Rev. Rul. 64-120

Advice has been requested whether the use of lubricating oil in the polishing of metal castings in the manner described below is a nonlubricating use of the oil for purposes of the manufacturers excise tax.

A company manufactures and sells lubricating oil in bulk quantities for use by the purchasers in polishing metal castings. The purpose of the polishing operation is to produce a brilliant surface on the castings through the remoal of scratches and tool marks. This surface-finishing operation is performed subsequent to the machining operation of the castings.

The method used by the purchasers to polish metal castings consists of placing the castings into a revolving vat along with the polishing oil containing an abrasive (generally carborundum). The polishing of the castings is accomplished by the action of the abrasive upon the castings as the vat revolves.

Section 4091 of the Internal Revenue Code of 1954 imposes a tax on cutting oils (at three cents a gallon) and other lubricating oils (at six cents a gallon) sold in the United States by the manufacturer or producer thereof.

The term `cutting oils' is defined by section 4092(b) of the Code to mean oils sold for use in cutting and machining operation (including forging, drawing, rolling, shearing, punching, and stamping) on metals.

Section 48.4091-4(a)(1) of the Manufacturers and Retailers Excise Tax Regulations provides, in general, that the tax imposed by section 4091 of the Code does not attach to the sales 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. With certain exceptions which are not relevant to the instant case, that section further provides that the manufacturer, in order to establish the right to sell lubricating oil tax free, must obtain from the purchaser and retain in his possession a properly executed certificate of nonlubricating use.

Revenue Ruling 59-215, C.B. 1959-1, 323, holds in part, that lubricating oils used solely as coolants in grinding or honing metal with sone are used for nonlubricating purposes. Accordingly, sales of lubricating oils by the manufacturer thereof for such use by the purchaser are not subject to the manufacturers excise tax imposed by section 4091 of the Code, provided the manufacturer obtains a certificate of nonlubricating use from the purchaser.

The polishing operation described above involves an abrasive action similar to honing, and the oil merely serves as a coolant and as a carrying agent for the abrasive. Therefore, it is held that lubricating oils used solely as a coolant and as a carrying agent for an abrasive in the polishing of metal castings are used for nonlubricating purposes. Accordingly, sales of lubricating oils by the manufacturer or producer for such use by the purchasers are not subject to the manufacturers excise tax imposed by section 4091 of the Code, provided the manufacturer or producer obtains certificates of nonlubricating use from the purchasers in compliance with section 48.4091-4 of the regulations.