Rev. Rul. 64-95

Advice has been requested concerning the applicability, under the circumstances described below, of the provisions of section 4053(a)(2) of the Internal Revenue Code of 1954 relating to certain installment sales of articles which are subject to the retailers excise taxes.

A retailer sells various types of articles, some of which are subject to the retailers excise taxes. Customers are permitted to purchase articles by making a `down' payment of a portion of the price for which the articles are sold. At the time of the initial sale to a new customer, the retailer obtains the signature of the customer on an account card which contains a provision that title to the merchandise contracted for is to remain in the retailer until fully paid for. As payments are received from the customer, they are entered on this account card.

The statement on the account card signed by the customer does not contain any provision regarding subsequent purchases by the customer. However, as other sales are made to that customer, they are entered on the same account card. The customer does not sign any agreement with respect to these `add-on' sales.

The specific question is whether, under these circumstances, the retailer's liability for the retailers excise tax on such `add-on' sales of taxable articles arises at the time of the sale or at the time of receiving payments for those articles.

Section 4053(a) of the Code provides as follows:

General Rule.-In the case of-

(1) a lease,

(2) a contract for the sale of an article wherein it is provided that the price shall be paid by installments and title to the article sold does not pass until a future date notwithstanding partial payment by installments,

(3) a conditional sale, or

(4) a chattel mortgage arrangement wherein it is provided that the sales price shall be paid in installments, there shall be paid upon each payment with respect to the article that portion of the total tax which is proportionate to the portion of the total amount to be paid represented by such payment.

Except for those transactions which come within the scope of section 4053(a) of the Code, a retailer incurs liability for the retailers excise tax at the time he sells a taxable article, irrespective of whether it is a cash sale or an `open account' credit sale.

In order for a retailer to treat his sale of a taxable article as coming within the scope of section 4053(a)(2) of the Code, he must obtain from the customer a written agreement that the title to that article is reserved in the retailer until the sale price is paid in full. Such a written agreement must be open for inspection by Internal Revenue officers. Accordingly, where payment for a taxable article is to be made subsequent to its sale, the sale will be treated as a credit sale on `open account' for purposes of the retailers excise tax unless it is made under a written agreement which specifically applies to the sale of that article.

For purposes of determining the applicability of section 4053(a)(2) of the Code under the circumstances in the instant case, the agreement on the account card regarding the reservation of title in the retailer is considered to apply only to the articles sold by the retailer at the time the agreement is signed by the customer. That agreement is not considered to be sufficient to bring within the scope of section 4053(a)(2) of the Code the subsequent sale of a taxable article to the same customer, even though the subsequent sale is entered on the same account card.

Accordingly, it is held that the retailer's liability for tax on the subsequent or `add-on' sale of a taxable article, under the circumstances described, arises at the time of the sale, even though the price may not be paid to the retailer until a later date.