Rev. Rul. 58-286

Advice has been requested whether the manufacturers excise tax is applicable to sales of gasoline when sold by the producer to dealers in crude oil or to producers of crude oil.

Situation 1 . A dealer in crude oil purchases natural gasoline from a producer thereof. The dealer mixes such gasoline with the crude oil, which results in a crude oil having a higher gasoline content. The dealer then sells such crude oil to various refineries.

Situation 2 . A producer of crude oil purchases natural and casing-head gasoline from a producer thereof for the purpose of injecting such products into his oil producing wells, where they act as a solvent to dissolve the asphalt and paraffin residue which obstructs the flow of oil from the wells. Thus, the gasoline loses its identity, as such, when blended with the crude oil.

Section 4081 of the Internal Revenue Code of 1954 imposes a tax on gasoline sold by the producer or importer thereof, or by any producer of gasoline. Section 4082(a) of the Code defines the term `producer' to include a refiner, compounder, or blender, and a dealer selling gasoline exclusively to producers of gasoline, as a producer. Section 4083 of the Code provides that, under regulations prescribed by the Secretary of the Treasury or his delegate, the tax imposed by section 4081 shall not apply in the case of sales of gasoline to a producer of gasoline.

In the first situation described above, the purchaser of the gasoline is a dealer selling crude oil and not `a dealer selling gasoline exclusively to producers of gasoline.' Therefore, he does not qualify as a producer of gasoline, as defined by section 4082(a) of the Code, for purposes of the exemption provided by section 4083 of the Code. Accordingly, it is held that sales of gasoline by the producer thereof to such a dealer in crude oil are subject to the manufacturers excise tax imposed by section 4081 of the Code.

In the second situation described above, the purchaser of the gasoline is a producer of crude oil and, therefore, does not qualify as a producer of gasoline as defined by section 4082(a) of the Code. There is no provision that sales of gasoline may be made tax-free for use in the production of crude oil. Therefore, it is held that such sales by a producer of gasoline are subject to the manufacturers excise tax imposed by section 4081 of the Code.