Rev. Rul. 59-134

Advice has been requested concerning the applicability of the manufacturers excise tax on lubricating oils to sales of an oil additive for use in lubricating food machinery.

A manufacturer uses U.S.P. white mineral oil of higher than 30 saybolt color as a carrying agent for a dry lubricant made from finely ground mica. The resulting product is sold as an oil additive to be mixed with lubricating oil for use in lubricating food machinery. The additive contains a mixture of eight ounces of mica to one gallon of mineral oil.

Section 4091 of the Internal Revenue Code of 1954 imposes a tax upon lubricating oils sold in the United States 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 a lubricant.

The white mineral oil described is not normally considered as a lubricating oil due to its high cost of purification. However, when it is used for lubricating purposes, it is considered to be suitable for use as a lubricant and is taxable as a lubricating oil. See S.T. 844, C.B. XV-2, 330 (1936). In the instant case, both the white mineral oil, which constitutes the bulk of the additive, and the dry lubricant perform a lubricating function when mixed with lubricating oil and used to lubricate food machinery. Accordingly, it is held that the manufacturers excise tax on lubricating oils applies to the sale by the manufacturer of the oil additive described above.