Internal Revenue Service
Rev. Rul. 65-134
1965-1 C.B. 492
Fishing vessels are `employed exclusively in the fisheries or whaling business,' for purposes of the exemption provided by section 4221(a)(3) of the Internal Revenue Code of 1954, when used by the owners (1) exclusively for the purpose of catching shrimp and other types of aquatic life for sale commercially as bait or (2) on specific trips exclusively for catching fish all of which are to be sold commercially. Therefore, gasoline and lubricating oil may be sold tax-exempt by the producer to the owners for use as supplies on these vessels.
Rev. Rul. 65-134
Advice has been requested whether certain fishing vessels are considered to be vessels `employed exclusively in the fisheries or whaling business' and, if so, whether gasoline and lubricating oil may be sold on a tax-exempt basis by producers direct to the vessel owners.
Situation 1 .-The owner of a fishing vessel is engaged in selling fish bait at a stand operated by him. He uses the vessel exclusively for catching shrimp and other types of aquatic life for sale as bait at his stand. In some instances the shrimp are sold by the boat owner to another boat stand operator for resale.
Situation 2 .-The owner of a fishing vessel is engaged in providing facilities and transportation, on a daily per trip rental basis, to parties fishing for sport. When his boat is not being used for such fishing parties, the owner fishes on a commercial basis. All fish caught by him on these trips are sold to local fish markets for resale. The question herein relates to gasoline and lubricating oil sold for use on the commercial fishing trips.
Section 4081 of the Internal Revenue Code of 1954 imposes a tax upon gasoline sold by the producer or importer thereof, or by any producer of gasoline. Section 4091 of the Code imposes a tax on lubricating oils sold in the United States by the manufacturer or producer.
Section 4221 of the Code provides, in pertinent part, as follows:
(a) GENERAL RULE.-Under regulations prescribed by the Secretary or his delegate, no tax shall be imposed under this chapter on the sale by the manufacturer of an article-
(3) for use by the purchaser as supplies for vessels or aircraft,
* but only if such * * * use is to occur before any other use.
(d) DEFINITIONS.-For purposes of this section-
(a) Supplies For Vessels Or Aircraft .-The term `supplies for vessels or aircraft' means fuel supplies, ships' stores, sea stores, or legitimate equipment on vessels * * * employed in the fisheries or in the whaling business, * * *.
Section 314.28(k) of Regulations 44, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, states that the exemption provided in the case of articles sold for the prescribed used on vessels employed in the fisheries or in the whaling business is limited to articles sold by the manufacturer for such use on vessels while employed, and to the extent employed, exclusively in the fisheries or whaling business.
Vessels used exclusively in the catching of shrimp, etc., for sale as bait are `employed exclusively in the fisheries or whaling business' as that term is used in the regulations. It is immaterial whether the shrimp is sold at the bait stand of the vessel owner or the stand of another person. Moreover, in determining whether a vessel is employed exclusively in the fisheries or whaling business, the character of the fishing operation on a specific trip is controlling. A vessel is not employed exclusively in the fisheries or whaling business while it is on a sport fishing trip.
In view of the foregoing, the vessels in situation 1 and in situation 2 (only to the extent used by the owner on trips devoted exclusively to commercial fishing) are vessels employed exclusively in the fisheries or whaling business. Accordingly, it is held that gasoline and lubricating oil may be sold on a tax-exempt basis by producers direct to the vessel owners provided the producers and the owners are registered in accordance with section 4222 of the Code and the applicable regulations.
If a vessel owner purchases taxpaid gasoline or lubricating oil from someone other than a producer, the producer who paid the tax to the United States may claim a credit or a refund under the provisions of 6416(b)(2)(B) of the Code and the regulations applicable thereto. For evidence required to support the claims, see section 48.6416(b)-2(c) of the Manufacturers and Retailers Excise Tax Regulations.
Whether radio or television components or electric light bulbs and tubes may be sold on a tax-exempt basis for use in the manufacture of a `sound-slidefilm projector' or an `automatic sound-slide projector.' See Rev. Rul. 65-27, page 477.