[Code of Federal Regulations]
[Title 27, Volume 1]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 27CFR53.100]

[Page 882-884]
 
            TITLE 27--ALCOHOL, TOBACCO PRODUCTS AND FIREARMS
 
 CHAPTER I--BUREAU OF ALCOHOL, TOBACCO AND FIREARMS, DEPARTMENT OF THE 
                                TREASURY
 
PART 53--MANUFACTURERS EXCISE TAXES--FIREARMS AND AMMUNITION--Table of Contents
 
     Subpart J--Special Provisions Applicable to Manufacturers Taxes
 
Sec. 53.100  Exclusion of local advertising charges from sale price.

    (a) In general. Section 4216(e) of the Code deals with the treatment 
to be accorded charges made by a manufacturer for, and reimbursements by 
a manufacturer or expenditures in connection with the advertising of 
certain articles subject to excise tax under chapter 32 of the Code. 
Section 4216(e) of the Code provides an exclusion (which is in addition 
to the exclusions provided by section 4216(a) of the Code and 
Sec. 53.92) in respect of charges for local advertising, as defined in 
paragraph (b) of this section, for purposes of determining the price for 
which an article is sold. See paragraph (c) of this section. The 
exclusion provided by section 4216(e) of the Code and paragraph (c) of 
this section has application only if the advertising is broadcast over a 
radio or television station, appears in a newspaper or magazine, or is 
displayed by means of an outdoor advertising sign or poster. Section 
4216(e) of the Code also provides an overall limitation in respect of 
the sum of the amount of the exclusions from price as charges for local 
advertising and the amount of the readjustments authorized under section 
6416(b)(1) of the Code (relating to credits or refunds for price 
readjustments) in respect of reimbursements by a manufacturer of 
expenditures for local advertising. See Sec. 53.101. For provisions 
prohibiting exclusion from price or readjustment of price in respect of 
charges for, and reimbursements of expenditures for, advertising other 
than local advertising, see Sec. 53.102.
    (b) Definition of local advertising--(1) In general. For purposes of 
the regulations under sections 4216(e) and 6416(b)(1) of the Code 
(Secs. 53.100-53.102 and 53.173-53.176), the term ``local advertising'' 
means advertising which relates to an article with respect to which tax 
is imposed under chapter 32 of the Code on the price for which sold and 
which:
    (i) Is initiated or obtained by the purchaser or any subsequent 
vendee,
    (ii) Names the article for which the price is determinable under 
section 4216 and states the location at which such article may be 
purchased at retail, and
    (iii) Is broadcast over a radio station or television station, 
appears in a newspaper or magazine, or is displayed by means of an 
outdoor advertising sign or poster.
    (2) Initiating or obtaining advertising. For purposes of paragraph 
(b)(1) of this section, the advertising must be initiated or obtained by 
one or more of the persons in the chain of distribution of the article 
(wholesale distributor, jobber, dealer, etc.) who purchased the article 
for resale. For purposes of this subparagraph, the manufacturer is not 
considered to be one of the persons in the chain of distribution of the 
article. In general, advertising of an article is considered to be 
initiated or obtained by one or more persons in the chain of 
distribution of the article if any such person:
    (i) Takes an active part in the actual planning and development, or 
in the arrangements or negotiations leading to the development, of the 
form and content of the advertising, or
    (ii) Contracts for the placement of the advertising.

The participation by the manufacturer of the article in the planning, 
development, or placement of the advertising is immaterial provided the 
advertising is in fact initiated or obtained by one or more persons in 
the chain of distribution of the article. Furthermore, it is immaterial 
whether or not the advertising is subject to the approval of the 
manufacturer of the article. However, if no person in the chain of 
distribution of the article takes an active part in the actual planning 
and development, or in the arrangements or negotiations leading to the 
development, of the form and content of the advertising, but, rather, 
all such planning,

[[Page 883]]

development, arrangements, and negotiations are accomplished by the 
manufacturer of the article, then such manufacturer is considered to 
have initiated the advertising, and if he also contracts for the 
placement of the advertising, such advertising does not qualify as 
``local advertising''.
    (3) Identification of article and sales location. To meet the 
requirements of paragraph (b)(1) of this section, the advertising must 
identify the article for which the price is determinable under section 
4216 of the Code and give the location or locations at which the article 
may be purchased at retail. All products taxable at the same rate under 
the same section of chapter 32 of the Code shall be considered to be an 
``article'' for purposes of the preceding sentence. No specific method 
or means of identification is prescribed. The identification of the 
article may be made through the use of the name of the manufacturer or 
the use of an established trade-mark, such as a seal, picture, letter or 
letters, etc., or a combination thereof. The advertising must identify 
the particular retail establishment or establishments at which the 
article may be purchased at retail but need not specify the location of 
any such establishment in terms of the number by which the premises are 
designated or the name of the street on which the retail premises are 
situated. However, the location of the retail premises must be described 
sufficiently, as, for example, by reference to a particular named 
shopping area or shopping center, to enable customers to find the retail 
establishment.
    (4) Determination of costs of local advertising. Where an 
advertisement identifies more than one article, and all such articles 
are not taxable, or are not taxable at the same rate under the same 
section of chapter 32 of the Code, a reasonable allocation of the cost 
of the advertisement must be made among:
    (i) Articles taxable at the same rate under the same section of the 
Code, and
    (ii) Articles which are not taxable under chapter 32 of the Code.

For example, in the case of a single page newspaper or magazine 
advertisement, an allocation of costs reflecting the lineage or space 
devoted to the specified categories will be considered to reflect a 
reasonable allocation of the cost of advertising the different articles. 
As a general rule, only the cost of the ``spot'' portion identifying the 
retail establishment is considered ``local advertising'' in the case of 
national television or radio programs.
    (5) Meaning of ``newspaper''. The term newspaper, as used in 
paragraph (b)(1) of this section, is limited to those publications which 
are commonly understood to be newspapers and which are printed and 
distributed periodically at daily, weekly, or other short intervals for 
the dissemination of news of a general character and of a general 
interest. The term does not include handbills, circulars, flyers, or the 
like, unless printed and distributed as a part of a publication which 
constitutes a newspaper within the meaning of this subparagraph. Neither 
does the term include any publication which is issued to supply 
information on certain subjects of interest to particular groups unless 
such publication otherwise qualifies as a newspaper within the meaning 
of this subparagraph. For purposes of this subparagraph, advertising is 
not considered to be news of a general character and of a general 
interest.
    (6) Meaning of ``magazine''. The term magazine, as used in paragraph 
(b)(1) of this section, is limited to those publications which are:
    (i) Commonly understood to be magazines,
    (ii) Printed and distributed periodically at least twice a year, and
    (iii) Published for the dissemination of information of a general 
nature or of special interest to particular groups.
    (iv) The term does not include handbills, circulars, flyers or the 
like, unless printed and distributed as a part of a publication which 
constitutes a magazine within the meaning of this subparagraph. For 
purposes of this subparagraph, advertising is not considered to be 
information of a general nature or information of special interest to 
particular groups within the contemplation of paragraph (b)(6)(iii) of 
this section.

[[Page 884]]

    (7) Meaning of ``outdoor advertising sign or poster''. The term 
``outdoor advertising sign or poster'', as used in paragraph (b)(1) of 
this section, means a sign or poster displaying advertising matter, 
which is located outside of a roofed enclosure. This term includes both 
signs or posters on billboards, whether placed on or affixed to land, 
buildings, or other structures, and those which are displayed on or 
attached to moving objects, provided the signs or posters are located 
outside of a roofed enclosure. The term ``roofed enclosure'' means a 
roof structure which is enclosed on more than one-half of its sides by 
walls, fences, or other barriers.
    (c) Exclusion--(1) Conditions and limitations. A charge for local 
advertising which is required by a manufacturer to be paid as a 
condition to his sale of an article is not a part of the taxable price 
of the article, to the extent that such charge meets each of the 
following conditions and limitations:
    (i) Such charge does not exceed 5 percent of the difference between:
    (A) An amount which would constitute the taxable price of the 
article (computed at the time of the sale of the article) if no part of 
any charge for local advertising were excludable in computing taxable 
price, and
    (B) The amount of any separate charge for local advertising, 
whatever the amount of such charge may be,
    (ii) Such charge is specifically shown as a separate charge for 
local advertising on the invoice or statement covering the sale of the 
article.
    (iii) Such charge is billed by the manufacturer with the intention 
on his part of repaying the amount of the charge to the person 
purchasing the article from him, or to any person who subsequently 
purchases the article for resale, in reimbursement of costs incurred for 
local advertising of such article or some other article or articles 
taxable at the same rate under the same section of the Code. In the 
absence of evidence to the contrary, the fact of such intention will be 
assumed in all cases where the manufacturer and his vendees are parties 
to an advertising plan which calls for such repayments, or the 
manufacturer can otherwise establish that the vendees to whom he bills 
such charges understand and expect that such repayments will be made.
    (2) When exclusion ceases to apply. To the extent that charges for 
local advertising meet the conditions and limitations stated in 
paragraph (c)(1) of this section, such charge is excludable in computing 
the taxable price of the article in respect of which the charge was 
made. However, the exclusion will cease to apply in respect of any part 
of such charge which the manufacturer fails to repay before May 1 of the 
calendar year following the calendar year in which the article was sold, 
to the person who purchased the article from him, or to some other 
person who subsequently purchases the article for resale, in 
reimbursement of costs incurred for local advertising of such article or 
some other article or articles taxable at the same rate under the same 
section of the Code. If, before such May 1, any part of the charge so 
excluded has not been so repaid, the manufacturer becomes liable for tax 
on such May 1 in the same manner as if an article taxable under such 
section of the Code had been sold by him on such May 1 at a taxable 
price equivalent to that part of the charge not so repaid. However, see 
paragraph (b)(2) of Sec. 53.175, relating to price readjustments in 
cases where local advertising charges are not repaid before such May 1 
but are subsequently paid over by the manufacturer to his vendees in 
reimbursement of costs for local advertising. For provisions relating to 
the method of determining whether a payment by a manufacturer is or is 
not attributable to an excluded local advertising charge, see paragraph 
(b)(3) of Sec. 53.101. In any case where the payment is determined to be 
attributable to such a charge, the date of the sale in connection with 
which the charge was made shall be determined on a first-in-first-out 
basis in respect of the vendee to whom the charge was billed by the 
manufacturer.

[T.D. ATF-308, 56 FR 303, Jan. 3, 1991, as amended by T.D. ATF-312, 56 
FR 31083, July 9, 1991]