Rev. Rul. 56-209

Advice has been requested regarding the application of the manufacturers excise tax to sales of reloaded shotgun shells.

Section 4181 of the Internal Revenue Code of 1954 imposes a tax on shells and cartridges when sold by the manufacturer thereof. The term `manufacturer' includes a person who produces a taxable article from scrap, salvage, or junk material, as well as from new or raw material, (1) by processing, manipulating, or changing the form of an article, or (2) by combining or assembling two or more articles.

It is held that the reloading of used shotgun shells is a manufacturing operation and the sale by the reloader of such shells is, therefore, subject to the excise tax. However, a different ruling applies in the case of custom reloading. Where the reloader merely reloads shells belonging to his customer and is paid for his labor and materials expended in performing such reloading service, there is not a taxable sale of reloaded shells as such. In the latter case, there must be a return to the customer of the identical shells tendered by the customer for reloading. If, instead of a return of the identical shells, an equivalent number is withdrawn from the inventory of the reloader, the transaction is regarded as a taxable sale of reloaded shells on an exchange basis and the person reloading the shells is liable for the tax.