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Rev. Rul. 69-393 1969-2 C.B. 206

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Revenue Ruling 69-393

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Headnote

A company that distributes firearms of foreign manufacture is the “importer,” for purposes of the manufacturers tax, where a domestic importing company is merely a conduit under a contractual agreement entered into by the three parties.

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ISSUE

Advice has been requested as to who is the “importer” of certain firearms for purposes of the manufacturers excise tax imposed by section 4181 of the Internal Revenue Code of 1954 in the situation described below.

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FACTS

X, a domestic corporation, distributes certain firearms with respect to which tax is imposed by section 4181 of the Code on the sale by a manufacturer, producer, or importer. The firearms acquired by X are nominally imported by Y, a domestic corporation, unrelated to X. Z, a foreign manufacturer, produces the firearms according to plans and specifications furnished by X. The manufacture, importation, and sale of the firearms are governed by terms and conditions provided in an agreement between X, Y, and Z as contracting parties. Under the agreement Y has exclusive rights acquired from X to import firearms impressed with the X brand name. X agrees to supply American walnut stockwood blanks to Z at a specified price per blank. Z furnishes all other materials and labor in the production of the firearms and sells them to Y at prices that may be adjusted by a formula set forth in the contract. X has the right to have a resident inspector at Z’s plant with authority to reject any firearms prior to shipment that do not conform to the specifications furnished by X. The price from Y to X is the total landed cost including customs duty, ocean freight, marine insurance, etc., plus five percent.

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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 firearms, shells, and cartridges. An “importer” within the meaning of section 4181 of the Code is the person who has principal and not as agent arranges for, or is the inducing and efficient cause of, the firearms being brought into the United States for the purposes of sale or use by him. See Rev. Rul. 67-209, C.B. 1967-1, 297, and Rev. Rul. 68-197, C.B. 1968-1, 455. For purposes of the manufacturers excise tax, it is necessary to look through the form to the substance of a transaction to determine whether a nominal importer actually functions as a typical import merchant, or merely serves in a representative capacity, charged only with the responsibility for bringing articles into the United States pursuant to a contract between the principals involved. In the instant case, Y does not assume any of the risks of a typical merchant importer. Y serves merely as a conduit through which orders are transmitted to Z and through which firearms, when received, are transferred to X. The five percent added to the landed cost of the firearms is compensation for services rendered by Y as the corporate agent of X. Thus, Y merely handles the importation of the firearms into the United States and delivers them to X. The compensation for this service does not represent a return on Y’s capital investment achieved in open competition for the firearms market in the United States. Moreover, X supplies stockwood blanks to the foreign manufacturer, prescribes the specifications of the firearms, and retains the right to reject firearms that do not conform to such specifications prior to their shipment to the United States.

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HOLDING

Under the circumstances described above, it is held that X is the importer of the firearms for purposes of the manufacturers excise tax. Accordingly, X is liable for the tax imposed by section 4181 of the Code on its sale of the firearms.