Rev. Rul. 59-113

Advice has been requested whether the owner or a lessee of a master recording is liable for the manufacturers excise tax on phonograph records when records are produced from such master recording under the circumstances described below.

Situation (1). X company is the owner of certain master recordings. Under an agreement between X company and Y corporation, Y corporation `presses' phonograph records from these master recordings. Y corporation uses its own equipment, furnishes the necessary materials, affixes labels containing information furnished by X company, and ships the finished records to X company, making a specified charge for each record. X company then sells the phonograph records either to a distributor or directly to consumers.

Situation (2). Z company leases master recordings from the owner thereof and `presses' phonograph records from them. Z company uses its own equipment and furnishes all of the materials necessary to produce the finished phonograph records. The phonograph records are then sold by Z company to a distributor.

Section 4141 of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of certain enumerated articles, including phonograph records.

Generally, the person who owns or leases the master recording and controls the production and sale of phonograph records manufactured therefrom is considered to be the manufacturer of such records.

Accordingly, in situation (1) , since X company owns the master recordings and controls the production and sale of the phonograph records produced therefrom, it is held that it is the manufacturer of such records and is liable for the manufacturers excise tax on its sale of the records. No manufacturers excise tax is incurred by Y corporation with respect to its charge for `pressing' the records.

Likewise, in situation (2) , since Z company leases the master recordings and produces and sells the phonograph records produced therefrom, it is held that it is the manufacturer of such records and is liable for the manufacturers excise tax on its sale of the records. The owner of the master recording does not incur liability for the manufacturers excise tax with respect to the lease of the master recording.