Rev. Rul. 58-106

Advice has been requested whether the manufacturers excise tax on lubricating oil applies to the sale of a nontaxable grease product whose consistency is altered by the addition of a solvent.

An oil company manufactures a grease product which contains oil and which is of an unworked consistency of less than 360 penetration units. However, before the grease in drawn from the production vessel into containers for shipment, a solvent is added to alter its consistency. The solvent renders the grease sufficiently fluid to enable its application to gears and other machine parts by spraying, brushing, or swabbing. After the application, the solvent quickly vaporizes, leaving only a film of grease of the consistency existing prior to the introduction of the solvent. The solvent itself has no lubricating value and if it did not evaporate would render the grease useless as a lubricant.

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(b) of Regulations 44, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 57, provides that the term `lubricating oils' does not include products of the type commonly known as grease. Oleaginous substances which are classed as grease and which contain oil are not subject to the tax when of a worked consistency of less than 390 penetration units, or an unworked consistency of less than 360 penetration units, by the method of test of the American Society for Testing Materials D-217-33-T.

The mere addition to a nontaxable grease product of a solvent which quickly vaporizes upon application, under the circumstances described above, would not change the classification of the product to taxable `lubricating oils,' even though the consistency of the nontaxable grease product is altered by the addition of the solvent. Accordingly, it is held that the manufacturers excise tax on lubricating oils, imposed by section 4091 of the Code, does not apply to such a grease product sold by the manufacturer.