Rev. Rul. 59-205

Advice has been requested whether the exemption from the manufacturers excise tax of certain supplies for vessels and aircraft, provided by section 4221(a)(3) of the Internal Revenue Code of 1954 (section 4222 prior to its redesignation and amendment by the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92), applies to the sale of taxable articles for use on vessels and aircraft of the United States Coast Guard.

Section 4221(a)(3) of the Code, as amended, provides that no manufacturers excise tax shall be imposed on the sale of an article for use by the purchaser as supplies for vessels or aircraft, if such use is to occur before any other use. Section 4221(d)(3) of the Code defines the term `supplies for vessels or aircraft' to mean fuel supplies, ships' stores, sea stores or legitimate equipment on vessels of war of the United States or of any foreign nation, and certain other types of vessels not pertinent here.

Section 316.28(e) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that the term `vessels of war of the United States' includes (1) every description of watercraft or other contrivance used, or capable of being used as a means of transportation on water and constituting a part of the armed forces of the United States and (2) aircraft owned by the United States and constituting a part of the armed forces thereof.

Prior to August 1949, Section 1 of Title 14 of the United States Code provided that the Coast Guard should be a military service and constitute a branch of the land and naval forces of the United States at all times and should operate under the Treasury Department in time of peace and operate as a part of the Navy, subject to the orders of the Secretary of the Navy, in time of war or when the President should so direct.

Accordingly, it was held in S.T. 724, C.B. XIII-1, 390 (1934), that sales made to vessels of the Coast Guard were not exempt as sales made to `vessels of war of the United States,' within the purview of section 630 of the Revenue Act of 1932, except when such vessels were operating as a part of the Navy, subject to orders of the Secretary of the Navy, in time of war or by direction of the President.

However, the Act of August 4, 1949, Public Law 207, 81st Congress, 14 U.S.C. 1, changed the term `land and naval forces' to `armed forces' and provided that the Coast Guard, as established January 28, 1915, shall be a military service and a branch of the armed forces of the United States at all times. That Act also provided that the Coast Guard shall be a service in the Treasury Department, except when operating as a service in the Navy. Moreover, section 7701(a)(15) of the Internal Revenue Code of 1954 provides that the term `armed forces of the United States' includes the Coast Guard.

Prior to the amendment of section 1 of Title 14 of the United States Code by the Act of August 4, 1949, the applicability of the exemption to sales of articles for use as supplies for vessels or aircraft of the United State Coast Guard depended upon whether the vessels were operating as a part of the Navy. However, in view of that amendment and in view of the provisions of section 7701(a)(15) of the Internal Revenue Code of 1954, this distinction is no longer controlling and S.T. 724 is no longer applicable.

Accordingly, it is held that, since the Coast Guard is considered to be a part of the armed forces of the United States, the exemption from manufacturers excise taxes provided by section 4221(a)(3) of the Code, applies to the sale of articles for use as fuel supplies, ships' stores, sea stores, or legitimate equipment on vessels and aircraft of the United States Coast Guard. Similarly, the exemption provided by section 4041(e) of the Code would apply to the sale of special motor fuels for use as supplies for vessels or aircraft of the United States Coast Guard.