, the bulbs are considered to have been used by him in producing his particular end product. Electric light bulbs may not be sold by the manufacturer thereof tax free under section 4220(1) of the Code to a vendee for such purpose, because the end product manufactured by the vendee is not a taxable article. Consequently, the tax is properly payable with respect to the sales of the bulbs so included in these nontaxable subassemblies.

It is held that a manufacturer of a taxable freezer who purchases these nontaxable subassemblies, including bulbs, is not entitled to a credit or refund under section 6416(b)(3)(A) of the Code for the tax paid by the bulb manufacturer. This is so because the bulbs are not purchased as such by the freezer manufacturer, since they lost their separate identity when used by the subassembly manufacturer in producing the subassemblies.