Rev. Rul. 77-104

Advice has been requested whether certain lubricating products are lubricating oils for purposes of the manufacturers excise tax imposed by section 4091 of the Internal Revenue Code of 1954.

A company manufacturers and sells several products for use as special lubricants primarily by the steel industry in its manufacturing operations. These products consist of 85 percent or more synthetic materials, with the remainder being nonpetroleum natural additives, including water, solvents, and lard oil or rapeseed oil. Such additives are necessary for the proper application of the product in that they serve to adjust the emulsion or clarity of the finished product, or to control foaming.

Section 4091 of the Code imposes a tax on lubricating oil (other than cutting oils) sold in the United States by the manufacturer or producer.

Section 48.4091-2(a) of the Manufacturers and Retailers Excise Tax Regulations provides that the term "lubricating oil" includes all oils, regardless of origin, that (1) are suitable for use as a lubricant, or (2) are sold for use as a lubricant. The regulations further provide that the term does not include synthetic materials that possess lubricating properties, nor does it ordinarily include products of the type commonly known as grease.

Rev. Rul. 61-148, 1961-2 C.B. 175, concludes that a lubricant for jet engines, that was determined to be a synthetic material, is not a lubricating oil as defined in the regulations, and that sales of the product are not subject to the manufacturers tax on lubricating oil.

Rev. Rul. 58-106, 1958-1 C.B. 407, concludes that the mere addition to a nontaxable grease of a solvent which quickly vaporizes upon application of the grease would not change the classification of the product to a taxable "lubricating oil," even though the consistency of the nontaxable grease is altered by the addition of the solvent.

Since section 48.4091-2(a) of the regulations provides that the term "lubricating oil" does not include synthetic materials that possess lubricating properties, the products described in this case are not lubricating oils within the meaning of that section. Accordingly, the fact that such products contain small amounts of nonpetroleum additives necessary for proper application of the products does not change their classification to that of taxable "lubricating oils."

Therefore, sales by the company of such products are not subject to the manufacturers excise tax on lubricating oil imposed by section 4091 of the Code.