Rev. Rul. 60-163

Advice has been requested whether certain charges attributable to advertising imprints and special packing of book matches may be excluded in determining the price for which the matches are sold for the purpose of determining the applicability of the statutory limitation on the manufacturers excise tax imposed at the rate of two cents per 1,000 matches.

A company manufactures and sells special design book matches which are printed with advertising copy in accordance with the customer's specifications as to design, drawings, and art work. Some of these special design book matches have a space on either the outside or inside of the cover for imprinting the name of the customer's agent, branch, or sales office. Occasionally, a customer requests special packing beyond the usual packing in caddies and outside cartons. This special packing may consist of sleeve wraps, cellophane wrapping, packages in the form of the customer's product, or foil-lined mailing cartons displaying the customer's advertisement. The contract of sale specifies a price which includes the price of the matches, the charge for advertising imprints and charge for special packing.

Section 4211 of the Internal Revenue Code of 1954 imposes upon the sale by the manufacturer, producer, or importer of matches, a tax of two cents per 1,000 matches but not more than ten percent of the price for which so sold, except that in the case of any wooden matches and wooden matches having a stained, dyed, or colored stick of stem, packed in boxes or in bulk, the tax shall be five and one-half cents per 1,000 matches.

Section 4216(a) provides that in determining, for purposes of the manufacturers excise tax, the price for which an article is sold, there shall be included any charge for coverings and containers of whatever nature, and any charge incident to placing the article in condition packed ready for shipment, but there shall be excluded the amount of the manufacturers excise tax, whether or not stated as a separate charge. A transportation, delivery, insurance, installation, or other charge (not required by the foregoing sentence to be included) shall be excluded from the price only if the amount thereof is established to the satisfaction of the Secretary of the Treasury or his delegate in accordance with the regulations.

It should be noted that while the manufacturers excise tax on matches is a specific tax of two cents per 1,000 matches, the amount of the tax is subject to a limitation of ten percent of the price for which the matches are sold. Therefore, it becomes necessary to make two separate computations, the first at the specific rate and the second at the ad valorem rate. Each computation results in a tentative tax liability. The lower of the two tentative amounts becomes the actual tax liability.

In computing the tentative tax at the specific rate, the number of matches is the only fact of importance. For purposes of this computation, whether the price for which the matches are sold includes charges for coverings and containers, or whether it includes charges for advertising and special packing, is of no significance.

On the other hand, in computing the tentative tax at the ad valorem rate, the price for which the matches are sold must be determined in the same manner as in the case of other manufacturers excise taxes which are based upon the price for which the taxable articles are sold. In other words, all of the provisions of section 4216(a) of the Code relating to inclusions and exclusions must be taken into account.

Accordingly, where a manufacturer sells matches for a stated price which covers advertising imprints and special packing as described above, it is held that this stated price is the price for which the matches are sold for purposes of making the tentative computation of the manufacturers excise tax at the ad valorem rate to determine the applicability of the limitation provided by section 4211 of the Code. However, if the manufacturer sells the matches for a stated price and if a separate reasonable charge is agreed upon for advertising imprints, the amount of this separate charge may be excluded in determining the price for which the matches are sold , provided such amount is shown separately on the invoice rendered the customer or on the manufacturer's records. On the other hand, the charge for special packing may not be excluded in determining the price for which the matches are sold .