Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 65-84

1965-1 C.B. 451

IRS Headnote

The retailers excise tax on jewelry and related items, imposed by section 4001 of the Internal Revenue Code of 1954, does not apply to a deposit received under the terms of a contract for the manufacture of a class ring, where the ring is not delivered because the balance of the selling price is not received, resulting in the forfeiture of the deposit.

Full Text

Rev. Rul. 65-84

Advice has been requested whether the retailers excise tax on jewelry and related items, imposed by section 4001 of the Internal Revenue Code of 1954, applies under the circumstances described below.

High school and college students contract, either directly or through agents, with a jewelry manufacturing company for the purchase of class rings at retail. These rings have distinctive characteristics and are normally produced by jewelry manufacturers only on the basis of specific orders.

Under the contract, the student is required to make a deposit toward the total selling price of the ring. When a ring is completed, the student is notified and the ring is delivered upon receipt of the balance of the selling price. If a student fails to pay the balance, the ring is not delivered, and the deposit is forfeited by the student.

The specific question is whether a deposit forfeited under the circumstances described above is subject to the tax imposed by section 4001 of the Code. The conclusion rests upon whether there is involved a `sale at retail' for purposes of the retailers excise tax.

Section 4001 of the Code imposes a tax upon various categories of articles, including `all articles commonly or commercially known as jewelry, whether real or imitation,' when sold at retail.

Section 320.1(f) of Regulations 51 (made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47) provides that the term `sale' means an agreement whereby the seller transfers the property (that is, the title or the substantial incidents of ownership) in goods to the buyer for a consideration called the price, which may consist of money, services, or other things.

Section 320,4 of the regulations provides that, in general, the tax attaches when the title to the article sold passes from the retailer to a purchaser. When title passes is dependent upon the intention of the parties as gathered from the contract of slae and the attendant circumstances. Generally, title passes upon delivery of the article to the purchaser or to a carrier for the purchaser.

At the time the company enters into a transaction of the type described above, the ring has not yet been manufactured. The intention of the parties, as reflected by their agreement, is that title is to be conveyed, and delivery is to be made, only upon payment by the purchaser of the balance of the agreed price.

Accordingly, it is held that the transaction here described is a contract to sell, and not a present sale of, the article. Therefore, the retailers excise tax on jewelry, imposed by section 4001 of the Code, does not apply to deposits forefeited in these circumstances.