Rev. Rul. 58-477

Advice has been requested whether the manufacturers excise tax on lubricating oil applies to sales by the manufacturer thereof to automobile manufacturers for use as a hydraulic power transmission medium in new automobiles. Advice has further been requested concerning the applicability of this tax to sales of lubricating oil to dealers or consumers for use in replacing or replenishing such fluid in the automatic transmissions of used automobiles.

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.

Section 4220 of the Code provides, in part, that no manufacturers excise tax shall be imposed with respect to the sale of any article for use by the vendee as material in the manufacture or production of, or as a component part of, any other article subject to manufacturers excise tax.

Since the lubricating oil used in automatic transmissions of automobiles serves to lubricate the transmissions in addition to serving as a power transmission medium, it is not used for a nonlubricating purpose and the provision of the regulations regarding nonlubricating use is not applicable.

It is held that lubricating oil placed in automatic transmissions by the manufacturer of new automobiles for the purpose of serving as a hydraulic medium and lubricant, and which is contained in the automatic transmissions at the time the automobiles are sold by the manufacturer, is used as material in the manufacture of, or as a component part of, the new automobiles within the meaning of section 4220 of the Code. Accordingly, sales of lubricating oil by the manufacturers to automobile manufacturers for such use are exempt from the manufacturers excise tax provided they are supported by exemption certificates in the form prescribed by section 314.21 of the regulations. Where the automobile manufacturer places lubricating oil in the automatic transmissions of his cars, he is using the lubricating oil as a component material in the manufacture of the vehicles and may obtain a credit or refund, in the amount of tax paid on such lubricating oil, under the provisions of section 6416(b)(3)(A) of the Code.

It is further held that lubricating oil used for replacing or replenishing the fluid in automatic transmissions of used automobiles for the purpose of serving as a power transmission medium and as a lubricant is used for lubricating purposes. Accordingly, the tax applies to sales of lubricating oil by the manufacturer for such use in used automobiles, even if the manufacturer sells direct to consumers.