1959-1 C.B. 352; 1959 IRB LEXIS 362, *;
REV. RUL. 59-139



Rev. Rul. 59-139



SECTION 4216. - DEFINITION OF PRICE



(Also Section 4141.)



1959-1 C.B. 352; 1959 IRB LEXIS 362; REV. RUL. 59-139

January, 1959

 [*1] 

For purposes of computing the manufacturers excise tax, import duties, customs handling fees, ocean freight, and other expenses incurred in connection with the purchase and importation of phonograph records are considered merely elements of the cost of such imported records. Therefore any separate charges made by an importer for such expenses with respect to the sale of the records must be included in the tax base. However, charges for expenses actually incurred by the importer for freight and insurance in connection with the shipment of the records from the point of importation in this country direct to the customer may be excluded in determining the price for which the records are sold by the importer.



Advice has been requested whether the manufacturers excise tax on the sale of phonograph records by the importer thereof applies to charges for expenses incurred in connection with the purchase and importation of the records, when those charges are billed separately by the importer.

A domestic company offers for sale imported phonograph records. When an order for such records is received from a customer, it is relayed by the company from this country to a foreign manufacturer [*2]  with instructions to ship the records direct to the customer. The company bills the customer separately for the sale price of the records and for the expenses incurred in connection with the importation of the records such as import duties, customs handling fees, and ocean freight.

Section 4141 of the Internal Revenue Code of 1954 imposes upon the sale of phonograph records by the manufacturer, producer, or importer thereof, a tax equivalent to a stated percentage of the price for which sold. For the purpose of determining the price for which an article is sold, section 4216(a) of the Code provides that a transportation, delivery, insurance, installation, or other charge shall be excluded from the price only if the amount thereof is established to the satisfaction of the Secretary of the Treasury or his delegate.

In any case involving two movements, either actual or constructive, of the taxable goods from the supplier to the taxpayer vendor, in the instant case the importer, and the other from the vendor to his vendee, no exclusion would be allowable for the charges for the first of these movements but an exclusion would be allowable for the charges for the second.

It is held [*3]  that import duties, customs handling fees, ocean freight, and other expenses incurred by a taxpayer in connection with the purchase and importation of phonograph records are considered merely elements of the cost of the imported records. Therefore, any separate charges made by the importer for such expenses with respect to the sale of the records must be included in the tax base. However, charges made by the importer for expenses actually incurred by the importer for freight and insurance in connection with the shipment of the records from the point of importation in this country direct to the customer may be excluded in determining the sale price for the purpose of computing the tax.