Rev. Rul. 57-204

Advice has been requested concerning the applicability of the manufacurers excise tax to lubricating oil manufactured from a mixture of virgin crude oil and used oil.

Used oil is mixed with virgin crude oil and the commingled product is then subjected to the same processing and treating as that given to virgin crude oil.

Section 4091 of the Internal Revenue Code of 1954 imposes a manufacturers excise tax on the sale of lubricating oils.

Section 314.40(c) of Regulations 44, as amended by Treasury Decision 6197, C.B. 1956-2, 803, and made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, defines a manufacturer as (1) any person who produces lubricating oil by any process of manufacturing, refining, or compounding, or any manipulation involving substantially more than a mere mixing of taxable oils and (2) any person who produces lubricating oil by mixing taxable oils with any other substances.

Section 314.40(d) of the regulations states that the term `manufacturer' does not include (1) a person who merely blends or mixes two or more taxable lubricating oils, (2) a persons who merely cleans, renovates, or refines used or waste lubricating oil, or (3) a person who merely blends or mixes one or more taxable lubricating oils with used or waste lubricating oil which has been cleaned, renovated, or refined.

In the instant case, the used or waste oil, when mixed with virgin crude oil, to be refined, loses its identity, as such, in the process. Furthermore, the resulting end product is lubricating oil refined from such mixture rather than a mere blend or mixture of taxable lubricating oil with used or waste lubricating oil which has been cleaned, renovated or refined, as described in section 314.40(d)(3) of Regulations 44. It is not the process used but the fact that the used or waste oil loses its identity, as such, before the refining process which determines the application of the tax under the circumstances. Accordingly, the manufacturers excise tax imposed by section 4091 of the Code is applicable to the manufacturer's sale or use of lubricating oil produced from a mixture of virgin crude and used or waste oil.