Instructions Concerning the Exemption of Articles and Products from Taxation under the 10th Section of Act of July 13, 1866.

TREASURY DEPARTMENT, Office of Internal Revenue, }

Washington, September 8, 1866.

The following constructions having been adopted by this office with regard to the exemptions authorized by section eleven are printed as a guide to officers of internal revenue to aid them in determining questions which may arise in the application of the law to the various manufactures involved therein.

E. A. ROLLINS, Commissioner.

Barrels and Casks other than those used for the Reception of Fluids.

Under this head all dry barrels are exempt from taxation, such as flour barrels, and barrels and casks for packing lime, plaster, cement, nails, dry paints, rice, tobacco, sugar, &c.

But all barrels and casks made water-tight, and used for packing beef, pork, lard, pickled fish, wet paints, &c., are taxable, though not used for or intended to hold fluids alone.

Packing Boxes made of Wood.

The term "packing boxes" is to be understood and taken in its technical and mercantile signification.

That signification implies boxes used by the manufacturer, merchant, or jobber, to enclose goods after they have been sold in order to secure safe and easy transportation. Boxes used for putting up goods before sale, and without which the goods could not be offered for sale, and which are sold as part and parcel of the goods, are not technically known as packing boxes. Thus, boxes for putting up cigars, spices, starch, salt, shoes, &c., are not packing boxes.

Packing boxes made of paper or other material than wood, except those made for friction matches, cigar lights, and wax tapers, are taxable.

Building Stone.

This exemption applies only to the ordinary stone, and not to articles manufactured from stone, marble, or slate. It does not exempt fireplaces, mantle-pieces, window caps, window sills, or other manufactures which are recognized as articles of traffic and manufactured for sale or upon special order as circumstances may require.

All manufactures of stone, marble, or slate not especially exempt, are liable to an ad valorem tax of five per cent.

Flax and the Manufactures Thereof.

By the 96th section of the act of June 30, 1864, flax prepared for textile or felting purposes, until actually woven, is exempt from tax. And by the 10th section of the act of July 13, 1866, flax, and the manufactures thereof, are exempt from tax.

This exemption of flax and the manufactures thereof includes and covers all the exemptions of flax prepared for textile or felting purposes, &c. The question has been raised whether articles or fabrics made in part of flax and in part of other materials are exempt from taxation, and how far the words "manufactures thereof" extend. The primary manufacture of flax consists in separating the fine fibres or skins of the plant by hackling and combing. The article thus obtained is the flax of commerce, and this the law exempts The manufactures from flax are thread, and cloth or fabrics, and these also are exempt.

If a manufacturer takes the raw material flax, and by a continuous process, or by a succession of processes, weaves, knits, or felts a cloth, a fabric, or an article, his product is exempt from tax; it is a manufacture of flax.

But a manufacturer who makes articles of dress for the wear of men, women, or children, from cloth or fabrics purchased in the market, or purchased from the manufacturer thereof, is not entitled to exemption from tax.

He does not manufacture from flax, but his products are all the result of a secondary manufacture, and are all made from materials which render them liable to taxation under other express provisions of law.

Again, a manufacturer who makes cloths, fabrics, or articles partly of flax and partly of other materials, is not to be regarded as a manuacturer of flax, nor are such mixed products exempt from taxation.

Exemptions are to be construed literally; such is declared to be the intent of the law, as appears from the proviso at the end of the 10th section, in these words: "Provided, That the exemptions aforesaid shall, in all cases, be confined exclusively to said articles in the state and condition specified in the foregoing enumeration, and shall not extend to articles in any other form, nor to manufactures from said articles. This proviso is restrictive, and confines the exemptions to the precise articles named, and the articles must be in the state and condition specified.

In the case under consideration, the exempted articles are (1) flax, and (2) the manufactures of flax, or the articles made of flax, and not any subsequent manufactures from said articles.

Crash, diapers, sheetings, &c., the warps of which are cotton or other material, and the filling flax yarn, are liable to a tax of 5

ad valorem.

per cent.

Cloths or fabrics made as above, when dyed, colored, printed, or bleached, if previously assessed and the tax paid thereon, are liable to a tax of 5 per cent. on the increased value only. In no case is a proportionate part of the increased value to be assessed. If liable at all, the entire amount of increased value is taxable.

Hulls of Ships and other Vessels.

The act of June 30, 1864, imposed a tax of 2 per cent. on the hulls of all ships, barks, brigs, schooners, sloops, sailboats, steamboats, canal boats, and all other vessels or water craft.

The exemption in the new law specifies only the hulls of ships and other vessels. Boats propelled by oars cannot be regarded as vessels. They are not therefore exempted from tax under this provision, but are liable to a tax of 5 per cent. under the general provision of the 94th section as manufactures not otherwise provided for.

Medicinal and Mineral Waters.

This provision will exempt soda water however sold, but does not exempt sarsaparilla, pop, root, and like beer.

These are taxable under the general provision of the 94th section at the rate of 5 per cent. ad valorem.

Cordage, Ropes, and Cables, made of Vegetable Fibre.

The terms "cordage" and "cables" exempt from taxation all ropes and lines made and used for the rigging and tackle of vessels or water craft.

Rope differs from twine or line mainly in size. It is difficult to define the precise distinction and show where the line or twine becomes a

rope.

The law expressly provides for taxing thread and twine, and cords and lines are regarded as taxable when not used as a part of the rigging or tackle of vessels.

Common usage, and the language employed ordinarily to characterize the article, must be the assessor's guide in settling the question of liability in each case where exemption is claimed under the language of the statute.

Printing Paper of all Descriptions, and Tarred Paper for Roofing and other Purposes.

The exemptions under this head are to be confined strictly to the descriptions of paper named.

All other

Paper technically known as printing paper is exempt. kinds, whether writing paper, wrapping paper, drawing paper, blotting paper, filtering paper, paper hangings, and the like, are taxable. paper made for tarring, if sold dry, is liable to a tax.

Photographs and other Sun Pictures.

And

Copies of engravings or works of art, when the same are sold by the producer at wholesale at a price not exceeding fifteen cents each, or are used for the illustration of books, are exempt. All other photographs and sun pictures are subject to an ad valorem tax of 5 per cent. upon the price at which the photographer sells his pictures. The law recognizes no other basis of taxation where the tax does not accrue till after a sale.

A photographer who colors a picture or otherwise ornaments it, thereby increasing its value or increasing the price received for it, will not

satisfy the law by returning the price which he would have received for the picture without such coloring or ornamentation. Nothing short of the actual price received by the photographer or artist satisfies the requirements of the law.

Repairs of Articles of all Kinds.

This exemption does not extend to the materials used in making repairs when such materials are, in themselves, taxable manufactures. Neither does it exempt constituent parts of machines or instruments when such parts are, in themselves, separate and distinct manufactures, and are made to supply the place of some corresponding part which has been broken or worn out. Castings of iron or other metals, unless specially exempt, are equally liable to tax when used for repairs as when used in a new article or machine.

Residuums.

Under this head, resin drawn from the still after distillation of crude turpentine is exempt from duty. But pitch, a compound of resin and tar, is taxable.

Umbrellas and Parasols, and Sticks and Frames for the same.

By the act of June 30, 1864, section 96, umbrella stretchers were exempt from duty. The other parts of an umbrella or parasol, such as the frame, the handle, the stock, or the stick, were taxable when made as separate and distinct manufactures, and sold in the market as commercial articles.

The new law exempts the finished umbrella and parasol, and also the sticks and frames made for the same, and the question is raised whether the handle, which is a part of the stick, and which is generally manufactured as a separate and distinct article, is also exempt from taxation under the new law.

To this inquiry it may be said that, while the law enumerates sticks, frames, and stretchers as part of the umbrella or parasol, the most important part, and the one on which the greatest amount of skill and labor is expended is left out, and it must be presumed intentionally so by Congress, viz: the handle; and that no door might be left open for exempting any article by construction, the proviso before quoted was placed at the end of the section. It follows, therefore, that umbrella and parasol handles not being found in the list of exempted articles, and being in themselves a well known article of manufacture and traffic, they are taxable, whether made and sold, or used by the manufacturer in the production of sticks, umbrellas, or parasols.

Bullion.

Under section 10 of the act of July 13, 1866, the "value of bullion used in the manufacture of wares, watches, and watch-cases, and bullion prepared for the use of platers and watchmakers," is exempt from internal tax.

All bullion which is used by manufacturers is not therefore exempt from tax, but only such as is used and prepared under the provisions of the above-named section.

Bullion used in the manufacture of jewelry is not exempt. Gold and silver rings, bracelets, pins, chains, &c., are regarded as jewelry ; but gold pens, thimbles, spectacle frames, &c., are regarded as wares.

Wooden Ware.

The question has been raised with regard to the term "wooden ware, as used in the act of July 13. 1866. and the extent to which articles made wholly or in part of wood, are exempt from taxation under this provision.

The use of the singular number "ware," instead of wares, shows an intention to limit the term to articles of a particular kind or class, and to such as are technically known as "wooden ware," and not to include all articles of wood, however different in kind. There are various other provisions of the same law which go to show that the term "wooden " is to be limited strictly to its technical signification, and cannot be applied to manufactures of wood in general.

ware

Section 94 provides for taxing furniture and other articles made of wood, not otherwise provided for, 5.per cent. ad valorem.

Section 10 exempts barrels and casks when not used for fluids packing boxes made of wood; baskets made of splints; crutches and artificial limbs; various agricultural implements made of wood; constituent parts of wheels and carriages or wagons made of wood; wooden handles for agricultural, household, and mechanical tools and implements; pail and tub ears and handles; and wooden tanks and cisterns for crude mineral oil. These articles were not thought to be covered by the term wooden ware, otherwise there would have been no necessity to have enumerated them and to have declared them specifically exempt.

The conclusion is therefore inevitable that wooden ware, as used in the section of the new law referred to, can only be construed to exempt such articles or implements of kitchen or household use as are made exclusively of wood, and technically known as wooden ware, to wit: tubs, pails, chopping boards and trays, wooden plates, bowls, dishes, spoons, knives, ladles, rollers, pins, moulds, prints, pats, mortars, pestles, dippers, ironing boards, pastry and meat boards, wash boards, clothes sticks, clothes horses, &c., &c.

Other articles made of wood, such as churns, boxes, kegs, firkins, fish-kits, measures, saw frames, ladders, pumps, &c., &c., are liable to an ad valorem tax of 5 per cent.

NOTE.-The reader will remark that by the late amendments of March 2, 1867, (q. v.,) a large number of additional articles are made exempt from taxation, and the foregoing circular will be read in view of these changes.