Resulting Mixture from Dissolved Individual Solvents and Resin Portion of Inks and Paints is Not Subject to Excise Tax

July 7, 1987 BIR RULING NO. 194-87 128 000-00 194-87 Gentlemen : This refers to your letter dated February 9 and April 7, 1987 requesting a ruling whether the products of your client, The Ault & Wilborg Co. (Far East) commercially known as Thinner or Reducer and Retarder are subject to the excise tax or the sales tax based on the facts represented by you, as follows: "1. The said products are produced by our client through the simple process of mixing or blending two or more solvents; "2. The individual solvents which are mixed or blended, are by itself, used to dissolve the resin portion (thin or reduce the viscosity) of the paints or inks. The resulting mixture or blend is also used to dissolve the resin portion of the paints or inks; "3. That the component solvents are mixed or blended together to combine the application properties of the individual solvents. For example, Retarder is a thinner composed mainly of the mixture of solvents or thinner called Xylene and Cellosolve Acetate. Xylene has a strong dissolving power but evaporates or dries quickly. On the other hand, Cellosolve Acetate is not a strong solvent but evaporates or dries slowly. By mixing or blending Xylene and Cellosolve Acetate, the resulting mixture or blend is a thinner that dissolve strongly the resin portion of the paint but allows it to dry slowly. Another example is PNT-90 Color Thinner. It is composed mainly of the mixture of solvents or thinner which are called Acetone, Toluene and Pegasol. Acetone is fast drying. Toluene is medium drying and Pegasol is slow drying. By mixing or blending these solvents or thinners, the resulting mixture or blend evaporates or dries at a desired rate allowing the paint to spread evenly and smoothly on the painted surface." You also represented that solvents utilized by your client were acquired either through importation or purchase from oil companies or dealers and that the excise tax and ad valorem tax under Section 128 (c)(3) of the Tax Code have been previously paid. In reply, please be informed that Section 128 of the Tax Code imposes the specific and ad valorem taxes on manufactured oils and fuels . Among said manufactured oils and other fuels are thinners and solvents. [Sec. 128 (c)(2), Tax Code]. In other words, to be subject to excise taxes (specific and/or ad valorem taxes), said articles must have undergone the process of manufacturing. From the foregoing facts, you represented that the individual solvents are used to dissolve the resin portion of the paints or inks and that the resulting mixture is also used for the same purpose. The only difference between the individual solvents and the resulting mixture is that while the individual solvents possess their respective properties, the resulting mixture combines the application properties of the individual solvents . In other words, the mixing or blending of the individual solvents did not result in the use of the resulting mixture which is different from the use of the individual solvents. Such being the case, the resulting mixture are not considered manufactured oils and other fuels as contemplated under Section 157(x) of the Tax Code; hence they are not subject to the excise (specific and ad valorem ) taxes imposed by Section 128 of the Tax Code. However, your client is subject to the 1.5% sales tax imposed by Section 164 of the Tax Code on its sales of the abovementioned products. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner