Internal Revenue Service
Revenue Ruling
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smRev. Rul. 59-10
1959-1 C.B. 302
IRS Headnote
For purposes of reporting the retailers excise tax, sales made under a contract, peculiar to Louisiana law, which vests immediate title in the purchaser, provides for installment payments, and gives the seller a lien against the article sold, are considered sales under a chattel mortgage arrangement within the meaning of section 4053(a)(4) of the Internal Revenue Code of 1954.
Full Text
Rev. Rul. 59-10
Advice has been requested whether, for purposes of reporting the retailers excise tax, sales made under a particular contract peculiar to Louisiana law are sales under a chattel mortgage arrangement within the meaning of section 4053(a)(4) of the Internal Revenue Code of 1954.
The retail dealer in the instant case is located in Louisiana and is engaged in the business of selling jewelry at retail. The retailer sells articles under the agreement described below, delivering title and possession of the article and taking back from the customer as security for payment a chattel mortgage on the article sold. The retailer does not record the chattel mortgages in all cases.
The agreement is quoted as follows:
THIS AGREEMENT WITNESSETH: The undersigned acknowledges as having received from X the merchandise listed on the dates set forth herein, the terms of payment being as follows:
1. It is agreed all installments are to be paid promptly and punctually as indicated by this contract.
2. It is agreed any violation of this agreement on my part or default in making payments, shall at the option of X cause the entire unpaid balance due under the terms of this contract to at once become due and exigible together with 25 percent attorney fees added in event the contract and account is placed with an attorney or other agency for collection. This contract states our entire agreement, which no agency has authority to modify or waive. This contract has been read and the undersigned understands it and no alteration or modification, either written or verbal, of any terms thereof exists.
3. It is specifically agreed the merchandise covered by this contract is not to be disposed of to the prejudice of X .
And now in order to secure the punctual payment of said indebtedness, together with interest, attorney fees, premiums of insurance and costs, and all other obligations hereunder, the vendor's lien and privilege granted by law is hereby retained by the vendor upon the property sold, and the Purchaser does by these presents specially mortgage, affect, and hypothecate unto and in favor of X , its successors or assigns, the property herein described and herein sold.
Section 4053(a) of the Code provides that if an article subject to the retailers excise tax is (1) leased, (2) sold under a contract providing for payment of the sale price in installments with the seller retaining title to the article until full payment has been made, (3) sold on a conditional sale basis, or (4) sold under a chattel mortgage arrangement with the sale price to be paid in installments, the tax is to be paid on an installment basis proportionate to the total price represented by each payment.
In the civil law jurisdiction of Louisiana, the effect of the contract described above is to vest immediate title in the mortgagor-buyer at the time of sale. The civil law or lien theory of mortgages, which regards a mortgage contract between a buyer and seller as a security for a debt creating a privilege or lien on the property with title remaining in the purchaser, is to be contrasted with the old common law or title theory of mortgages which regards the contract as a sale vesting legal title in the mortgagee subject to the defeasance by the performance of the conditions of the mortgage. A number of common law jurisdictions have adopted the civil law lien theory of mortgages.
Since Louisiana law vests immediate title in the mortgagor-buyer at the time of sale, the types of installment contracts described in section 4053(a)(2) and (3) of the Code by which the seller reserves title to the article until a future date or until the performance of the conditions prescribed in the contract, are not recognized in Louisiana. However, Louisiana law does recognize a chattel mortgage arrangement entered into within that state providing for installment payments under which the seller has a lien against the article sold, which serves to protect his interest in the sale price, and if the mortgage is executed and recorded according to statutory requirements, the lien protects him against claims of third parties. La. Rev. Stats., Vol., 1, T.T. 9, Part III, Secs. 5351-5365.
Accordingly, it is held that for purposes of the retailers excise tax, sales made under the kind of contract described above are sales under a chattel mortgage arrangement within the meaning of section 4053(a)(4) of the Code, and the tax attributable to such sales shall be computed and paid in accordance with that section.