Rev. Rul. 59-63

Advice has been requested concerning the applicability of the manufacturers excise tax to a manufacturer's use, prior to January 1, 1959, of electric light bulbs in the manufacture of nontaxable articles which, in turn, are sold by the manufacturer to States or political subdivisions thereof.

For example, a manufacturer of electric light bulbs uses some of those bulbs in the manufacture of scoreboards, information boards, or motion picture projectors which are not of the household type. The manufacturer sells some of the end-product articles to a political subdivision of a State.

Section 4131 of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of electric light bulbs and tubes. Under the provisions of section 4218 of the Code, as it applies to the use of taxable articles prior to the effective date of the Excise Tax Technical Changes Act, Public Law 85-859, C.B. 1958-3, 92, if any person manufactures, produces, or imports an article, with certain exceptions not material here, and uses it insead of selling it, he is liable for the manufacturers excise tax with respect to the use of such article in the same manner as if it were sold by him. This provision does not apply if the article is used as material in the manufacture or production of, or as a component part of, another article to be manufactured or produced by such person which will be subject to the manufacturers excise taxes or will be sold free of tax by virtue of section 4220 or 4224 of the Code.

Pursuant to section 4220 of the Code, no manufacturers excise tax shall be imposed with respect to the sale of any article, with certain exceptions not material here, for use by the vendee as material in the manufacture or production of, or as a component part of, a taxable article, or for resale by the vendee for such use by his vendee, if such article is in due course so resold. Section 4224 of the Code provides that the manufacturers excise taxes shall not be imposed upon the sale of any article for the exclusive use of any State, Territory of the United States, or any political subdivision of the Foregoing, or the District of Columbia.

Section 4224 of the Code is not applicable in the instant case, because that section provides exemption from the tax when taxable articles are sold for the purpose specified and not when nontaxable articles are sold . Moreover, section 4220 of the Code is inapplicable since the manufacturer did not sell the light bulbs to a vendee for further manufacture of a taxable article.

Therefore, it is held that, subject to certain exceptions not material here, the liability for the manufacturers excise tax imposed by section 4218 of the Code upon the use of taxable articles by the manufacturer thereof in the production of nontaxable articles is not affected by the fact that the nontaxable articles may be sold by the manufacturer for the exclusive use of a State or political subdivision thereof. Accordingly, the manufacturers excise tax applies to the manufacturer's use of electric light bulbs in the production of scoreboards, information boards, and motion picture projectors not of the household type, even though these nontaxable articles may be sold for the exclusive use of a State or political subdivision thereof.