Rev. Rul. 58-376

Advice has been requested concerning the application of the manufacturers excise tax to sales of complete ball point pens and components thereof to an agency of the United States Government under the circumstances set forth below.

An agency of the United States Government purchases from the X manufacturing corporation plastic ball point pen barrels with screw caps and detachable sleeves. The caps and sleeves are made of nickelplated steel. The agency purchases from the Y manufacturing corporation cartridges for ball point pens. The agency also purchases nickel-plated steel chains for attachment to such pens. At various times the agency purchases from the same manufacturer both the barrels, with caps and sleeves, and the cartridges.

Section 4201 of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of mechanical pencils, fountain pens, and ball point pens. No tax is imposed by this section upon parts or accessories sold on or in connection with the sale of these articles.

Section 4001 of the Code imposes a tax upon, among other things, articles made of, or ornamented, mounted, or fitted with precious metals or imitations thereof sold at retail. Since nickel is not a precious metal or imitation thereof, the retailers excise tax is not applicable to sales of these pens or chains.

The combining or assembling of a barrel and a cartridge to produce a complete ball point pen is a manufacturing operation, and any person who performs such an operation is a manufacturer of the ball point pens, irrespective of whether he actually produced either or both of the components.

In view of the foregoing, it is held that, where the agency purchases the barrels from X and the cartridges from Y , the manufacturers excise tax imposed by section 4201 of the Code does not apply to the sales of the components by either X or Y . On the other hand, if the agency purchases both barrels and cartridges from either of those manufacturers, that manufacturer will be liable for the manufacturers excise tax on the sale, regardless of whether the components are sold in an assembled or unassembled condition.

In the event a complete ball point pen is purchased with a steel chain attached, no tax will be applicable to that portion of the price charged for the complete pen which is allocable to the nontaxable chain. See S.T. 943, C.B. 1952-1, 221, for method of computing the tax on the sale of a taxable article with a nontaxable article. Furthermore, where unequal numbers of the barrels and the cartridges are purchased from one manufacturer, no tax will apply to the extra, or unmatched, components.