Rev. Rul. 57-251

Advice has been requested whether the manufacturers excise tax on lubricating oil applies to the sale of oil by the manufacturer for use in flushing crankcases of motors after the old oil has been drained. After the flushing operation, the flushing oil is drained and replaced by regular lubricating oil.

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 person who uses it for nonlubricating purposes, provided the manufacturer has definite knowledge, prior to or at the time of sale, that the product is purchased for such purposes, and he obtains from such person a certificate of nonlubricating use in the form prescribed by that section. No sale of oil may be made tax free by the manufacturer to a dealer for resale for a nonlubricating purpose 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 a nonlubricating use, the manufacturer who paid the tax on his sale of the oil, may secure a refund or credit in accordance with the provisions of section 314.64 of the regulations.

Flushing oil is a type of oil which is suitable for use as a lubricant and therefore is considered to be lubricating oil within the meaning of the law and regulations. The determination of whether oil used in flushing crankcases of motors constitutes the use of the oil for a lubricating or a nonlubricating purpose is dependent upon the manner in which such operations are performed.

It is held that all sales of lubricating oil for use in flushing the crankcases of automobiles, trucks, tractors, etc., are subject to the manufacturers excise tax if during any part of the flushing process the motor is running or any parts requiring lubrication are in motion. However, where the flushing oil is used to flush the crankcases of automobiles, trucks, tractors, etc., and the motors are entirely motionless during the flushing operation, the oil used in such operations is not considered to perform a lubricating function. Therefore, the tax does not attach to the sale of the oil by the manufacturer thereof direct to the person for such use, provided the sale is supported by the required certificate of nonlubricating use.