Rev. Rul. 64-244

Advice has been requested whether the product described below is considered to be `lubricating oil' for purposes of the manufacturers excise tax and, if so, whether the manufacturer may sell it tax free for nonlubricating use without obtaining `certificates of nonlubricating use.'

A company manufactures and sells a product designed for use as an additive in internal combustion engines. The product consists of lubricating oil, solvents, and other chemicals. It is designed to dissolve deposits of gum, sludge, and carbon in engines, to prevent these deposits from forming, and also to prevent rust and corrosion. The lubricating oil serves as a carrying agent for the solvents and other chemicals.

The principal use of the product is as an additive to the fuel used in internal combustion engines. Some users add the product to bulk storage tanks for gasoline or diesel fuel, whereas others add it to the fuel tank for a specific engine. In other cases, through the use of an `inverse oiler' the product is added directly to the stream of mixed air and gasoline as it passes from the carburetor to the cylinders.

The product also is used in limited quantities as a crankcase additive for the same purpose as set forth above. However, it is not suitable for use as a substitute for crankcase oil.

Section 4091 of the Internal Revenue Code of 1954 imposes a tax on cutting oils and other lubricating oils sold in the United States by the manufacturer or producer thereof.

Section 48.4091-2(a) of the Manufacturers and Retailers Excise Tax Regulations provides that the term `lubricating oils' includes all oils, regardless of origin, which (1) are suitable for use as a lubricant or (2) are sold for use as a lubricant.

Under the provisions of section 48.4091-(a)(1) of the regulations, the tax imposed by section 4091 of the Code does not attach to the sale by the manufacturer of lubricating oil direct to a purchaser for nonlubricating use by him, if such oil is actually so used by such purchaser. Generally, in order to establish the right to sell lubricating oil tax free, the manufacturer must obtain from the purchaser and retain in his possession a properly executed certificate of nonlubricating use.

However, under the provisions of section 48.4091-4(d) of the regulations, if the Commissioner of Internal Revenue determines that an oil suitable for use as a lubricant is seldom so used, but is used almost exclusively for nonlubricating purposes, the sale by the manufacturer of such oil direct to a purchaser for nonlubricating use by him or for resale by him for nonlubricating use may be made tax free. The requirement of a certificate of nonlubricating use is waived in respect of sales which this provision has application.

A chemical analysis of the product involved herein discloses that it comes within the regulations definition of `lubricating oil,' in that it is an oil which is suitable for use as a lubricant. However, based on the facts set forth above, it is hereby determined under the provisions of section 48.4091-4(d) of the regulations that the product is seldom used as a lubricant, but is used almost exclusively for nonlubricating purposes.

In view of the foregoing, it is held that the product may be sold by the company tax free for nonlubricating use without obtaining `certificates of nonlubricating use.' However, it should be noted that, if the company actually sells the product to a purchaser for use as a lubricant or if the manufacturer receives information that the additive sold tax free has not been and will not be used for nonlubricating purposes, the manufacturers excise tax imposed by section 4091 of the Code applies to such sale.

Compare Revenue Ruling 59-134, C.B. 1959-1, 322, which holds that a different type of oil additive, the ingredients of which each performs a lubricating function, is subject to the tax imposed by section 4091 of the Code.