Rev. Rul. 60-290

The Internal Revenue Service has been asked whether a manufacturer of business machines is liable for the manufacturers excise tax on business machines, imposed by section 4191 of the Internal Revenue Code of 1954, when the manufacturer uses taxable business machines as demonstrators in his sales showrooms.

A manufacturer produces and sells various business machines, including typewriters. Some of the typewriters are used by the manufacturer as demonstrators in the manufacturer's sales showrooms. After a certain period of time, or when newer models are introduced, the domonstrators are removed and sold at reduced prices as used typewriters.

Section 4191 of the Code imposes a tax upon the sale by the manufacturer, producer, or importer of certain enumerated business machines, including typewriters. Under the provisions of section 4218(a) of the Code, as amended by the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92, if any person manufactures, produces, or imports an article (other than specified articles not involved here) and uses it (otherwise than as material in the manufacture or production of, or as a component part of, another article taxable under Chapter 32 of the Code to be manufactured or produced by him), then he is liable for tax under Chapter 32 of the Code in the same manner as if such article were sold by him. In accordance with section 4218(e) of the Code, if the manufacturer of an article is made liable for the tax by the provisions of section 4218(a) of the Code and if the tax is based on the price for which such articles are sold, the tax shall be computed on the price at which such or similar articles are sold in the ordinary course of trade, by manufacturers, producers, or importers thereof, as determined by the Secretary of the Treasury or his delegate.

It is held, therefore, that the use of a taxable business machine as a demonstrator by the manufacturer, producer, or importer thereof, in the operation of a business in which he is engaged, makes such person liable, under the provisions of section 4218(a) of the Code, for the manufacturers excise tax imposed by section 4191 of the Code in the same manner as if the business machine were sold by him. It is further held that the liability for such tax is incurred at the time the demonstrator is placed in use and is computed on the price for which such or similar business machines are sold by manufacturers in the ordinary course of trade as determined by the Secretary of the Treasury or his delegate.

Accordingly, in the instant case, the manufacturer of typewriters is liable for the manufacturers excise tax when he first uses then as demonstrators in his showrooms. No manufacturers excise tax is incurred on a later sale of the used typewriters.