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Revenue Ruling 69-325

Rev. Rul. 69-325 1969-1 C.B. 284

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Headnote

Sales of used military rifles that have been converted to sport-type rifles are subject to the manufacturers tax.

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ISSUE

Advice has been requested whether the manufacturers excise tax on firearms, imposed by section 4181 of the Internal Revenue Code of 1954, applies to sales of rifles produced under the circumstances set forth below.

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FACTS

A company purchases used military-type rifles and converts them to sport-type rifles by cutting off the wood stock just forward of the rear sight. The stock is sanded and varnished as needed and the wooden upper hand guard is discarded. In some cases several inches are cut off the end of the barrel and a new front sight affixed. If necessary, the barrel is cleaned and spray painted. Other operations that may be performed are the replacement of the side and front swivels, and alteration of the bolt handle. The converted rifles are advertised and sold as “sport models.”

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LAW AND ANALYSIS

Section 4181 of the Code imposes a tax upon the sale by the manufacturer, producer, or importer of pistols, revolvers, and other firearms. Section 316.4(a) of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that the term “manufacturer” includes a person who produces a taxable article from scrap, salvage, or junk material, as well as from new or raw material, (1) by processing, manipulating or changing the form of an article, or (2) by combining or assembling two or more articles. In the instant case, the company has produced a different article, for purposes of the manufacturers excise tax, by changing the form of the rifle. The process of converting a military-type rifle to a sport-type rifle is an act of manufacture within the meaning of the above-cited regulations. Whether the process entails removing the old military-type stock and replacing it with a new sport-type stock or reshaping the old military-type stock into a sport-type stock is immaterial. Furthermore, cutting off part of the barrel is, of itself, also an act of manufacture.

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HOLDING

Accordingly, it is held that the tax imposed by section 4181 of the Code applies to sales by the converter of rifles subjected to the above-described operations. See Revenue Ruling 64-202, C.B. 1964-2, 431, which holds that a gunsmith who buys used military-type firearms, discards the stocks, sights and trigger guards and uses only the barrels and actions in making custom-type firearms, produces a new and different article subject to the manufacturers excise tax.