Internal Revenue Service
Rev. Rul. 65-50
1965-1 C.B. 455
The exemptions provided by sections 4055 and 4221(a)(4) of the Internal Revenue Code of 1954 apply to articles, otherwise subject to the retailers or manufacturers excise taxes, sold for the exclusive use of branch libraries which are operated and maintained pursuant to State law, are performing a municipal or state function, and are supported primarily by municipal funds. Likewise, communication and transportation services utilized by such libraries in the transaction of their official business come within the scope of the exemption provided by section 4292 of the Code.
Rev. Rul. 65-50
Advice has been requested whether transactions with the branch libraries described below come within the scope of the exemptions from certain Federal excise taxes provided with respect to transactions with states and political subdivisions thereof.
A number of branch libraries, organized as nonprofit corporations, are members of a library association which is a part of a township government. These libraries and the association are operated and maintained under the provisions of the Pennsylvania Library Code, Act of June 14, 1961, Public Law 324, Commonwealth of Pennsylvania, Title 24 Pennsylvania Code sections 4101, et seq.
The State library code authorizes municipalities to establish and maintain free, public, nonsectarian libraries and to make appropriations for this use from general revenues or from special taxes. The code provides that any building owned and occupied by such a library, and the land on which it stands and that immediately appurtenant thereto, shall be exempt from all county, city, town, etc., taxes. It further provides that municipal libraries come under the authority of local boards of directors, some of whom are appointed by local municipal officers.
An examination of the past operations of the branch libraries in the instant case indicates that a major portion of the funds expended thereby were derived from appropriations by the township. Each of these branch libraries has been granted exemption from Federal income tax under section 501(c)(3) of the Internal Revenue Code of 1954 as an organization operated exclusively for educational purposes.
Section 4055 of the Code provides that, under regulations prescribed by the Secretary of the Treasury or his delegate, the retailers excise taxes will not apply to the sale of any article for the exclusive use of any State, Territory of the United States, or any political subdivision of any of the foregoing, or the District of Columbia.
Section 4221(a)(4) of the Code provides that, under regulations prescribed by the Secretary or his delegate, the manufacturers excise taxes will not apply to the sale of any article to a State or local government for the exclusive use of a State or local government.
Section 4292 of the Code provides that, under regulations prescribed by the Secretary or his delegate, no tax shall apply to payments received for communication or transportation services or facilities furnished to the Government of any State, Territory of the United States, or to any political subdivision of the foregoing, or the District of Columbia.
On the basis of the determination that the branch libraries are operated and maintained pursuant to State law, are performing a municipal or State function, and are supported primarily by municipal funds for a public purpose, such libraries are quasi-governmental bodies for purposes of the Federal excise tax exemptions.
Accordingly, it is held that transactions with these libraries come within the scope of the exemptions afforded by (1) section 4055 of the Code, relating to the retailers excise taxes, (2) section 4221(a)(4) of the Code, relating to the manufacturers excise taxes, and (3) section 4292 of the Code, relating to the tax on communication and transportation services and facilities. Thus, the exemptions apply where taxable articles are sold to the libraries for their exclusive use or where communication and transportation services and facilities are utilized by the libraries in the transaction of their official business, provided the supporting evidence requirements of the statute and applicable regulations with respect to the particular exemptions are met.