Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 63-4

1963-1 C.B. 219

Caution: Obsoleted by Rev. Rul. 69-227

IRS Headnote

The manufacturers excise tax on self-contained air-conditioning units, imposed by section 4111 of the Internal Revenue Code of 1954, applies to the sale by the manufacturer of an air-conditioning unit which is designed and sold for use in installations using ducts, but which also is suitable for direct delivery of conditioned air without the use of ducts.

Full Text

Rev. Rul. 63-4 /1/

The Internal Revenue Service has been asked to establish an administrative test for determining the applicability of the manufacturers excise tax to certain described air-conditioning units.

Section 4111 of the Internal Revenue Code of 1954 imposes a tax upon the sale of `self-contained air-conditioning units' by the manufacturer, producer, or importer.

Section 48.4111-2(c) of the Manufacturers and Retailers Excise Tax Regulations provides, in part, as follows:

The term `self-contained air-conditioning units' includes a factory-made encased assembly or one sold for assembly on installation which-

(1) Is designed (i) for the direct delivery of conditioned air, the unit being suitable for effecting such delivery without the use of ducts, and (ii) for the removal of heat,

(2) Incorporates means for cooling, dehumidifying, and circulating the air of a room or other enclosure, and

(3) Is designed for use as a portable unit, console unit, or for installation in or in front of a window or other opening.

This section of the regulations also provides that the term `self-contained air-conditioning units' does not include any unit which requires the use of a water-cooled system for the discharge of removed heat.

The above section of the regulations is generally effective January 1, 1959. However, section 48.4111-5(c) provides an effective date of December 1, 1959, with respect to air-conditioning units of the compressor type having a total motor horsepower of 1 horsepower or more, and such units of the absorption type having a total cooling capacity of 10,000 B.T.U. or more per hour because the Service previously held these units not taxable. See  Rev. Rul. 54-462, C.B. 1954-2, 410.

Units which are held out, advertised and sold by the industry as so-called `room air-conditioners', `window units' or similarly described air-conditioners are recognized by both the Service and industry as clearly taxable under the law and applicable regulations. However, certain air-conditioning units, commonly called central or unitary air-conditioners by the industry, although designed for use with ducts, have nevertheless been held out, advertised, and sold by manufacturers as being suitable for use without ducts if equipped with diffusers or plenums. Certain of these units were held taxable under the provisions of section 48.4111-2(c) of the Regulations in an unpublished ruling dated August 7, 1961. The position set forth in that ruling has been widely disseminated in the industry.

Based upon information presented by the industry, the Service takes the position that-

(1) The tax applies to the sale of any air-conditioning unit which is advertised, sold, or otherwise held out by the manufacturer as being suitable for use for the direct delivery of conditioned air without the use of ducts regardless of the rated cooling or air flow capacity of the unit. In determining whether a manufacturer has advertised, sold, or otherwise held out a unit in such a manner that sales of the unit become taxable, reference will be made to all pertinent material, including advertising or sales practices and literature, installation manuals, specification sheets, etc.

(2) The tax does not apply to the sale of an air-conditioning unit where the manufacturer of the unit establishes to the satisfaction of the Commissioner of Internal Revenue that the unit of his manufacture is designed and constructed for use only with ducts and is not suitable for use for the direct delivery of conditioned air without ducts, and is so held out and sold by him.

In applying the foregoing tests, an air-conditioning unit will be presumed to be designed for use only with ducts and not suitable for use for the direct delivery of conditioned air without the use of ducts if it has both (i) a cooling capacity in excess of 38,000 British thermal units per hour (based on the applicable Air-Conditioning and Refrigeration Institutes standard) and (ii) a rated air flow capacity in excess of 1,350 cubic feet per minute against an external static pressure of 0.10 inches water gauge.

Under the authority of section 7805(b) of the Code, no tax will be applied to the sale of an air-conditioning unit where it is established that the unit was designed for use with ducts notwithstanding the fact that such unit was also advertised, held out and sold by the manufacturer as being suitable for use with proper adaptation without ducts, where the unit was sold before August 7, 1961, or sold pursuant to a firm contract of sale effected prior to that date, even though delivery is made on or after that date.

/1/ Also released as Technical Information Release 426, dated December 20, 1962.