Rev. Rul. 54-228

Advice is requested concerning the application of the tax on electric appliances imposed by section 3406(a)(3) of the Internal Revenue Code to electric air heaters of the type designed for permanent installation as distinguished from those of the portable type.

Section 3406(a)(3) of the Code, effective October 1, 1941, imposed a tax at the rate of 10 percent on the sale by the manufacturer, producer, or importer of electric air heaters (not including furnaces). By virtue of the amendment of that section of the Code by section 485 of the Revenue Act of 1951, effective November 1, 1951, the tax on such heaters was limited in application to those of the household type. Under the law as amended by section 305 of the Excise Tax Reduction Act of 1954, effective April 1, 1954, the rate of tax on household type electric air heaters was reduced from 10 to 5 percent.

S.T. 945, C.B. 1952-2, 256, holds that the tax imposed by section 3406(a)(3) of the Code is applicable to sales of electric air heaters which are not in fact furnaces, even though they take the place of furnaces and are permanently installed in the walls, ceilings, or floors of buildings.

In addition to electric air heaters, the statute imposes a tax on a wide variety of electric, gas, and oil appliances of the household type. In this range of taxable appliances the articles vary in size from large to small. Likewise, a number of articles are portable, while others because of their design and construction and the purpose intended to be served are usually built in or permanently attached to a wall, fixture, or similar construction element. In the administration of section 3406(a)(3) of the Code it is not possible to lay down a general rule or yardstick such as size, capacity, or portability which is susceptible of equal application to each of the articles taxed thereunder. In other words the scope of this section of the law is dependent upon the nature of the particular article involved, and considerations which would be determinative in the case of an electric air heater would not necessarily be appropriate in the case of other articles named in the law.

With respect to electric air heaters, the distinction between those which are portable and those which are built in or permanently installed is considered to be a significant factor in determining whether they are appliances of the household type within the contemplation of section 3406(a)(3) of the Code. It is held that electric air heaters which, because of their design and construction and the purpose to be served, are usually built in or permanently attached to a wall, fixture or similar construction element, do not come within the classification of appliances of the household type contemplated by section 3406(a)(3) of the Code. Accordingly, sales of such heaters by the manufacturer are not subject to the tax imposed by that section. On the other hand, portable electric air heaters are considered to be included in the classification of appliances of the household type and sales thereof by a manufacturer are subject to tax.

S.T. 945, supra , is modified to the extent that it is inconsistent with the ruling herein expressed.