Rev. Rul. 58-586

Advice has been requested concerning the liability for the manufacturers excise tax upon sales of firearms by A , an individual, in the situations described below.

Situation (1). A purchases a complete new or used firearm, installs a telescopic sight thereon, and sells the firearm.

Situation (2). A acquires title to a complete used firearm. He cleans and blues the firearm, replaces the sight and stock, and then sells the improved firearm.

Situation (3). A assembles a firearm for a customer. The customer furnishes the barrel and action and A furnishes all other components. The firearm is for the customer's personal use and not for sale by the customer.

Situation (4). A purchases a new or used barrel and action, installs a sight and stock thereon, and then sells the complete firearm.

Situation (5). A acquires title to a barrel and action and sells it to a customer. Then he furnishes and installs a sight and stock for the customer.

Section 4181 of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of pistols, revolvers, firearms (other than pistols and revolvers), shells, and cartridges.

Section 316.4(a) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, defines the term `manufacturer' to include 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.

Among the factors to be considered in determining whether a person incurs liability for the manufacturers exicse tax, in situations such as those described above, are (1) whether that person has performed a process which is regarded as manufacturing and (2) whether that person owns the materials used in producing the article so that he controls the sale of the article.

In view of the foregoing, it is held that A does not incur liability for the manufacturers excise tax in situations (1) and (2), since he has not performed an act of further manufacture. Moreover, in situation (3) A does not incur liability for the tax because there has been no sale of a firearm to the customer. On the other hand, it is held that A incurs liability for the tax in situations (4) and (5), since he is considered to have sold a taxable firearm for which he furnished material upon which he performed an act of manufacture.