Rev. Rul. 59-214

Advice has been requested whether the retailers excise tax on jewelry and related items applies to sales of certain articles ornamented with precious or semi-precious stones or imitations thereof which are designed and intended for use only in the home.

A company sells rhinestone-decorated plastic lipstick holders which have five holes or compartments to accommodate five lipstick cases. The company also sells rhinestone-decorated nonprecious metal containers for glass perfume bottles. These articles are intended and designed for use on a dressing table in the home. They are not suitable for carrying on the person. Sales of these articles are made at cosmetic or jewelry counters of retail stores.

Section 4001 of the Internal Revenue Code of 1954 imposes a tax upon the sale at retail of (a) all articles commonly or commercially known as jewelry, whether real or imitation, (b) pearls, precious and semi-precious stones, and imitations thereof, and (c) articles made of, or ornamented, mounted or fitted with precious metals or imitations thereof. Effective January 1, 1959, this section was amended by the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92, by striking out `pearls, precious and semi-precious stones, and imitations thereof' and by substituting therefor a list of stones.

Section 320.31(a) of Regulations 51, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, states that jewelry in general includes articles designed to be worn on the person or apparel for the purpose of adornment and which in accordance with custom or ordinary usage are worn so as to be displayed, such as rings, chains, brooches, bracelets, cuff buttons, necklaces, earrings, beads, etc. The tax is imposed on the sale of any such articles at retail, regardless of the substance of which made and without reference to their utilitarian value or purpose, unless for a purpose specifically exempted by law.

Section 320.31(b) of the regulations states that jewelry also includes articles to be carried in the hand, or hung on the arm, or carried or worn on the person, whether in pocket or bag or under the outer garments, such as cigarette cases, eyeglass cases, pencils, powder boxes, garter buckles, canes, purses or handbags, if made of, or ornamented, mounted or fitted with, pearls, precious or semiprecious stones, or imitations thereof. Such articles are likewise subject to tax without regard to their utilitarian value or purpose.

Section 320.33 of the regulations provide that the retailers excise tax is imposed on the sale at retail of any article, as distinguished from those articles commonly or commercially known as jewelry as described in section 320.31 of the regulations, which are made of, or ornamented, mounted or fitted with, precious metals or imitations thereof.

Articles which are not commonly or commercially known as jewelry as described in section 320.31 of the regulations are not made taxable by reason of their being ornamented with pearls, precious or semi-precious stones, or imitations thereof. On the other hand, articles made of, or ornamented, mounted or fitted with precious metals or imitations thereof are taxable without regard to whether they are commonly or commercially known as jewelry.

Since the lipstick holder and the perfume bottle container described above are intended and designed for use only in the home and are not suitable for carrying on the person, they are not articles commonly or commercially known as jewelry within the meaning of section 4001 of the Code. Accordingly, it is held that the retailers excise tax imposed by that section does not apply to sales of such articles.

However, it is further held that, should the perfume bottle and metal container therefor be sold at retail containing perfume, cologne, or other toilet preparation taxable under section 4021 of the Code, the tax imposed by that section would apply to the total selling price including the bottle and metal container.