Rev. Rul. 57-595

Advice has been requested concerning the application of the manufacturers' excise tax to the sale or use of sporting goods restored to useful condition as outlined below:

Situation 1: A used bowling pin is turned on a lathe and reshaped to give it the desired balance, contour, and size. A coat of plastic is then applied, and it is striped and labeled.

Situation 2: A used golf ball is re-processed by first removing the old cover, then cutting the rubber thread back to a place where a smooth surface is reached. The golf ball is frozen at a low temperature, wound with new rubber thread, inserted between two new half covers, and molded in a steam press. Following this, it is deflashed (excess trimmed off) and subject to a hot chemical wash, and then rinsed and dried. Finally, it is sprayed with two coats of lacquer or enamel and a mark or stripe is placed on it for identification purposes. The materials used in the process consist of rubber thread, white paint or lacquer, and a rubber compound used in manufacturing the cover.

These operations are performed on used bowling pins or golf balls which are either (1) purchased by the person performing the operation or (2) furnished by the owners and, after processing, returned to them.

Section 4161 of the Internal Revenue Code of 1954 imposes a tax on the price for which certain named articles of sporting goods, including golf balls and bowling pins, are sold by the manufacturer, producer, or importer. Section 316.4 of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that 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, by processing, manipulating, or changing the form of an article, or by combining or assembling two or more articles. This section of the regulations further states that under certain circumstances, as where a person manufactures or produces a taxable article for a person who furnishes materials and retains title thereto, the person for whom the taxable article is manufactured or produced, and not the person who actually manufactures or produces it, will be considered the manufacturer.

It is held that the restoration by the process described of used bowling pins and used golf balls for sale is a rebuilding or manufacturing operation. A person who acquires title to such articles of sporting goods and rebuilds them for sale is liable for the tax imposed by section 4161 of the Code upon his sale of these articles. A customer is considered to be the manufacturer, and liable for tax on his sale of rebuilt bowling pins and golf balls, where he retains title to the bowling pins and golf balls which are so processed for sale by him. However, the restoration of used bowling pins and golf balls to useful condition by or on behalf of the owner for his use rather than for sale is considered to be a repair operation. The use of the repaired bowling pins and golf balls by the owner is considered not a taxable use since the owner of such articles processed for his own use is not considered to be a manufacturer or producer within the meaning of section 4218 of the Code. See Revenue Ruling 54-329, C.B. 1954-2, 405 as amplified by Revenue Ruling 57-593, page 723, regarding the distinctions made between rebuilding, reconditioning, and repairing which distinctions are applicable here.