Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 64-77

1964-1 C.B. 352

Caution: Obsoleted by Rev. Rul. 69-227

IRS Headnote

The retailers excise tax imposed by section 4001 of the Internal Revenue Code of 1954 does not apply to empty lipstick cases and compacts made of nonprecious metals and ornamented with rhinestones or other imitation stones.

Full Text

Rev. Rul. 64-77

Advice has been requested whether the empty lipstick cases and compacts described below are subject to the retailers excise tax imposed by section 4001 of the Internal Revenue Code of 1954 upon `all articles commonly or commercially known as jewelry, whether real or imitation.'

A company manufactures lipstick cases and compacts for rouge and powder. The containers are made of nonprecious metals and are ornamented with rhinestones or other  limitation stones. These lipstick cases and compacts are sold empty by various retailers.

Section 4001 of the Code imposes a tax upon various categories of articles sold at retail, including the following: (1) `all articles commonly or commercially known as jewelry, whether real or imitation'; (2) certain enumerated stones, `by whatever name called, whether real or synthetic'; and (3) `articles made of, or ornamented, mounted or fitted with precious metals or imitations thereof.'

The lipstick cases and the compacts involved here are not `made of, or ornamented, mounted or fitted with precious metals or imitations thereof' as defined by the provisions of section 48.4001-4 of the Retailers and Manufacturers Excise Tax Regulations. Furthermore, the rhinestones and other imitation stones with which the lipstick cases and the compacts are ornamented are not `real or synthetic' stones as defined by the provisions of section 48.4001-3 of the regulations. Therefore, the cases, compacts, and stones do not come within the scope of the third or second categories of articles described above as taxable under section 4001 of the Code.

The question involved here is whether the empty lipstick cases and compacts ornamented with rhinestones or other imitation stones come within the scope of the first category of articles described above as taxable under section 4001 of the Code by virtue of the provisions of section 48.4001-2 of the regulations, effective January 1, 1959. Prior to that date these articles were considered taxable under the law then in effect and the provisions of sections 320.30 and 320.31 of Regulations 51.

Section 49.4001-2 of the current regulations provides, in pertinent part, as follows:

Jewelry.-(a) Generally .-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 the sale of any of such articles 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 under this paragraph are real or imitation jewelry. Thus, articles constituting costume jewelry are subject to tax regardless of the material of which they are made.

(b) Articles made of, or ornamented with, certain stones .-Jewelry also includes articles to be carried in the hand, or hung on the arm, or carried or worn on the person, whether in pocket or bag or under the outer garments, such as cigarette cases, pocket mechanical lighters for cigarettes, cigars, and pipes, eyeglass cases, pencils, powder boxes, garter buckles, canes, purses or handbags, if made of, or ornamented, mounted or fitted with, any of the stones enumerated in section 4001 whether such stones are real or synthetic . Such articles are likewise subject to tax without regard to their utilitarian value or purpose. Mother-of-pearl is not a real or synthetic pearl; therefore, articles not otherwise subject to the tax are not made taxable by reason of their ornamentation with mother-of-pearl. * * * Emphasis added.

Since the lipstick cases and the compacts involved here are not designed to be worn on the person or on apparel for the purpose of adornment, they do not come within the scope of paragraph (a) of section 48.4001-2 of the regulations. Rather, they are articles of the type referred to in paragraph (b) of that section, and they would be taxable if they were ornamented, mounted or fitted with, any of the stones enumerated in section 4001, whether real or synthetic.

The lipstick cases and the compacts described above are ornamented with rhinestones or other imitation stones, and not with real or synthetic stones within the meaning of section 48.4001-2(b) of the regulations. Accordingly, it is held that these lipstick cases and compacts are not subject to the retailers excise tax imposed by section 4001 of the Code.