Rev. Rul. 79-169

ISSUE

May a conversion factor other than 8 pounds to the gallon be used for computing the manufacturers excise tax imposed on lubricating oils in the case of nonfluid lubricating oils that are commonly sold in the industry by weight?

LAW AND ANALYSIS

The applicable sections of the Internal Revenue Code and Manufacturers and Retailers Excise Tax Regulations are 4091, imposing a tax on lubricating oil at a stated rate per gallon, and 48.4091-1(b)(2), relating to the computation of the tax.

Section 48.4091-1(b)(2) of the regulations provides that the tax on lubricating oil is computed by applying the applicable rate to the number of gallons sold or at the taxpayer's option in the case of nonfluid lubricating oils that are sold by weight, 8 pounds to the gallon may be used as the basis for computing the tax.

Because the regulations provide that a conversion factor "may" be used as the basis for computing the tax on nonfluid lubricating oils that are sold by weight, the use of a weight factor to compute gallonage is permissible. However, the conversion factor prescribed by the regulations is 8 pounds to the gallon, and there is no other prescribed proportion of pounds to gallons.

HOLDING

When manufacturers sell by weight nonfluid lubricating oils, such as gear oils, they may determine their tax liability under section 4091 of the Code in one of two ways. First, they may determine the number of gallons of oil actually sold and apply the per-gallon tax rate directly to such figure. Alternatively, they may use the number of pounds sold as a basis for computing tax, using the eight pound per gallon conversion factor to determine the number of gallons on which to apply the tax. However, if tax is computed by reference to pounds sold, only the eight pound per gallon factor may be used in determining the number of gallons to which to apply the tax rate.