Rev. Rul. 59-215

Advice has been requested whether the manufacturers excise tax on lubricating oils applies to sales of lubricating oils, by the manufacturer thereof, for use solely as coolants in grinding or honing metal with stone, as component materials in the manufacture of rubber, and for application on the outside of calender rolls solely to prevent paper from adhering to the rolls.

Section 4091 of the Internal Revenue Code of 1954 imposes a tax on lubricating oils sold by the manufacturer or producer thereof. Section 314.40 of Regulations 44, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that the term `lubricating oils' includes all oils, regardless of their origin, which are sold as lubricating oil and all oils which are suitable for use as a lubricant.

Section 314.43(a) of the regulations provides that no tax attaches where oil is sold by the manufacturer direct to a purchaser who uses it for nonlubricating purposes. No sale of oil may be made tax-free by the manufacturer to a dealer for resale for nonlubricating uses even though it is known at the time of sale that the oil will be so resold. However, where any dealer resells tax-paid oil for nonlubricating uses, the manufacturer who paid the tax to the United States on his sale of the oil, may secure a credit in accordance with the provisions of section 314.64 of the regulations. Section 314.43(b) of the regulations provides that in order to establish the right to exemption from tax with respect to lubricating oil sold by the manufacturer direct for nonlubricating purposes, it is necessary that the manufacturer have definite knowledge, prior to or at the time of sale, that the product is purchased for such purposes, and he obtain from the purchaser and retain in his possession the prescribed exemption certificate.

It is held that lubricating oils used solely as coolants in grinding or honing metal with stone, as component materials in the manufacture of rubber, and for a application on the outside of calender rolls solely to prevent paper from adhering to the rolls are used for nonlubricating purposes. Accordingly, sales of lubricating oils by the manufacturer thereof to be used by the purchaser for any of the above-named purposes are not subject to the manufacturers excise tax imposed by section 4091 of the Code, provided the manufacturer obtains from the purchaser the exemption certificate prescribed by section 314.43 of the regulations. However, where lubricating oils used as coolants, or for application on calendar rolls to prevent paper from adhering to the rolls, also serve as lubricants, the sales of the oils for such purposes are properly subject to the excise tax. S.T. 905, C.B. 1940-2, 305, enumerates other lubricating oils which are not subject to the manufacturers excise tax when sold by the manufacturer to the consumer for nonlubricating uses under the conditions prescribed in the regulations.