to compensate for sag and to restore the automobile to its original position, thereby giving the automobile an even ride. The insertion may be accomplished by jacking up the automobile to spread the coils of the spring. Section 4061 (b) of the Internal Revenue Code of 1954 imposes a tax on the sale by the manufacturer, producer, or importer of parts or accessories, with certain exceptions not here material, for any of the articles enumerated in section 4061 (a) of the Code. Section 316.55 (a) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C. B. 1954-2, 47, defines the term "parts or accessories" for an automobile truck or other automobile chassis or body, or taxable tractor, to include (1) any article the primary use of which is to improve, repair, replace, or serve as a component part of such vehicle or article, (2) any article designed to be attached to or used in connection with such vehicle or article to add to its utility, or (3) any article the primary use of which is in connection with such vehicle or article whether or not essential to its operation or use. Since the spring stabilizer described above is primarily designed and adapted for use on taxable automobile coil springs as a spacer or expander, it is considered to be an automobile part or accessory within the meaning of section 4061 (b) of the Code. Accordingly, sales of the spring stabilizer by the manufacturer thereof are subject to the manufacturers excise tax imposed by that section. Since the prior position of the Internal Revenue Service relating to "spring stabilizers" has not been consistent with the conclusion stated in this Revenue Ruling and since such prior position is well-known and has been followed by members of the industry involved, under the authority of section 7805 (b) of the Code, this Revenue Ruling will not be applied to sales by manufacturers made prior to May 1, 1959. SECTION 4141.-IMPOSITION OF TAX [RADIO AND TELEVISION SETS, PHONOGRAPHS AND RECORDS] Rev. Rul. 59-113 The person who owns or leases a master recording and controls the production and sale of phonograph records produced therefrom is considered to be the manufacturer of such records for the purpose of the manufacturers excise tax on phonograph records, imposed by section 4141 of the Internal Revenue Code of 1954. Advice has been requested whether the owner or a lesee of a master recording is liable for the manufacturers excise tax on phonograph records when records are produced from such master recording under the circumstances described below. Situation (1). X company is the owner of certain master recordings. Under an agreement between X company and Y corporation, Y corporation "presses" phonograph records from these master recordings. Y corporation uses its own equipment, furnishes the necessary materials, affixes labels containing information furnished by X company, and ships the finished records to X company, making a specified charge for each record. I company then sells the phonograph records either to a distributor or directly to consumers. Situation (2). Z company leases master recordings from the owner thereof and "presses" phonograph records from them. Z company uses its own equipment and furnishes all of the materials necessary to produce the finished phonograph records. The phonograph records are then sold by Z company to a distributor. Section 4141 of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of certain enumerated articles, including phonograph records. Generally, the person who owns or leases the master recording and controls the production and sale of phonograph records manufactured therefrom is considered to be the manufacturer of such records. Accordingly, in situation (1), since X company owns the master recordings and controls the production and sale of the phonograph records produced therefrom, it is held that it is the manufacturer of such records and is liable for the manufacturers excise tax on its sale of the records. No manufacturers excise tax is incurred by Y corporation with respect to its charge for "pressing" the records. Likewise, in situation (2), since Z company leases the master recordings and produces and sells the phonograph records produced therefrom, it is held that it is the manufacturer of such records and is liable for the manufacturers excise tax on its sale of the records. The owner of the master recording does not incur liability for the manufacturers excise tax with respect to the lease of the master recording. Rev. Rul. 59-114 The person who owns a master record and controls the production and sale of phonograph records produced therefrom is the manufacturer of such records for the purpose of the manufacturers excise tax on phonograph records imposed by section 4141 of the Internal Revenue Code of 1954. This is true, even though the magnetic tape from which the music or message is transmitted to the master record is owned by another person who permits its use under special arrangements. For purposes of determining liability for the manufacturers excise tax, advice has been requested with respect to who is the manufacturer of phonograph records which are produced and distributed under the circumstances described below. Situation (1). X corporation is engaged in manufacturing phonograph records for various customers. Under a special contract, X agrees to produce for Y company a specified number of records which will reproduce a message contained in a magnetic tape recording furnished by Y. X corporation sends Y company's tape recording to a processing firm, which transcribes the message on a steel plate, usually called a "master record." A so-called "printer" then is made from the master record. The processing firm sends this printer to X corporation, which uses the printer in "pressing" the phonograph records which are shipped to Y company. Y company either sells the records or uses them in its business. X corporation pays the processing firm for making the master record and the printer, this cost being one of the factors which I takes into account in establishing its charge to Y company. The master record is stored by the processing firm in the name of X corporation for possible further use in making additional printers. However, Y company retains the right of ownership of the tape recording, the master record, and the printer. Situation (2). A owns certain copyrighted magnetic tape recordings. Under a contract with Z corporation, A authorized Z to have a record company produce master records and a specified number of phonograph records from these tape recordings. In accordance with the terms of the contract, the distribution and sale of the phonograph records are controlled by Z corporation, and Z pays A a royalty on each record produced. Title to the master records is vested in Z corporation, but the tape recordings remain the property of A. Section 4141 of the Internal Revenue Code of 1954 imposes a tax upon the sale by the manufacturer, producer, or importer of certain enumerated articles, including phonograph records. Generally, the ownership of a master record vests in the owner the right to control the production and sale of any phonograph records which are produced from that master record. In the absence of arrangements whereby the owner of the master record transfers that right to someone else, he is considered to be the manufacturer of the phonograph records for purposes of the manufacturers excise tax. Likewise, the ownership of a tape recording vests in the owner the right to control the production and use of any master records which are produced from that tape recording. In the absence of a transfer of that right, it is considered to remain with the owner of the tape recording. The manufacturers excise tax is imposed upon the sale of phonograph records by the manufacturer, producer, or importer thereof. The person who controls the production and sale of phonograph records often is not the person who actually presses the records. Liability for the manufacturers excise tax is incurred by the person who has the right to control the production and sale of the phonograph records. The right to that control is usually determined by the ownership of the master record. Where a tape recording is utilized as the medium for transmitting sound to a master record, the ownership of the tape recording and any arrangement regarding its use are factors to be considered in establishing who is the owner of the master record. In situation (1), since Y company retains title to the master record and does not transfer its right to control the production and sale of the phonograph records produced from the master record, it is held that Y company is the manufacturer of the phonograph records. Therefore, upon its sale or use of the phonograph records, Y company becomes liable for the manufacturers excise tax imposed by section 4141 of the Code. X corporation incurs no manufacturers excise tax liability with respect to its charge for labor and materials used in producing the phonograph records from the master record owned by Y company. However, in situation (2), it is held that Z corporation is the manufacturer of the phonograph records produced under the contract with A, since Z becomes the owner of the master record and controls the 500392-59 production and sale of the phonograph records. Therefore, Z corporation is liable for the manufacturers excise tax upon its sale of the phonograph records. A does not incur any liability for the manufacturers excise tax upon the royalties which he receives under the contract. SECTION 5704.-EXEMPTION FROM TAX [TOBACCO, CIGARS, CIGARETTES, AND CIGARETTE PAPERS AND TUBES] 26 CFR 270.146: Mark. Identification of transferee manufacturer in the required mark. See Rev. Proc. 59-8, page 33. 26 CFR 270.152: Transfer of Cigars and cigarettes. Identification of transferee manufacturer in the required mark. See Rev. Proc. 59-8, page 33. 26 CFR 275.135: Mark. Identification of transferee manufacturer in the required mark. See Rev. Proc. 59-8, page 33. 26 CFR 275.141: Transfer of manufactured tobacco. Identification of transferee manufacturer in the required mark. See Rev. Proc. 59-8, page 33. SECTION 5708.-LOSSES CAUSED BY DISASTER [TO- AND AND 26 CFR 296.53: Persons to whom payment may be made. CIGARETTE T.D. 63681 TITLE 26-INTERNAL REVENUE, 1954.-CHAPTER I, SUBCHAPTER E. PART 296.MISCELLANEOUS REGULATIONS RELATING TO TOBACCO MATERIALS, TOBACCO PRODUCTS, AND CIGARETTE PAPERS AND TUBES Losses of tobacco products and cigarette papers and tubes caused by a disaster occurring after December 31, 1954, and not later than September 2, 1958 DEPARTMENT OF THE TREASURY, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington 25, D.C. To Officers and Employees of the Internal Revenue Service and Others Concerned: It has been determined that it may not be possible, in some instances, for claimants to comply with the provisions of regulations in subpart 124 F.R. 1704. B of the Miscellaneous Regulations Relating to Tobacco Materials, Tobacco Products, and Cigarette Papers and Tubes (26 CFR Part 296), which require persons replacing or giving credit for tobacco products or cigarette papers or tubes lost and the recipients of such replacements or credits to join in the claims. Accordingly, it has been deemed desirable to amend the regulations to liberalize the requirement in this respect so that an otherwise allowable claim may be considered for allowance. To accomplish this purpose and in order to make a clarifying change, 26 CFR Part 296 is amended as follows: PARAGRAPH 1. Section 296.53 is amended by inserting, in the second sentence, immediately before the word "rendered", the word "lost,". PAR. 2. Section 296.54 is amended by striking the period at the end of the second sentence and inserting in lieu thereof the following: : Provided. That the assistant regional commissioner may allow a claim which otherwise is in compliance with the requirements of this subpart even though the person (or persons) receiving such replacement or credit does not join in the claim, if the failure to join in the claim is the result of (a) such person's death, (b) inability to locate such person, or (c) such person's refusal to joint in the claim. PAR. 3. A new section, reading as follows, is inserted immediately following section 296.57: SEC. 296.57a EVIDENCE OF REPLACEMENT.-Where, as provided in section 296.54, a possessor alleged to have received replacement does not join in the claim, the claimant must establish by documentary evidence (such as receipts or receipted copies of invoices) the replacement to the possessor as required by section 296.59. Because the time for filing claims under subpart B of 26 CFR Part 296 expires on March 2, 1959, and because of the liberalizing nature of these amendments, it is found that it is impracticable and contrary to the public interest to issue this Treasury Decision with notice and public procedure thereon under section 4(a) of the Administrative Procedure Act (60 Stat. 238; 5 U.S.C. 1003), or subject to the effective date limitation of section 4 (c) of such Act. Accordingly, this Treasury Decision shall be effective on September 3, 1958. (This Treasury Decision is issued under the authority contained in section 7805 of the Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C. 7805) and section 209 of Public Law 85-859.) Approved March 3, 1959. FRED C. SCRIBNER, JR., DANA LATHAM, Commissioner of Internal Revenue. Acting Secretary of the Treasury. (Filed by the Division of the Federal Register on March 6, 1959, 8:47 a.m., and published in the issue of the Federal Register for March 7, 1959, 24 F.R. 1704.) |