Rev. Rul. 58-16

The Internal Revenue Service has been asked whether manufacturers or producers of castor oil may sell such oil for nonlubricating purposes without obtaining from the purchasers the exemption certificates which are normally required when lubricating oil is sold for nonlubricating purposes.

In recent years, the use of castor oil as a lubricating oil has declined to the point where less than one-half of one percent of such oil is being sold for lubricating purposes. Approximately 99 1/2 percent of all castor oil produced and sold in the United States is used in sulfonation, plasticizers, hydraulic fluids (brakes and shock absorbers), paints, varnishes, synthetic resins, lacquers, cosmetics, pharmaceuticals, calks, adhesives, inks, carbon paper, disinfectants, and chemical processing.

Section 4091 of the Internal Revenue Code of 1954 imposes a tax upon lubricating oils sold by the manufacturer or producer thereof. Section 314.43(a) of Regulations 44, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that no tax attaches where oil is sold by the manufacturer direct to a person 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 person 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 a nonlubricating purpose even though it is known at the time of sale that the oil will be so resold.

It is held that, since castor oil is seldom used for lubricating purposes even though it has qualities which make it capable of being used for such purposes, it may be sold free of the tax imposed by section 4091 of the Code for nonlubricating purposes without the necessity of obtaining exemption certificates usually required with such sales, provided, however, that the manufacturers of the product shall account for and pay the tax with respect to any such oil which may actually be sold for lubricating purposes. A complete record of all sales of such castor oil must be retained by the manufacturer or producer thereof for a period of at least four years and be kept available for inspection by representatives of the Internal Revenue Service.