Rev. Rul. 58-114

The Internal Revenue Service has been requested to determine which company is the manufacturer or producer of a mechanical lighter, for the purposes of the manufacturers excise tax, under the circumstances described below.

M corporation makes mechanical lighters for cigarettes, cigars and pipes and sells them to N company. M designs the lighter; however, it is subject to change of style and design to suit the purchaser. M supplies all materials, tools and dies used in the manufacture of the lighter. The tools and dies remain the property of M. There is no contract, other than a verbal agreement between the parties, that the lighters will be produced and shipped to N company in the quantities specified and at the agreed prices. M has consented to sell the lighters only to N company. The lighter is not patented; however, it bears a trade-mark owned by N company. The companies are separate entities, having no financial or other connections. All sales are bona fide arm's length transactions.

Section 4201 of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of mechanical lighters for cigarettes, cigars and pipes.

Section 316.4(a) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C. B. 1954-2, 47, defines the term "manufacturer" to include a person who produces a taxable article from scrap, salvage, or junk material, as well as from new or raw material, (1) by processing, manipulating, or changing the form of an article, or (2) by combining or assembling two or more articles. Section 316.4(b) provides that under certain circumstances, as where a person manufactures or produces a taxable article for a person who furnishes materials and retains title thereto, the person for whom the taxable article is manufactured or produced, and not the person who actually manufactures or produces it, will be considered the manufacturer.

It is held that, under the circumstances described here, M corporation is the manufacturer of the mechanical lighters and is liable for the manufacturers excise tax imposed by section 4201 of the Code.

In determining whether a person is a manufacturer or producer, each case must be decided upon its own particular facts and circumstances. The result in any case not coming within the circumstances set forth above must be based solely on the facts involved in such case.