Rev. Rul. 57-568

Advice has been requested concerning the applicability of the retailers excise tax to the sale of an automatic refrigerator defrosting control which contains a clock.

The defrosting control in question contains a clock. The clock is complete with face or dial, and hands, and is in every way usable as a timepiece. The defroster hangs on the wall and has the appearance of an electric clock. Primarily, it is used to defrost a refrigerator at a certain hour by opening, for a predetermined period of time, the electrical circuit from which the refrigerator is operated. It is sold separately and is not a part of a refrigerator.

Where an article contains a clock, the tax imposed by section 4001 of the Internal Revenue Code of 1954 on clocks sold at retail attaches to that portion of the retail sale price of such article which is attributable to the clock. In the instant case, it is held that the clock portion of the refrigerator defrosting control is subject to the retailers excise tax when the defrosting control is sold at retail. Compare S.T. 572 C.B. XI-2,469 (1932).

The taxable portion of the complete defrosting control may be determined by one of two methods as follows:

(1) If both the clock and the defrosting control without the clock have established retail sale prices, the taxable portion of the sale price of the complete unit may be determined by applying to the retail sale price of such unit the ratio which the separate retail sale price of the clock bears to the sum of the retail sale prices of the clock and the defrosting control without the clock if they are sold separately.

(2) If either the clock or the defrosting control without the clock does not have an established retail sale price, the taxable portion of the sale price of the complete unit may be determined on the basis of the cost ratio of the articles contained in the unit. For example, if the clock portion of the unit represents three-fourths of the total cost of the complete unit, the tax shall be computed an the basis of three-fourths of the price for which the unit is sold at retail. See S.T. 942, C.B. 1952-1, 225, S.T. 943, C.B. 1952-1, 221, and Rev. Rul. 54-358, C.B. 1954-2, 372. Where the tax is computed on a basis other than the actual sale price of a combination unit, the retailer's records must show clearly the basis for computing the tax, otherwise the tax shall be computed on the total sale price of each such unit.