Rev. Rul. 61-12

Advice has been requested whether the manufacturers excise tax on certain business machines applies to the sale or lease by the manufacturer of the transmitting and receiving units of the electro-mechanical system described below.

A company manufactures equipment which is designed for the electronic transmission of photographs, line drawings, and handwritten, typed, or printed copy, including such information as price changes, design changes, customer specifications, and bank signature comparisons. The duplicate or facsimile reproduced by the receiving unit is said to be a clear, smudge-proof, unalterable visual image of the original document. The original document is preserved intact at the point of origin. The transmission is accomplished through the use of telephone company facilities, radio circuits, or microwave systems, depending upon the type of arrangements made by users of the equipment.

The transmitter unit accepts copy material continuously on a paper drive roll. As the copy passes over the roll, it is illuminated by two fluorescent lamps, and an image of the copy is formed by the lens system at one surface of the revolving scanner disc. A spiral aperture in the disc traverses a horizontal slit to provide lateral scanning. The light signal is impressed on a photo-multiplier tube, and the tube's signal is amplified and made to modulate a carrier generated in a local oscillator. The resulting signal is again amplified and applied to the output circuit. The signal is then transmitted to the receiver unit.

The receiver unit amplifies and demodulates the incoming signal and again amplifies it to a level suitable for electroplating the image on the paper surface. A few seconds of synchronizing pulses from the transmitter coordinate the operation of the two instruments. A synchronous motor drives the helix mechanism and the paper drive rolls, and the paper travels from a vaportight humidor up between the printer blade and helix, across the heater bar, and through the drive rolls to the display easel. The image is printed on damp Hogantype paper by an electrolytic process. The paper is subsequently dried and ironed in the recorder to give what is said to be a permanent odorless reproduction of the original copy transmitted.

Section 4191 of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of various enumerated articles (including in each case parts or accessories of such articles sold on or in connection therewith, or with the sale thereof). Included in the enumeration are `duplicating machines.'

It is held that the transmitting and receiving equipment described above does not come within the scope of the term `duplicating machines' as used in section 4191 of the Code. Furthermore, such equipment does not fall within the classification of any of the other articles enumerated in that section. Accordingly, sales or leases of such equipment by the manufacturer are not subject to the manufacturers excise tax on certain business machines. See Revenue Ruling 59-231, C.B. 1959-2, 297, which holds that sales of photocopy machines, which use a chemical-light or a chemical-heat process in making a copy of an original document, are not subject to the manufacturers excise tax on business machines.