Rev. Rul. 58-412

Advice has been requested concerning the application of the manufacturers excise tax on pens and mechanical pencils and lighters where ball point pens are manufactured under the circumstances described below.

Under a special arrangement, M corporation produces complete ball point pens for N company. N supplies plastic tubing and plugs which M uses along with cartridges of its own manufacture for the assembly of complete ball point pens. Throughout the entire operation, N retains title to the plastic tubing and plugs used in the manufacture of the pens.

Section 4201 of the Internal Revenue Code of 1954 imposes a tax on the sale by the manufacturer, producer, or importer of mechanical pencils, fountain pens, and ball point pens. Section 316.4(b) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that 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.

Accordingly, where M produces a complete ball point pen under the circumstances described above, it is held that M is merely the manufacturing agent and N is the manufacturer. Therefore, N is liable for the manufacturers excise tax on its sales of such pens.