Rev. Rul. 58-476

Advice has been requested whether the position of the Internal Revenue Service, that sales of oil for use in hot forging and piercing operations are not subject to manufacturers excise tax, was affected by the provisions of section 304 of the Excise Tax Reduction Act of 1954, C.B. 1954-1, 343, which amended section 3413 of the Internal Revenue Code of 1939 (now section 4091 of the Internal Revenue Code of 1954).

The Service has consistently held that oils used in cold foreging operations are used for lubricating purposes, and that the sale thereof is subject to tax. However, prior to the amendment of section 3413 of the 1939 Code by the Excise Tax Reduction Act of 1954, the Service held that the sale of oil for use in hot forging and piercing operations was not subject to tax. This determination, which was made in 1933, was based on the premise that because of the extreme heat to which oils used in hot forging and piercing operations were subjected, the oils were dissipated before performing any lubricating function.

Section 4091 of the 1954 Code (formerly section 3413 of the 1939 Code) imposes a tax on cutting oils and other lubricating oils sold by the manufacturer or producer. Section 4092(b) of the 1954 Code provides that the term `cutting oils' means oils sold for use in cutting and machining operations (including forging, drawing, rolling, shearing, punching, and stamping) on metals.

Pursuant to the provisions of section 314.43 of Regulations 44, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, no tax attaches where oil is sold by the manufacturer direct to a purchaser 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 purchaser 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 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 on his sale of the oil may secure a refund or credit in accordance with the provisions of section 314.64 of the regulations.

In the legislative history of the Excise Tax Reduction Act of 1954, there is no indication of Congressional intent to enlarge the scope of the law to tax that which theretofore had not been taxed. Rather, the history indicates that Congress intended only to provide a lower rate of tax for cutting oils and, at the same time, furnish statutory examples of cutting and machining operations.

Accordingly, it is held that the manufacturers excise tax on lubricating oil does not apply to the sale of oil by the manufacturer thereof direct to a purchaser for use in hot forging and piercing operations provided the sale is supported by a certificate of nonlubricating use. It is further held, however, that the sale of oil by the manufacturer thereof for use in cold forging operations is subject to the excise tax on cutting oils.