Rev. Rul. 59-404

Advice has been requested whether the retailers excise tax on sales of jewelry and related items applies to the sale at retail of the device described below.

The device is designed specifically to indicate the lapse of time up to a maximum of 12 hours. It is described as having a dial with an hour hand, a minute hand, and a sweep second hand. There is no means provided for setting the hands to correspond to a particular time of day. It has a single knob which can only be rotated or depressed. When rotated, the knob winds the instrument. When the knob is depressed, the device will perform in accordance with a predetermined sequence, one of three different functions. If the hands are precisely at the figure `12' position, the depression of the knob will cause the hands to commence recording the lapse of time. If the device has been in operation for some time, the next depression of the knob will stop the further movement of the hands, thus fixing, and affording a reading of, the time which has elapsed since the hands were set in motion. This reading will remain `frozen' on the dial until the knob is depressed once more, at which time all the hands will be returned to the figure `12' position. Subsequent depressions of the knob will in turn cause a repetition of the foregoing functions in the order stated. The device is sold primarily to racing enthusiasts, such as owners of stock cars, boats, and private aircraft.

Section 4001 of the Internal Revenue Code of 1954 imposes a tax on the sale of watches and clocks at retail. That section also imposes a tax upon retail sales of articles made of, or ornamented, mounted or fitted with precious metals or imitations thereof.

Section 320.34 of Regulations 51, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that the term `watches and clocks' includes all time-measuring devices whether actuated by weights, springs or electrical energy, except watches sold on and after November 1, 1942, which are designed especially for use by the blind.

Revenue Ruling 54-116, C.B. 1954-1, 245, holds that stop watches without hands and dials or any other device which indicates the time of day are not taxable watches within the meaning of the Code.

Any instrument the sole function of which is to indicate elapsed time and which is incapable of being used to tell the time of day at all times is not considered to be a watch or clock within the meaning of section 4001 of the Code. Accordingly, it is held that the retail sales of the device described above are not subject to the tax imposed by that section upon watches and clocks. However, it is further held that if the device has a case which is made of, or ornamented, mounted or fitted with gold, silver or other precious metals or imitations thereof, it is subject to the retailers excise tax imposed by section 4001 of the Code upon such articles.