Rev. Rul. 58-439

Advice has been requested whether the manufacturers excise tax applies to the sale of oil by the manufacturer thereof for use as a power transmission medium in hydraulic-type machinery, such as boosters, hoists, jacks, lifts, drawing benches, presses, converters, shock absorbers, knee action units, power brakes, and power steering devices.

Section 4091 of the Internal Revenue Code of 1954 imposes a tax on lubricating oils sold by the manufacturer or producer. Section 314.40 of Regulations 44, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that the term `lubricating oils' includes all oils, regardless of their origin, which are sold as lubricating oil and all oils which are suitable for use as lubricants. Section 314.43 of the regulations provides that no tax attaches where oil is sold by the manufacturer direct to a purchaser 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 the purchaser and retains in his possession a properly executed exemption certificate in the form prescribed by the regulations. No sale of oil may be made tax free by the manufacturer to a dealer for resale for nonlubricating uses even though it is known at the time of sale that the oil will be so resold. However, where any dealer resells tax-paid oil for nonlubricating uses, the manufacturer who paid the tax on his sale of the oil may secure a refund or credit in accordance with the provisions of section 314.64 of the regulations.

It is held that lubricating oil used as a power transmission medium in hydraulic-type machinery, such as boosters, hoists, jacks, lifts, drawing benches, presses, converters, shock absorbers, knee action units, power brakes, and power steering devices, where the oil serves no lubricating purpose, is considered as used for nonlubricating purposes. Therefore, the manufacturers excise tax does not apply to the sale of oil by the manufacturer thereof direct to purchasers for such use, provided the sale is supported by properly executed certificates of nonlubricating use.