Rev. Rul. 57-425

The Internal Revenue Service has been requested to determine which company is the manufacturer or producer of the articles involved, for the purposes of the manufacturers excise taxes, under the circumstances described below.

(1) M company purchases from N company an instrument which is basically a standard vacuum gauge. However, the gauge dial, in addition to being calibrated solely in inches of mercury, as is the case with the usual vacuum gauge, contains other calibrations which indicate gasoline consumption per mile and engine efficiency of motor vehicles. M company owns the copyright on the special dial and on the trade name under which the gauge is sold. M company does not furnish any materials or supplies to N company and N company must sell all gauges equipped with the special dial to M company. There are no patents involved in the transaction. From other suppliers, M company purchases certain fittings and other materials, which are necessary for the proper installation of the gauge on motor vehicles, places such articles, the gauge and an instruction pamphlet into one package for sale to its customers.

(2) O Company purchases from P company mechanical lighters, such as are used for lighting cigarettes, cigars and pipes, which are complete and in working condition as purchased. O company then manufactures various types of bases, on or in which such lighter units are mounted, and sells the completed articles as table or desk lighters.

In the situations outlined above, the companies are separate entities, having no financial or other connections, and no relationships other than that which arise from the particular transactions described. All sales are bona fide arm's length transactions.

Section 316.4(a) of Regulations 46, made applicable to the Internal Revenue Code of 1954 by Treasury Decision 6091, C.B. 1954-2, 47, provides, in part, that the term `manufacturer' includes a person who produces a taxable article by combining or assembling two or more articles. Under this definition, it is not necessary that a person actually fabricate or process any article in order to be regarded as a manufacturer for tax purposes.

Under the circumstances described above, it is held that M and O companies are the manufacturers of the articles for manufacturers excise tax purposes. Accordingly, where such companies sell taxable articles, under the conditions stated, they are liable for the manufacturers excise tax on the sale price of the completed units. Since the gauges and mechanical lighters as purchased by M and O companies are in themselves taxable articles, such companies may purchase these articles, for use in further manufacture, tax-free under the provisions of section 4220 of the Code and sections 316.20 and 316.21 of Regulations 46. Where such articles are purchased tax-paid by M and O companies, such companies may file claims for refund or credit of the amount of the tax paid by N and P companies, under the provisions of section 6416(b)(3) of the Code and section 316.204 of Regulations 46. See Rev. Rul. 56-595, C.B. 1956-2, 951, which relates to the filing of claims for refund or credit of amounts of tax paid on certain articles used in further manufacture.