Rev. Rul. 58-552

Advice has been requested whether a charge made by a retail store for gift wrapping an article is to be included in the selling price of the article for purposes of computing the retailers excise tax.

Some retail department stores provide gift wrapping and/or gift boxes to their customers without charge. However, due to the rising costs of labor and material, other stores make charges for such services. Some of these stores have gift boxes available in every department. In this case, the customer can, if he wishes, pay an additional amount for having the article gift wrapped at the time of purchase. In other stores, the customer purchases an article at the regular price in on department and then takes the merchandise to a special desk where he pays a charge for having the article gift wrapped. In both of the above illustrations, the customer can purchase an article at the regular price without having the article gift wrapped.

Sections 4001, 4011, 4021, and 4031 of the Internal Revenue Code of 1954 impose upon certain articles sold at retail a tax based upon the price for which sold. Section 4051 of the Code provides that, in determining the price for which an article is sold, there shall be included any charge for coverings and containers of whatever nature, and any charge incident to placing the article in condition packed ready for shipment.

Section 320.5 of Regulations 51, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that, in general, the sale price, which is the basis of the tax, should be the retailer's actual price at the point of distribution or sale. In determining the sale price, for tax purposes, there shall be included any charge incident to placing the article in condition packed ready for shipment. Section 320.6 of the regulations provides that any charges for coverings, containers, etc., incident to placing an article in condition packed ready for shipment shall be included as a part of the sale price for the purpose of computing the tax. Therefore, the amount paid for the article and its covering or container is the basis for computing the tax even though a separate charge for such covering or container is billed on the invoice.

The determination of the tax base where an article is gift wrapped by a retailer depends upon the nature of the transaction. If the retailer sells a gift wrapped article for a stated price, the tax applies to that price. On the other hand, if the article is sold for a stated price without gift wrapping but in condition packed ready for delivery to the customer and at the customer's request the retailer performs a gift wrapping service, the gift wrapping service charge is not included in the tax base, provided such charge is shown separately on the invoice, price tag, or records of the retailer. If the invoice, price tag, or records of the retailer do not show as separate amounts the selling price of the article and the charge for the gift wrapping service, it is presumed that the total amount shown constitutes the retailer's actual price which is subject to tax.

It is held that, since, in both of the illustrations in the instant case, the customers may purchase the articles for a stated price without gift wrapping, any additional charge for gift wrapping an article may be excluded from the tax, provided such amount is shown separately on the invoice, price tag, or records of the retailer.