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 Rev. Rul. 63-78

1963-1 C.B. 185

Caution: Obsoleted by Rev. Rul. 69-227

IRS Headnote

Bracelets, earrings, rings, etc., which are included in so-called `toy jewelry sets' are subject to tax as jewelry within the meaning of section 4001 of the Internal Revenue Code of 1954, if they are designed, or held out for sale, for wear on the person or apparel of a child.

Full Text

Rev. Rul. 63-78

Advice has been requested as to the applicability of the retailers excise tax to so-called `toy jewelry sets.'

A retailer sells articles described as `toy jewelry sets' which include such items as bracelets, earrings, necklaces, scatter pins, rings, and imitation watches. Most of these articles are made of nonprecious metal, such as brass, and are mounted with rhinestones; some are made of plastic. All are of suitable size for wear on the person or apparel of a child.

These articles are in every instance held out for sale as children's toys, but they are merchandised in three types of packages. In one package they are described as being intended for wear on the person or apparel of a child; in another type of package, they are held out both for wear on the person or apparel of a child and for use in dressing dolls; and, in a third type of package, the articles are referred to as articles to be used in dressing dolls.

The toy watches included in the sets, having no movements, cannot indicate the time of day. Therefore, they are not articles which come within the scope of the retailers excise tax on `watches,' `clocks,' or `cases and movements for watches and clocks.'

Section 4001 of the Internal Revenue Code of 1954 imposes a tax on the sale at retail of several categories of articles referred to generally as `jewelry and related items.' Insofar as pertinent here, the tax is imposed on `all articles commonly or commercially known as jewelry, whether real or imitation.' Because of the nature of the articles involved herein, no question of taxability is presented with respect to the other categories enumerated in section 4001 of the Code.

Section 48.4001-2(a) of the Manufacturers and Retailers Excise Tax Regulations provides that jewelry in general includes articles designed to be worn on the person or on apparel for the purpose of adornment and which in accordance with custom or ordinary usage are worn so as to be displayed, such as rings, chains, brooches, bracelets, cuff buttons, necklaces, earrings, beads, charms, pendants, etc. The tax is imposed on any such articles sold at retail regardless of the substance of which made and without reference to their utilitarian value or purpose, unless for a purpose specifically exempted by law. It is immaterial whether the articles taxable under this paragraph are real or imitation jewelry.

If bracelets, earrings, rings, etc., are either designed or held out for sale as articles to be worn on the person or apparel of a child, they are `articles commonly or commercially known as jewelry' within the meaning of the regulations, since they are articles intended to be worn on the person or apparel of an individual for purposes of adornment. The fact that such articles may be advertised as toys, or are sold for a relatively small price, has no bearing on their status as jewelry under the statute and regulations.

Since the articles described above (other than the toy watches) are of a design suitable for wear on the person or apparel of a child, they are articles of jewelry, for purposes of the retailers excise tax. The fact that these articles are in certain instances held out for sale for use only in dressing dolls does not affect their status as taxable articles. Accordingly, the retailer's sales of the three types of sets described above are subject to the retailers excise tax.

Because the toy watches included in the sets are not subject to the tax, the sale of a set containing such a `watch' is a `combination' sale of taxable and nontaxable articles. The method to be followed in computing the tax due on combination sales of this nature is set forth in Revenue Ruling 58-551, C.B. 1958-2, 747.