Rev. Rul. 58-571

Advice has been requested concerning the applicability of the manufacturers excise tax on household-type electric, gas, and oil appliances to sales of tiller-lawn mower combinations and certain lawn mower attachments which are used on garden tractors.

X company manufactures tiller-mower combinations and various attachments for them. The tiller-mower combination is used to till soil, to open planting furrows, to cultivate gardens, and to mow grass. It consists of a power head complete with engine and handles, a fourwheel mower unit with a cutting width of 21 inches, and a tiller unit. The power heads, the mower units, and the tiller units are packaged separately and each item is sold in whatever quantities may be desired by X company's customers. The power heads are constructed with gasoline engines of two and one-half, two and three-quarters, or three horsepower. However, the power heads are not equipped with wheels, but depend on the mower unit or the tiller unit for support. The combination is operated by mounting the power head on either the mower unit or the tiller unit with a `plug-in' hitch which makes it possible convert from one function to the other. A variety of attachments are manufactured which fit the base of the tiller unit in place of the tiller blades. The tiller base and blades are not sold separately.

Y corporation manufactures a variety of garden tractors. These tractors are equipped with engines which range from one and six-tenths to six horsepower. The tractors are equipped with either two or four wheels. Various attachments, including lawn mower attachments, are manufactured by Y corporation to be used with the garden tractors. The lawn mower attachments are not equipped with motors or engines but are dependent upon the tractor for their propulsion and operation.

Section 4121(a) of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of certain enumerated household-type electric, gas, and oil appliances, including power lawn mowers. The tax applies to any parts or accessories therefor sold on or in connection with the sale of such articles.

Section 316.4(c) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that a manufacturer who sells a taxable article in a knockdown condition, but complete as to all component parts, is liable for the tax, and not the person who buys and assembles a taxable article from such component parts.

Revenue Ruling 116, C.B. 1953-1, 465, holds that a power lawn mower of the `household type' is one with a cutting width of less than 24 inches, unless the mower by reason of its design and construction is primarily adapted for another purpose, such as mowing golf greens.

For purposes of the manufacturers excise tax, the term `power lawn mower' includes all machines for cutting the grass of a lawn in which the cutting power is derived, either directly or indirectly, from a motor or other power unit. However, a distinction is made between the power head under consideration and a garden tractor. A garden tractor has its own wheels or support and is a complete article in itself, ready for operation with various attachments, including a lawn mower attachment. In comparison, the power head is not a complete article in itself, since it does not have wheels and must be mounted on the mower unit or the tiller unit in order to be operative. Furthermore, neither the mower unit nor the tiller unit is an attachment as such for another article, but they, as well as the power head, are integral parts of the tiller-mower combination.

Accordingly, it is held that sales by X company of power heads and rotary mower units as part of tiller-mower combinations are considered to be sales of household-type power lawn mowers in a knockdown condition and that portion of the sale price allocable thereto is subject to the manufacturers excise tax imposed by section 4121(a) of the Code.

However, since the lawn mower attachments sold by Y corporation are designed to be used with garden tractors and are not equipped with motors or engines but derive their cutting and propelling power from garden tractors, these attachments are not considered to be `power lawn mowers' within the meaning of section 4121(a) of the Code and are not subject to the tax imposed by that section.

If the power head and the mower unit are sold by X company without the tiller unit and its accessories, the tax applies to the entire sale price. On the other hand, if the power head, the mower unit, and the tiller unit are sold together by the manufacturer, the tax applies only to that portion of the sale price of the tiller-mower combination which is allocable to the power head and the mower unit. This tax base is determined by applying to the sale price of the tiller-mower combination (sum of the sale prices of the tiller unit, the mower unit, and the power head) the ratio which the established separate sale price of the mower unit bears to the sum of the established separate sale price of the mower and the tiller unit. This method of calculation indirectly allocates in the same ratio the sale price of the power head, a common part, to the mower unit and the tiller unit.

For example, assume that the price of the mower unit is 40 x dollars, the price of the tiller unit is 60 x dollars, and the price of the power head is 120 x dollars. The total sale price of the combination is 220 x dollars. The price ratio for the power lawn mower is two-fifths ( 40/100 ) or 40 percent. Accordingly, the tax base is 40 percent of 220 x dollars, or 88 x dollars. Should a manufacturer sell in the same transaction 75 power heads, 75 tiller units, 50 mower units, and 170 miscellaneous tiller unit attachments, he is considered to have sold 50 tiller-mower combinations and is liable for tax on 40 percent of the selling price of 50 tiller-mower combinations.

The sale price of the tiller unit attachments is omitted from the taxable sale price of the tiller-mower combination for the purpose of determining the tax base, since the attachments are not considered to be parts or accessories for a power lawn mower.