Rev. Rul. 65-157

Advice has been requested whether liability for the manufacturers excise tax imposed by section 4121 of the Internal Revenue Code of 1954 is incurred with respect to sales by the manufacturer, producer, or importer of the article described below.

A company manufactures and sells various models of a portable air cooler. The basic function of this type of article is to cool the surrounding atmosphere by circulating air through a moistened filter pad. The air circulation is produced by means of a built-in, multiblade blower powered by a fractional horsepower motor. Basically, a cooler consists of a water tank, a filter pad, a blower, and a motor encased in a cabinet with a full-front grill.

Each cooler also has a water shut-off control device which, when in the `closed' position, permits use of the cooler as in an air circulator only. Some models of the air cooler are designed for large areas and may include variable speed blowers. The air cooler does not come within the scope of the term `self-contained air-conditioning unit' as used in section 4111 of the Code.

The specific questions presented are (1) whether an air cooler, in its entirety, is a taxable `air circulator' within the meaning of section 4121 of the Code or (2) whether the tax imposed by that section applies to the sale or use of the blower portion of the air cooler.

Section 4121 of the Code imposes a tax upon enumerated electric, gas and oil appliances of the household type when sold by the manufacturer, producer, or importer thereof. `Electric direct-motor and belt-driven fans and air circulators' are included among the articles enumerated.

Section 48.4121-2(d) of the Manufacturers and Retailers Excise Tax Regulations provides that the term `electric direct-motor and belt-driven fans and air circulators' includes all types of direct-motor and belt-driven fans and air circulators that provide movement or circulation of air, whether for intake or exhaust or for use within an enclosure, if they are designed and constructed to be operated as independent units.

The air coolers described above are designed, manufactured, and sold to cool air by introducing moisture, the evaporation of which reduces the temperature of the air being circulated. The fact that the coolers may, by cutting off the waterflow, be used merely to circulate air does not bring them within the scope of taxable air circulators. Furthermore, the built-in blowers are designed for operation in combination with waterflow to produce cool moist air. Thus, they are integral parts of the air coolers rather than independent units within the meaning of the regulations.

Accordingly, it is held that neither the air coolers nor the blowers contained therein are subject to the tax imposed by section 4121 of the Code.