SUPPLEMENT TO TREASURY DECISIONS (T. D. 2833) TREASURY DEPARTMENT UNITED STATES INTERNAL REVENUE W-S, lukytof fcvwiwe 5*rvft«,- REGULATIONS 48 RELATING TO THE EXCISE TAXES ON WORKS OF ART AND JEWELRY UNDER Sections 902 and 905 of the REVENUE ACT OF 1918 WASHINGTON GOVERNMENT PRINTING OFFICE 1919 4 CONTENTS. Page. 25. Watches and clocks 13 26. Opera glasses, lorgnettes, marine glasses, field glasses and binoculars- 13 L'T. Second-hand articles 13 2S. Repairs 13 \n.M IMS i BA riVE I i:"\ isiONS. 29. Exemption of export sale T 13 30. Proof of exportation I 4 31. Trade with possessions of the United States 15 32. Transfer of burden of tax I 5 33. Return and payment of tax 16 34. Returns by agents 17 35. Credits and refunds T IT 3G. Fractional part of cent 18 37. Penalties • 1 § 3S. Promulgation 19 EXCISE TAXES ON WORKS OF ART AND JEWELRY. GENERAL PROVISIONS. Article 1. Basis of tax.— The tax is measured by the price for which the article is sold. It is on the actual sales price of the goods, and not on the list price, where that differs from the sales price. If the price of a taxable article is increased to cover the tax, the tax is on such increased price. Where, however, the tax is billed as a sepa- rate item, such amount need not be included in the price of the article in computing the tax. The tax is payable in respect to a sale made whether or not the purchase price is actually collected. A discount for cash or other discount made subsequently to the sale can not bo deducted in computing the price for the purpose of the tax. Where, however, articles are sold over a period of time under an agreement for a quantity rebate, the tax, if originally computed on the gross price, may be adjusted in the return for the month in which the price is finally determined. Commissions to agents and other expenses of sale are not deductible from the price. If articles are sold and the delivery charges to point of delivery are paid by the purchaser as a specific item, or if they are sold delivered at a sum less delivery charges to be paid by the purchaser, such charges need not be in- cluded as a part of the price of the goods; but if the vendor sells goods at a delivered price and pays the delivery charges, he is not entitled to make any deduction on account of the inclusion in the price of such charges. Art. 2. Rescission of sales. — If articles sold are returned and the sale entirely rescinded, no tax is payable, and if paid it may be credited against the tax included in a subsequent monthly return. See Art. 35. If part only of articles sold at one time is returned, and credit or rebate allowed by the vendor therefor, the portion of the tax to be credited will be only the proportion of the total tax paid which the amount allowed as credit or rebate bears to the total sale price of all the articles. If an article is sold and there- after exchanged for another article of a higher price, the purchaser paying the difference, the vendor should pay the tax on the second sale, but may take as a credit against such tax the proportion of the tax paid on the returned article which the amount allowed as a credit for the return of such article on the second sale bears to the amount of the purchase price in the case of the first sale. 5 6 EXCISE TAXES ON WORKS OF AET AND JEWELRY. Art. 3. Tax payable by vendor. — The tax is to be paid by the vendor on all sales made direct by him or through an agent, whether a sales agent, broker? or auctioneer. Where a vendor consigns ar- ticles, retaining ownership in them until they are disposed of by the consignee, the vendor must pay the tax upon all such articles sold by the consignee. Art. ■!. When tax attaches. — The tax attaches when the article is sold: that is to say, when the title to it passes from the vendor to the purchaser. When title passes is a question of fact, dependent upon the intention of the parties as gathered from the contract of sale and the attendant circumstances. Where goods are segregated from other goods owned by the vendor and it is the intention of both the vendor and the purchaser at the time the goods are segregated that they shall then belong to the purchaser, the title will be pre- sumed to pass at such time. In the absence of any intention to the contrary the title is presumed to pass upon delivery of the article to the purchaser or to a carrier for the purchaser. In the case of a conditional sale, where the title is reserved until payment of the purchase price in full, the tax attaches (a) upon such payment, or (b) when title passes if before completion of the payments, or ( or 24. Thus a cigarette case, if made of, or ornamented, mounted, or fitted with, a precious metal or imitation thereof, although not 12 EXCISE TAXES OX WORKS OF ART AND JEWELRY. taxable under this article is taxable under Article 24. It should also be noted that the examples given in this article are not intended to be exhaustive, but merely illustrative. ARTICLES NOT TAXABLE. Art. 22. Articles not taxable. — (1) The following articles of per- sonal adornment are not taxable under section 1)05, unless orna- mented, mounted or fitted with pearls, precious or semiprecious stones, or imitations thereof: (a) Articles made of textiles or feathers: (h) hat trimmings (not including hat pins) ; (c) shoe trimmings (not including buckles made of precious metal or imita- tions thereof, or ivory) ; {d) buttons ordinarily worn permanently attached to wearing apparel. (•2) Articles used as ornaments for wearing appafel are taxable if coming within the classification of subdivision (1) or (2) of Article 21, or if within the provisions of any of the following Articles. PEARLS, STONES, AND IMITATIONS. Art. 23. Pearls, precious and semiprecious stones and imitations thereof. — The tax attaches to the sale of all pearls and precious or semiprecious stones, whether real or imitation, cut or uncut, whether or not drilled, mounted, or matched, and whether or not temporarily or permanently strung, and whether with or without clasps. ARTICLES MADE OF PRECIOUS METALS OR IMITATIONS OR IVORY. Art. 24. Articles made of, or ornamented, mounted or fitted with precious metals or imitations thereof or ivory. — The term "precious metals" includes silver, gold, platinum and all metals more valuable than these. The term "imitations thereof" includes only platings or alloys of any of the above materials. The following articles are not taxable under the clause of section 905 construed in this article: (1) Articles made of imitation ivory; (2) surgical instruments; (3) articles merely ornamented or over- laid with gold or silver leaf or paint, such as picture frames, books, and Christinas cards. Glassware, china, pottery and like articles are only taxable if ornamented, mounted or fitted with precious metals or imitations thereof, but are not taxable when ornamented with gold or silver leaf or paint. It should be carefully noted, however, that the articles above enumerated, although not taxable as " articles made of, or orna- mented, mounted, or fitted with, precious metals or imitations thereof or ivory," may be taxable as jewelry. Thus a hatpin with a head of EXCISE TAXES ON WORKS OF ART AND JEWELRY. 18 imitation ivory is taxable as jewelry. For articles taxable as jewelry see Article 21. WATCHES AND CLOCKS. Art. 25. Watches and clocks. — Watch or clock movements sold sepa- rately are taxable. Watch or clock cases sold separately are tax- able when made of, or ornamented, mounted or fitted with precious metals or imitations thereof or genuine ivory. Watches and clocks sold complete are taxable regardless of the substance of which made. Watch or clock cases and movements sold separately but intended to be used together are taxable. OPERA GLASSES, ETC. Art. 26. Opera glasses, lorgnettes, marine glasses, field glasses and binoculars. — The enumeration in the statute includes only portable instruments. Instruments of the character enumerated, which by reason of their size or weight are ordinarily mounted upon tripods or other bases, are not taxable. SECOND-HAND ARTICLES. Art. 27. Second-hand articles. — Articles coming within the enumera- tion of section 905 are not exempt from taxation when sold by a dealer for consumption or use at second-hand or after being used, but are taxable on the price for which sold. REPAIRS. Art. 28. Repairs. — Ordinary repairs which do not increase (he value of the article repaired are not taxable, but repairs involving the addition of precious metals or imitations thereof or ivory are taxable upon the price of the added parts, which will be presumed to be the price charged for the job unless the contrary is shown. ADMINISTRATIVE PROVISIONS. EXPORTS. Rkc. 1310. (c) Under such rules and regulations as (he Commissioner with the approval of the Secretary may prescrihe, the taxes imposed under the provisions of Titles VI, VII, or IX shall nol apply in respect to articles sold or Leased for export and in duo course so exported. Under such rules and regulations the amount of any internal-revenue lax erroneously or illegally collected in respect to exported articles may he refunded to the exporter of the article, instead of to the manufacturer, if the manufacturer waives any claim for the amount so to he refunded. Art. 29. Exemption of export sale. — The tax does not attach to the sale of an article which is either (1) Shipped direct to a foreign destination by the manufacturer himself, or (2) both {a) sold by him for export and (5) in due course so exported by the purchaser. .Where a manufacturer at the time an article is sold or shipped 14 EXCISE TAXES ON "WORKS OF ART AND JEWELRY. (whichever is prior) has in his possession an order or contract of sale showing in writing (1) that the manufacturer is to export the article, or (2) that the purchaser is buying the article in order to export it prior to its being used or subjected to further manufacture, there is a presumption that the sale of the article is exempt from tax, as an export sale, and the manufacturer may, for a period of six months from the date of sale or shipment (whichever is prior), rely on such presumption. This presumption becomes conclusive upon the manufacturer's receiving and attaching to such order or con- t ract, before the termination of such period of six months, due "proof of exportation" (see Art. 30) of such article. On the other hand, if, within such period of six months, the manufacturer has not received, and attached to such order or contract, such "proof of exportation," then the presumption that such sale is an export sale disappears, and the manufacturer shall include a tax on the sale of such article in his return for the month in which such period of six months expires. The order or contract of sale and the "proof of exportation" must be preserved by the manufacturer in such a way as to be readily accessible for inspection by internal- revenue officers. ~No sale shall be considered to be exempt from tax under section 1310 (c) of the act, unless its character as an export sale has been established in accordance with the above provisions. Art. 30. Proof of exportation. — By the term " proof of exporta- tion" is meant: (1) An affidavit made by the exporter containing the following information: The name and address of the manu- facturer, the name and address of the exporter (who, if not the manufacturer, must be a person who has purchased direct from the manufacturer), the respective dates of the sale (or shipment, which- ever is prior), and exportation of the article, the price for which purchased, the fact that the article has been exported by the manu- facturer or original purchaser without having been used or sub- jected to further manufacture, the name of the port of foreign destination, the name and address of the carrier issuing the export bill of lading, and any further information necessary to identify the article sold with the article exported; and (2) attached to such affidavit a copy of the export bill of lading, or a certificate by the agent or representative of the export carrier showing the exporta- tion of the article, or if exported by parcel post, a copy of the certificate of mailing. TRADE WITH POSSESSIONS OF THE UNITED STATES. Sec. 1304. That there shall be levied, collected, and paid in the United States, upon articles coming into the United States from the Virgin Islands, a tax equal to the internal-revenue tax imposed in the United States upon like articles of domestic manufacture; such articles shipped from such islands to the United States shall be exempt from the payment EXCISE TAXES ON WORKS OF ART AND JEWELRY. 15 of any tax imposed by the internal-revenue laws of such Islands: Pro- vided, That there shall be levied, collected, and paid in such islands, upon articles imported from the United States, a tax equal to the internal- revenue tax imposed in such islands upon like articles there manufac- tured ; and such articles going into such islands from the United States shall be exempt from payment of any tax imposed by the internal- revenue laws of the United States. Art. 31. Trade with, possessions of United States. — A sale which results in the shipment of articles into the United States from the Virgin Islands is taxable to the same extent as a sale of articles within the United States. Articles going into the Virgin Islands from the United States are free from tax in the United States. The same rules apply to trade with Porto Rico and the Philippine Islands. See section 1000 of the revenue act of 1917 and Section V of the act of August 4, 1909, as amended by Section IV subdivision C, of the act of October 3, 1913. The tax attaches, however, to articles shipped to other possessions of the United States, including the Canal Zone. TRANSFER OF BURDEN OF TAX. Spc. 1312 (2). If (ft.) any person has prior to September 3, 1918, made a bona fide contract with a dealer for the sale * * * after the tax takes effect, of any article in respect to which a tax is imposed under Title * *. * IX * * * or under this subdivision, and in respect to which no corresponding tax was imposed by the revenue act of 1917, and (b) such contract does not permit the adding, to the amount to be paid under such contract, of the whole of the tax imposed by this act, then the vendee * * * shall, in lieu of the vendor * * * pay so much of the tax imposed by tins act as is not so permitted to be added to the contract price. If a contract of the character above described was made with any person other than a dealer, no tax shall be collected under this act. Art. 3*2. Transfer of burden of tax. — (a) In the case of articles tax- able under section 902 if A (who is not the artist) made a con- tract of the character described in the statute with B, a dealer, be- fore September 3, 1918, the liability for tax on sales made on or after February 25, 1919, in pursuance of such contract, is on B, with only a duty on A to collect and pay it to the collector. If in the above case B also made before September 3, 1918, a contract of the character de- scribed with O, another dealer, the liability for such tax. thus imposed on B, is transferred from B to C, B being obligated only to collect the tax from C and pay it over to A for payment to the collector. If, however, anj' person made before September 3, 1918, a contract of the character described with any person other than a dealer, no tax is due in respect to the sale under such contract. (5) In the case of articles taxable under section 905, if a dealer, before September 3, 1918, made a contract of the character described in the statute for the sale on or after April 1, 1919, of any of the 1G EXCISE TAXES ON WORKS OF ART AND JEWELRY. enumerated articles for consumption or use, the sales made in pur- suance of such contract arc not taxable. (See art. 19 (c).) RETURN AND PAYMENT OF TAX. Sec. 903. That every person liable for any tax Imposed by section * * * f)Q2 * * * ) shall make monthly returns under oath in dupli- cate and pay the taxes * * * to the collector for the district in which is located the principal place of business. Such returns shall con- tain such information and be made at such times and in such manner as the Commissioner, with the approval of the Secretary, may by regula- tions prescribe. The tax shall, without assessment by the Commissioner or notice from the collector, be due and payable to the collector at the time so fixed for filing the return. * * * Sec. 905. * * * Every person selling any of the articles enumerated in this section shall make returns under oath in duplicate (monthly or quarterly as the Commissioner, with the approval of the Secretary, may prescribe) and pay the taxes imposed in respect to such articles by this section to the collector for the district in which is located the principal place of business. Such returns shall contain such information and be made at such times and in such manner as the Commissioner, with the approval of the Secretary, may by regulations prescribe. The tax shall, without assessment by the Commissioner or notice from the collector, be due and payable to the collector at the time so fixed for filing the return. Sec. 1312. (4) The taxes payable by the vendee * * * under this section shall be paid to the vendor at the time the sale * * * is con- summated and collected, returned, and paid to the United States by such vendor * * * in the same manner as provided in section 502. Sec 1309. That the Commissioner, with the approval of the Secretary, Is hereby authorized to make all needful rules and regulations for the enforcement * * * of this act (and) * * * may by regulations provide that any return required by Titles * * * IX * * * to be under oath may, if the amount of the tax covered thereby is not in excess of $10, be signed or acknowledged before two witnesses instead of under oath. Art. 33. Return and payment of tax. — In accordance with the sec- tions above set forth and section 502, every person liable for the tax in respect to the sale of any of the articles enumerated in sec- tion 902 or section 905 must make monthly returns under oath in duplicate (except that if the amount of tax covered thereby is not in excess of $10 such returns may be signed and acknowl- edged before tw r o witnesses instead of under oath), and pay' the taxes imposed on such articles to the collector of internal revenue for the district in which his principal place of business is located. If he has no place of business, return should be made to the col- lector for the district in which he resides. An itinerant dealer should make return and pay the tax to the collector of the district where the sales are made. The returns shall be made on Form EXCISE TAXES CX WOKKS OF ART AND JEWELRY. 17 728A. Instructions for preparing- the return will be found on the back of the form. The returns are to be rendered and the tax paid on or before the last dav of each month covering the transactions of the preceding month. The first return under section 902 must cover all transactions from February 25, 1919, to March 31, 1919, both inclusive, and is to be made on or before May 31, 1919. The first return under section 905 must cover all transactions from April 1, 1919. to April 30, 1919, both inclusive, and is to be made on or before May 31, 1919. The books of every person liable to the tax shall be open at all times for inspection by examining internal- revenue officers. RETURNS BY AGENTS. At;t. 84. Returns by agents. — Every auctioneer, agent, factor, broker, dealer, or other person selling any of the articles enu- merated in section 902, as agent for the owner, unless such owner is the artist, shall make monthly return under oath to the collector for the district in which his principal place of business is located, stat- ing as to each article sold for any such owner the name and address of such owner, the date and amount of the sale, and a brief descrip- tion of the article. CREDITS AND REFUNDS. Sec. 1310. (a) That in the case of any overpayment or overeollection of any tax imposed by * * * Title IX, the person making such over- payment or overeollection may take credit therefor against taxes due upon any monthly return, and shall make refund of any excessive amount collected by him upon proper application by the person entitled thereto. (b) Wherever in this act a tax is required to be paid by the purchaser to the vendor at the time of a sale, and such sale is made on credit, then, under regulations prescribed by the commissioner, with the approval of the Secretary, the tax may, at the option of the vendor, be returned and paid by him to (he United .Stales as if paid to him by the purchaser at the time of the sale, and in such case the vendor shall have a right of action in any court of competent jurisdiction against the purchaser for the amount of the tax so returned and paid to the United States. Art. 85. Credits and refunds. — If a person overpays the tax due with one monthly return, he may take credit for the overpayment against the tax due with a succeeding return. If under section 1312 of the statute or otherwise, he similarly overcollects the tax. he shall refund the overeollection to the purchaser. If in a case uruler section 1312 he sells on credit, he shall make return of the tax at the time of the sale, but may defer collection of it from the purchaser, (See Art. 1.) For the procedure with reference to claims for refund see sections 3220 and 3225 of the Revised Statutes, as amended by section 1316 of the Revenue Act of L918, and Regu- lations No. 14 (revised). 18 EXCISE TAXES ON WORKS OF ART AND JEWELRY. FRACTIONAL PART OF CENT. Sec. 1313. That in the payment of any tax under this act not payable by stamp a fractional part of a cent shall be disregarded unless it amounts to one-half cent or more, in which case it shall be increased to 1 cent. Art. 30. Fractional part of cent. — In computing the tax a fractional part of a cent shall be disregarded unless it amounts to one-half cent or more, in which case it shall be increased to a full cent. PENALTIES. Art. 37. Penalties. — Section 317G of the United States Revised Statutes, as amended by section 1317 of the Revenue Act of 191S. Sec 3176. * * * In case of any failure to make and file a return or list within the time prescribed by law, or prescribed by the Commis- sioner of Internal Revenue or the collector in pursuance of law, the Com- missioner of Internal Revenue shall add to the tax 25 per centum of its amount, except that when a return is filed after such time and it is shown that the failure to file it was due to a reasonable cause and not to willful neglect, no such addition shall be made to the tax. In case a false or fraudulent return or list is willfully made, the Commissioner of Internal Revenue shall add to the tax 50 per centum of its amount. The amount so added to any tax shall be collected at the same time and in the same manner and as part of the tax unless the tax has been paid before the discovery of the neglect, falsity, or fraud, in which case the amount so added shall be collected in the same manner as the tax. Sections 903, 905, 1308 and 1319, of the Revenue Act of 1918 : Sec. 903. * * * If the tax is not paid when due, there shall be added as part of the tax, a penalty of 5 per centum, together with inter- est at the rate of 1 per centum for each full month, from the time when the tax became due. Sec. 905. * * * If the tax is not paid when due, there shall be added as part of the tax a penalty of 5 per centum, together with inter- est at the rate of 1 per centum for each full month, from the time when the tax became due. Sec. 1308. (a) That any person required under Titles IX * * * to pay * * * any tax, or required by law or regulations made under authority thereof to make a return or supply any information for the purposes of the computation, assessment or collection of any such tax, who fails to pay * * * any such tax, make any such return, or sup- ply any such information at the time or times required by law or regula- tion shall in addition to other penalties provided by law, be subject to a penalty of not more than $1,000. (b) Any person who willfully refuses to pay * * * any such tax, make such return or supply such information at the time or times re- quired by law or regulation, or who willfully attempts in any manner to evade such tax, shall be guilty of a misdemeanor, and in addition to other penalties provided by law shall be fined not more than $10,000 or imprisoned for not more than one year, or both, together with the cost of prosecution. EXCISE TAXES OX WOEKS OF ART AND JEWELRY. 19 (c) Any person who willfully refuses to pay * * any such tax shall, in addition to other penalties provided by law, he liable to a pen- alty of the amount of the tax evaded, or not paid, * * to be as- sessed and collected in the same manner as taxes are assessed and col- lected : Provided, however, that no penalty shall be assessed under this subdivision for any offense for which a penalty may be assessed under authority of section 317G of the Revised Statutes, as amended * * *. (d) The term "person" as used in this section includes an officer or employee of a corporation or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs. Sec. 1319. That whoever in connection with the sale * * * or offer for sale * * * of any article, or for the purpose of making such sale * * * makes any statement, written or oral, (1) intended or calculated to lead any person to believe that any part of the price at which such article is sold * * * or offered for sale * * * con- sists of a tax imposed under the authority of the United States, or (2) ascribing a particular part of such price to a tax imposed under the authority of the United States, knowing that such statement is false or that the tax is not so great as the portion of such price ascribed to such tax, shall be guilty of a misdemeanor and upon conviction thereof shall be punished by a line of not more than $1,000 or by imprisonment not ex- ceeding one year, or both. AUTHORITY FOR REGULATIONS. Sec. 1309. That the Commissioner, with the approval of the Secretary, is hereby authorized to make all needful rules and regulations for the enforcement of the provisions of this act. Art. 3.8. Promulgation. — In pursuance of the statute the foregoing regulations are hereby made and promulgated and all rulings in- consistent herewith are hereby revoked. Daniel C. Roper, Commissioner of Internal Revenue. ' Approved May 2. 1919 : 11 5 J. H. MOYLE, Acting Secretary of the Treasury. o LAW LIBRARY UNIVERSITY ©F GAL1P«RNIA p Manufoctured by .^GAY LORD BROS. Ir K Syracuse, N.Y. E Stockton, Col if. 00 SOUTHERN REGIO O^L LIBRARY FACILITY A A 000 348 751