Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 64-66

1964-1 C.B. 393

Caution: Obsoleted by Rev. Rul. 69-227

IRS Headnote

For purposes of the retailers excise tax exemption provided by section 4003 of the Internal Revenue Code of 1954, a ball point pen which contains a reservoir of writing fluid is considered to be a fountain pen. A ball point pen which comes within the scope of that retailers excise tax exemption is not `taxable under section 4001' and, therefore, is not within the manufacturers excise tax exemption provided by section 4224 of the Code.

Full Text

Rev. Rul. 64-66

Advice has been requested concerning the applicability of the manufacturers excise tax to a manufacturer's sales of ball point pens, in view of the exemption provided by section 4224 of the Internal Revenue Code of 1954.

A manufacturing company produces and sells a pen in which the writing point is a small steel ball that rotates in its socket and inks itself by contact with an inner magazine of ink. By pushing a plunger button at the top of the pen, the ball point is extended into writing position. By pushing the plunger button again, the point is retracted into the barrel of the pen to keep it from coming into contact with dirt and grit which might impair its efficiency.

The company manufactures one model of pen on which the entire cap, clip, plunger button and tip are plated with gold one one-hundred-thousandth of an inch or more in thickness.

The company manufactures another model of pen the only goldfilled parts of which are the plunger button and a narrow band at the top of the cap. The band, which is not more than three-eighths of an inch in width, reinforces the top of the cap at the point of stress and also operates are a seat against which the plunger operates. Because of the extensive use of these parts, a highly durable corrosion-resistant metal is considered necessary.

Section 4001 of the Code imposes a retailers excise tax upon several categories of articles, including `articles made of, or ornamented, mounted or fitted with precious metals or imitations thereof.'

Section 4003 of the Code provides an exemption from the retailers excise tax with respect to several specific articles, including `a fountain pen, mechanical pencil, or smokers' pipe if the only parts of the pen, the pencil, or the pipe which consist of precious metals are essential parts not used for ornamental purposes.'

Section 4201 of the Code imposes a manufacturers excise tax upon `mechanical pencils, fountain pens and ball point pens.' However, section 4224 of the Code provides that the manufacturers excise tax shall not apply to any article taxable under section 4001.

Therefore, the manufacturers excise tax imposed by section 4201 of the Code applies to the manufacturer's sale of any ball point pen which contains a reservoir of writing fluid unless it is determined that at the time of the manufacturer's sale it is an `article taxable under section 4001' within the meaning of the manufacturers excise tax exemption provided by section 4224 of the Code.

Since each of the ball point pens described in the instant case is to some extent `made of, or ornamented, mounted or fitted with precious metals or imitations thereof,' it is an article of a type subject to the retailers excise tax unless it comes within the exemption provided by section 4003 of the Code.

Section 48.4003-1(c) of the Manufacturers and Retailers Excise Tax Regulations provides that, in the case of a fountain pen, the term `essential parts' shall include the pen point, lever, clip, and the plain narrow band or bands placed on the cap for the purpose of preventing the cap from splitting or expanding. That section of the regulations also provides, in relevant part, that all other parts of a pen consisting of precious metals or imitations thereof shall be deemed to be ornamentations unless it is established that a particular part is an essential part not used for ornamental purposes. Furthermore, the tax imposed by section 4001 shall attach if the aforementioned essential band or bands on a fountain pen consist of precious metals or imitations thereof and have a combined width of more than three-eighths of an inch.

For purposes of the retailers excise tax exemption provided by section 4003 of the Code, a ball point pen which contains a reservoir of writing fluid is considered to be a fountain pen.

Based upon consideration of all the facts here involved, which included an examination of samples of the two models of ball point pens described in the instant case, it has been determined that the first model is ornamented with precious metals or imitations thereof to such an extent that it does not come within the scope of the retailers excise tax exemption provided by section 4003 of the Code. Since this pen is therefore `taxable under section 4001,' it is exempted from the manufacturers excise tax by section 4224 of the Code.

On the other hand, it has been determined with respect to the second model of pen that the gold-filled parts are essential parts not used for ornamental purposes. Therefore, under the provisions of section 4003 of the Code, this pen is exempt from the retailers excise tax. It follows that this article does not come within the scope of the manufacturers excist tax exemption provided by section 4224 of the Code and that it is subject to the manufacturers excise tax imposed by section 4201 of the Code when sold by the manufacturer.