Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 64-46

1964-1 C.B. 390

IRS Headnote

The applicability of the exemption from the manufacturers excise taxes with respect to taxable articles sold for use as `sea stores' for certain vessels, provided by section 4221(a)(3) of the Internal Revenue Code of 1954, is not precluded by the possibility that consumable articles may be only partially consumed during the voyage, or that durable articles may be used not only during the course of the voyage but retained for use subsequent to the voyage.

Full Text

Rev. Rul. 64-46

Advice has been requested relative to the exemption from manufacturers excise taxes provided by section 4221(a)(3) of the Internal Revenue Code of 1954 with respect to articles sold for use as supplies for certain vessels.

A manufacturer of photographic equipment sells cameras and film to owners, charterers, or authorized agents of various vessels (water-craft) for use as `sea stores' on such vessels. The manufacturer has asked whether the applicability of the exemption provided by section 4221(a)(3) of the Code is precluded by the possibility that consumable articles, such as the film, may be only partially consumed during the voyage, or that durable articles, such as the cameras, may be used not only during the voyage but also subsequent thereto.

Section 4221(a)(3) of the Code provides that, under regulations prescribed by the Secretary of the Treasury or his delegate, no manufacturers excise tax shall be imposed on the sale by the manufacturer of an article for use by the purchaser as supplies for certain vessels, but only if such use is to occur before any other use.

Under the provisions of section 4221(d)(3) of the Code, the term `supplies for vessels' includes `sea stores' on vessels of war of the United States or of any foreign nation, vessels employed in the fisheries or in the whaling business, or vessels actually engaged in foreign trade or trade between the Atlantic and Pacific ports of the United States or between the United States and any of its possessions.

In accordance with the provisions of section 316.28(a) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, no tax attaches to the sale by the manufacturer of an article covered by the regulations where such article is sold by the manufacturer direct for use as `sea stores' on the vessels enumerated in section 4221(d)(3) of the Code.

Section 316.28 of the regulations further provides, in pertinent part, as follows:

(c) The term `sea stores' includes any article purchased for use or consumption by the passengers or crew, or both, of a vessel upon its voyage.

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(h) Tax-free sales under this section must be restricted to such of the articles covered by the regulations in this part as normally form a part of the supplies, stores, or equipment of the vessels enumerated. The exemption does not apply to articles which are for resale to passengers or members of the crew for consumption or use otherwise than during the voyage of a vessel, or to articles which are to be transported for the use of others, or to those which are to be used in any manner other than as specified in this section. Articles may not be sold by the manufacturer tax free direct to passengers or crew but only to the owner, officer, or charterer, or authorized agent of the vessel.

It is held that with respect to taxable photographic equipment sold for use under the conditions stated above, or in the case of any other taxable article so sold, the applicability of the exemption provided by section 4221(a)(3) of the Code is not precluded by the fact that articles of a consumable nature may not be entirely consumed during the voyage, or that articles of a durable nature, in addition to being used during the voyage, may also be retained by the passengers or crew for use beyond the duration of the voyage.

However, it should be noted that the exemption provided by section 4221(a)(3) does not apply unless the registration requirements of section 4222 of the Code and the applicable regulations are met.