TAM 1348010: IRS treats finished buss cables as taxable bow accessories

Plain-English summary

The IRS considered whether a finished buss cable for a compound bow is a taxable part or accessory under IRC § 4161(b)(1)(B)(i). The cable is made from polyethylene fiber, sold in standard lengths with finished loops, and designed to attach to a bow and help an archer draw and hold a heavier draw. The IRS concluded that it is a taxable part or accessory because it is specifically designed to improve the bow's performance. The IRS rejected arguments that the cable was a general-purpose material, an expendable supply, or an exempt replacement part. The memorandum also distinguishes the statutory treatment of bow parts from the replacement-part rules for sport-fishing equipment.

Ruling snapshot

• Question: Is a finished buss cable for a compound bow a taxable part or accessory?
• Outcome: advice given
• Key authorities: IRC §§ 4161, 4161(b)(1)(B)(i), 4162, and 4261(a)(4); Treas. Reg. §§ 48.4161(a)-3 and 48.4161(b)-2; Rev. Rul. 98-5

Full text (IRS public release)

                          INTERNAL REVENUE SERVICE
                NATIONAL OFFICE TECHNICAL ADVICE MEMORANDUM

                                           August 6, 2013


Number:     201348010
Release Date:    11/29/2013

Third Party Communication: None
Date of Communication: Not Applicable

Index (UIL) No.:        4161.02-01
CASE-MIS No.:           TAM-121190-13

Chief Excise Tax Operations, SBSE Excise


        Taxpayer's Name:                        ----------------------------------
        Taxpayer's Address:                     -------------------------
                                                ----------------------------------
        Taxpayer's Identification No            -----------------
        Years Involved:                         -----------------
        Date of Conference:                     --------------------


LEGEND:

Taxpayer = ----------------------------------

ISSUE:

Whether a buss cable is a taxable part or accessory within the meaning of
§ 4161(b)(1)(B)(i) of the Internal Revenue Code (the Code) and § 48.4161(b)-2(b)(1) of
the Manufacturers and Retailers Excise Tax Regulations.

CONCLUSION:

A buss cable is a taxable part or accessory within the meaning of § 4161(b)(1)(B)(i) and
§ 48.4161(b)-2(b)(1).

TAM-121190-13                                2

FACTS:

A buss cable is a string or cable that attaches to a compound bow. Generally, it allows
an archer, in conjunction with other bow components, to more easily pull back or draw
the bow string and hold a heavier draw while maintaining accuracy. Taxpayer produces
buss cables from high-modulus polyethylene fiber in standard, pre-cut lengths with a
finished loop at each end, and sells them for attachment to a bow. When a buss cable
is attached to a bow, it is further fitted to that particular bow. High-modulus
polyethylene fiber is a material that is also used to make finished bow strings and other
products.

LAW:

Section 4161(a)(1)(A) generally imposes tax on the sale of any article of sport fishing
equipment by the manufacturer, producer, or importer a tax equal to 10 percent of the
price for which so sold.

Section 4161(a)(4) provides that in the case of any sale by the manufacturer, producer,
or importer of any article of sport fishing equipment, such article shall be treated as
including any parts or accessories of such article sold on or in connection therewith or
with the sale thereof.

Section 4161(b)(1)(A) imposes tax on the sale by the manufacturer, producer or
importer of any bow which has a peak draw weight of 30 pounds or more, a tax equal to
11 percent of the price for which so sold.

Section 4161(b)(1)(B) imposes tax on the sale by the manufacturer, producer or
importer (i) of any part or accessory suitable for inclusion in or attachment to a bow
described in § 4161(b)(1)(A) a tax equal to 11 percent of the price for which so sold.

Section 4162(a) lists the sport fishing equipment upon which § 4161(a) imposes tax.

Section 48.4161(a)-3 generally provides that the tax attaches with respect to parts and
accessories for articles specified in § 4161(a) and § 48.4161(a)-1 (sport fishing
equipment) that are sold on or in connection with the sale thereof, at the same rate
applicable to the sale of the basic articles. The tax attaches in such cases whether or
not charges for the parts or accessories are billed separately. To be considered a part
or accessory for an article specified in § 4161(a), an item must be either essential to the
operation of the specified article, or be designed to directly improve the performance of
the specified article, or to improve its appearance. A sale of a part or accessory which
would otherwise be considered a sale “on or in connection with” the sale of an article
taxable under § 4161(a), is not subject to tax if the part or accessory is sold as a
replacement for an identical part or accessory being sold with the taxable article.

TAM-121190-13                                 3

Section 48.4161(b)-2(b)(1) defines “parts and accessories” for bows and arrows to
include all articles (other than fishing reels) suitable for inclusion in, or attachment to, a
bow or arrow of the type described in § 4116(b)(1) and § 48.4161(b)-2(a). Examples of
parts and accessories for bows are bow handles, bow limbs, bow strings, bow string
silencers, bow stabilizers, arrow rests, bow slings, bow sights, bow levels, bow tip
protectors, brush buttons, camouflaged bow covers and all other articles designed to be
attached to or included in a bow to assist in aiming or propelling an arrow, or to protect
the bow while in use.

Section 48.4161(b)-2(b)(2) excludes from the definition of “parts and accessories”
general purpose materials and articles that are not specifically designed to directly
improve the performance or appearance of bows or arrows, or to protect them while in
use. Such materials and articles are not considered to be “parts and accessories” for
bows or arrows, even though such materials may be intended, after further processing,
to be included in or attached to bows or arrows. An example of a nontaxable article that
is designed for use with a bow, but is neither attached to a bow, nor serves a purpose
directly related to the efficient use of a bow, is a carrying case for a bow. Examples of
nontaxable general purpose materials or articles are glues and cements, feathers
before they are prepared for use with arrows, and bow string thread before it is
processed into bow strings. In addition, the term “parts and accessories” does not
include articles in the nature of expendable supplies, even though such articles are
designed to be applied to, or used with, bows or arrows. Examples of such supply
materials are bow string wax and archery powder.

Rev. Rul. 98-5, 1998-1 C.B. 264, provides a nonexclusive list of taxable and nontaxable
articles under § 4161(b). The ruling states that parts or accessories subject to the tax
include replacement parts or accessories. The term “buss cable” is not listed on either
illustrative list of taxable or nontaxable articles.

ANALYSIS:

Section 48.4161(b)-2(b)(1) defines “parts and accessories” for bows and arrows to
include all articles (other than fishing reels) suitable for inclusion in, or attachment to, a
taxable bow or arrow. This includes all articles designed to be attached to or included in
a bow to assist in aiming or propelling an arrow, or to protect the bow while in use. A
buss cable is designed to be attached to and included in a bow. Further, it assists the
archer in drawing the bow string and allows the archer to hold a heavier draw for a
longer period of time, thus aiding in both aiming and propelling an arrow. Accordingly, a
buss cable is a taxable part or accessory within the meaning of § 48.4161(b)-2(b)(1).

Taxpayer argues that a buss cable is not taxable because it is a general purpose
material and article within the meaning of § 48.4161(b)-2(b)(2). Section 48.4161(b)-
2(b)(2) excludes from the definition of “parts and accessories” general purpose
materials and articles that are not specifically designed to directly improve the

TAM-121190-13                               4

performance or appearance of bows or arrows, or to protect them while in use. Such
materials and articles are not considered to be “parts and accessories” for bows or
arrows, even though such materials may be intended, after further processing, to be
included in or attached to bows or arrows.

Taxpayer processes general purpose high-modulus polyethylene fiber to produce
finished, standardized buss cables that are intended to be attached to a bow, and are
marketed and sold for this purpose. A buss cable is designed to directly improve the
performance of the bow. Accordingly, a buss cable is not a general purpose material or
article.

Additionally, taxpayer claims that a buss cable is an expendable and wearable item
within the meaning of § 48.4161(b)-2(b)(2). The term “parts and accessories” does not
include articles in the nature of expendable supplies, even though such articles are
designed to be applied to, or used with, bows or arrows. Examples of such supply
materials are bow string wax and archery powder. While a buss cable may need to be
replaced, it is not consumed during use of the bow in the same manner as bow string
wax or archery powder. Thus, a buss cable is not “expendable supplies” within the
meaning of § 48.4161(b)-2(b)(2).

Taxpayer also urges the IRS to interpret the Code and regulations under § 4161(b) in a
manner that is consistent with § 48.4161(a)-3(a) such that it would exclude a buss cable
when it is sold as a replacement part. Section 48.4161(a)-3(a) exempts certain sport
fishing equipment parts and accessories from the tax imposed under § 4161(a) if the
part or accessory is sold as a replacement for an identical part or accessory being sold
with the taxable article.

Section 4161(a)(1)(A) imposes tax on the sale of any article of sport fishing equipment
by the manufacturer, producer, or importer. Section 4162 defines the term “sport fishing
equipment” to mean the articles listed in paragraph (a) of § 4162. Under § 4161(a)(4),
any sale by the manufacturer, producer, or importer of any article of sport fishing
equipment, such article shall be treated as including any parts or accessories of such
article sold on or in connection therewith or with the sale thereof. Section 48.4161(a)-3
provides that a sale of a part or accessory which would otherwise be considered a sale
“on or in connection with” the sale of an article taxable under section 4161(a), is not
subject to tax if the part or accessory is sold as a replacement for an identical part or
accessory being sold with the taxable article.

Congress provided a different statutory framework for bows and arrows. Instead of
providing a statutory list of taxable articles and imposing tax on “parts and accessories”
sold with such articles, § 4161(b)(1)(B)(i) imposes a tax on any part or accessory
suitable for inclusion in or attachment to a taxable bow. The statutory framework for
bows and arrows does not have a timing provision similar to § 4261(a)(4) for sport
fishing. The regulations under § 4161(b) interpret the § 4161(b) statutory provisions for

TAM-121190-13                              5

bows and arrows rather than the statutory provisions for sport fishing. Additionally,
Taxpayer’s request asks the IRS to go against its published opinion regarding
replacement parts for bows and arrows in Rev. Rul. 98-5, which clearly states that parts
or accessories subject to the tax include replacement parts or accessories. Therefore,
the IRS will not adopt the Taxpayer’s suggestion regarding applying § 48.4161(a)-3(a)
to taxable parts or accessories that are replacement parts or accessories for bows and
arrows.

CAVEAT:
A copy of this technical advice memorandum is to be given to the taxpayer. Section
6110(k)(3) of the Code provides that it may not be used or cited as precedent.