Rev. Rul. 65-27

Advice has been requested whether the manufacturers excise tax applies to the sale or lease of certain articles which are referred to as a `sound-slidefilm projector' and an `automatic sound-slide projector.'

A company manufactures a `sound-slidefilm projector' which projects 35mm filmstrips synchronized with sound. The sound is produced by specially recorded discs which are played on a sound reproducing mechanism incorporated as an integral part of the projector so as to coordinate the sound with the projection of the pictures. This mechanism consists of a three-speed phonograph motor, pick-up arm, turntable, amplifier, and speaker. The `sound-slidefilm projector' is sold for training purposes in offices, shops, schools, and sales meetings.

Another company manufactures an `automatic sound-slide projector' which is designed for audio-visual presentations. The sound is recorded on tape, and a tape player is an integral part of the projector. The projector is sold or leased by the manufacturer with a program kit which consists of (1) a complete set of slides in proper showing sequence in the magazine, (2) matching slide take-up magazine and slide retainer, (3) narrated tape, recorded on both sides, (4) a tape take-up reel, and (5) instructions for operators.

Section 4171 of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of certain enumerated articles (including in each case parts or accessories of such articles sold on or in connection therewith, or with the sale thereof). Included among the articles enumerated are `electric motion or still picture projectors of the household type.'

Section 4141 of the Code imposes a tax upon the sale by the manufacturer, producer, or importer of certain enumerated articles, including `phonographs' and `radio and television components.'

Sound-slide projectors and sound-filmstrip or sound-slidefilm projectors of the type described above are professional or commercial type projectors rather than projectors of the household type and accordingly, are not subject to the manufacturers excise tax imposed by section 4171 of the Code. Furthermore, the sound reproducing mechanism in the `sound-slidefilm projector' is not a phonograph within the meaning of section 4141 of the Code, since the mechanism is essentially designed, constructed, and incorporated as an integral part of the projector for the purpose of reproducing sound coordinated with the operation of the projector. The components of the program kit, which is sold or leased in connection with the sale or lease of the `automatic sound-slide projector', are not taxable articles. Therefore, the manufacturer incurs no manufacturers excise tax liability on his sale or lease of such a kit.

Under the provision of section 4221(d)(6)(B) of the Code, taxable radio or television components may be purchased on a tax-exempt basis for use in the manufacture of the nontaxable `sound-slidefilm projector' or `automatic sound-slide projector.' However, under the provisions of section 4221(d)(6)(A) of the Code, electric light bulbs or tubes may not be purchased on a tax-exempt basis for use in the manufacture of the nontaxable projectors.

This Revenue Ruling is not intended to apply to any sound-slidefilm projectors or automatic sound-slide projectors which are manufactured, held out, and sold by the manufacturer for use in the home.