(2) The oil has been determined by the Commissioner of Internal Revenue to be "seldom used as a lubricant" and is sold for a nonlubricating use; or

(3) The oil is sold as cutting oil under the procedure described in paragraph (c) of this section.

(b) The following oils have been determined by the Commissioner of Internal Revenue to be "seldom used as lubricant" and, thus, may be sold tax free: Castor oil, petroleum white oil of certain specifications, crude neatsfoot oil, transformer or insulating oil, and a certain product used as an additive to the fuel used in internal combustion engines.

(c) Oil sold as cutting oil is not subject to the tax if the manufacturer or producer follows one of three procedures set forth in this paragraph.

(1) Lubricating oils may be sold tax free by the manufacturer or producer as cutting oil in any case where:

(i) The manufacturer or producer packages the oil in containers of 5 gallons or less furnished by him and labeled by him to indicate use of the oil only in cutting and machining operations on metals;

(ii) Any advertising of the oil so packaged and labeled indicates that the oil is for use only in cutting and machining operations on metals; and

(iii) The oil so packaged and labeled is sold by the manufacturer or producer to a purchaser for such use by him or for resale by him for such use.

(2) Where the Commissioner of Internal Revenue has determined oil to be suitable for use as a lubricant only in cutting and machining operations on metals, the oil may be sold tax free by the manufacturer or producer as cutting oils, unless the manufacturer has definite knowledge, prior to or at the time of the sale, that the oil is not being purchased for use, or resale for use, in cutting and machining operations on metals. Oils as to which the Commissioner has made such a determination may be sold tax free whether in bulk or otherwise. However, the Commissioner may require that the oil be specifically represented to the purchaser, whether by labeling or otherwise, as being suitable for use only in cutting and machining operations on metals.

(3) Lubricating oils which are sold for use, or for resale for use in cutting and machining operations on metals, but which may not be sold tax free under one

of the procedures described above, may be sold tax free, provided the manufacturer obtains from the purchaser a properly executed cutting oil certificate. The form set forth in § 1-11.501-3 shall be utilized for this purpose.

(d) The ultimate purchaser of lubricating oil (other than cutting oils, imported lubricating oils, or re-refined oil) is entitled to a refund of 6 cents per gallon on oil purchased tax paid which is used otherwise than as a lubricant in a highway motor vehicle.

§ 1-11.102-5 Fishing equipment.

A tax of 10 percent is imposed upon fishing equipment (including parts or accessories sold therewith) sold by a manufacturer, producer, or importer.

§ 1-11.102-6 Firearms, shells, and cartridges.

(a) A tax is imposed at the rate of 10 percent upon pistols and revolvers; and at the rate of 11 percent on other firearms, shells, and cartridges sold by a manufacturer, producer, or importer. The tax does not attach when such articles are purchased with funds appropriated for the Military Departments.

(b) Chapter 53A of the Internal Revenue Code imposes a transfer tax and a tax on the manufacture of machineguns and cetrain other firearms. Transfer to,

or manufacture for, the United States is specifically exempted.

86-086 O-68-23

§ 1-11.201

Retailers excise taxes. No retailers excise tax is imposed: (a) On the sale of special fuels for the exclusive use of any State, any political subdivision thereof, or the District of Columbia, or with respect to the use thereof by any of the foregoing.

(b) On the sale of special fuels for export or for shipment to a possession of the United States (which for the purpose of this exemption includes Puerto Rico), and in due course so exported or shipped

(1) This exemption shall be utilized by purchasing on a tax-exclusive basis and furnishing the required proof of exportation or shipment to a possession if: (i) The purchase is substantial, and

(ii) Exportation or shipment to a possession is intended to follow not more than 6 months after title passes to the Government.

(2) To qualify for the exemption of sales for export or for shipment to a possession

(i) The supplies must be identified as having been sold by the manufacturer (if the tax is a retailers excise tax) for export or shipment to a possession. The words "for export or shipment to a possession" incorporated into or stamped on a contract or purchase order are acceptable to the Internal Revenue Service as evidence that the sale is for export or for shipment to a possession. In solicitations and contracts, the terms of which imply that the supplies will be either exported or shipped to a possession (e.g., delivery to a port of embarkation or special packing requirements for overseas shipment) where the purchase is not substantial and it is therefore desired to purchase on a Federal Excise tax-inclusive basis, the solicitations and the contract should clearly state that proof of export certificates will not be issued.

(ii) The supplies must be exported or shipped to a possession in due course. Proof of export or shipment will be furnished to the contractor in the form set forth in § 1-11.501-1.

(c) On the sale of special fuels to retailers for resale (sales by the United States, or any agency or instrumentality thereof, are not exempt unless specifically made exempt by statute).

(d) On the sale of special motor fuels for use or used in the propulsion of vessels of war or military aircraft of the type enumerated in § 1-11.202(d).

(e) On the sale of special fuels to a nonprofit educational organization or with respect to the use thereof by a nonprofit educational organization. [31 F.R. 6372, Apr. 27, 1966] § 1-11.202

Manufacturers excise taxes.

No manufacturers excise tax is imposed:

(a) On the sale of any article for use i by the purchaser for further manufacture or for resale to a second purchaser in further manufacture. (An article shall be treated as sold for use in further manufacture if sold for use by the purchaser as material in the manufacture or production of, or as a component part of, another taxable article to be manufactured or produced. In the case of truck or bus parts and accessories it is not necessary that the produced article be a taxable article. This exemption does not apply to tires or inner tubes.);

(b) On the sale of any article for export, or for shipment to a possession of the United States (which for the purpose of this exemption includes Puerto Rico). This exemption shall be obtained only when the purchase is substantial and exportation or shipment to a possession is intended to follow not more than 6 months after title passes. For proper utilization of this exemption, see § 111.201(b);

(c) On the sale of any article for resale to a second purchaser for export. If articles upon which a manufacturers excise tax has been paid are resold by a dealer for export, or for shipment to a possession, the manufacturer is entitled to a credit or refund of the tax paid. If it is economically advantageous to do so, this credit or refund shall be utilized by purchase from a dealer on a tax-exclusive basis and execution of the required exemption certificate set forth in § 1-11.501-1;

(d) On sales of supplies for use as fuel supplies, ships' stores, sea stores, or legitimate equipment on vessels of war of the United States or any foreign nation, including aircraft owned by the United States or by any foreign nation and constituting a part of the armed forces thereof, and guided missiles and pilotless aircraft owned or chartered by by the United States. This exemption and the exemption from the retailers excise tax on special motor fuels (see § 1-11.201 (d)) shall be utilized by pur

(a). As a general rule, purchases made by the Government itself are exempt from State and local sales and use taxes; similarly, personal and real property are exempt from State and local property taxes when the property is both owned and possessed by the Government. These exemptions shall be made use of to the fullest extent available when Government property is located in a State or local tax jurisdiction, or when purchases are made directly by the Government, by asserting the Government's immunity from taxation of its property by States and localities, and in case of purchases,

by executing an approved tax exemption certification.

(b) However, when purchases are not made by the Government itself, but by a prime contractor of the Government or by a subcontractor under a prime contract, the right to an exemption of the transaction from a sales or use tax may not rest on the Government's immunity from direct taxation by States and localities. It may rest instead on provisions of the particular State or local law involved, or in some cases, the transaction may not in fact be expressly exempt from the tax. Similarly, when property is owned by the Government, but the property is in the possession of a contractor or subcontractor on tax day, situations may arise where States or localities believe they may have the right to tax the property directly or to tax the contractor's or subcontractor's possession of interest in, or use of that property.

(c) Whenever there is any doubt as to the availability of the Government's immunity or exemption from any State or local tax, the matter shall be handled in accordance with § 1-11.000 (b).

Subpart 1-11.4-Contract Clauses

§ 1-11.401 Fixed-price type contracts.

The clauses prescribed in this subpart are for use in fixed-price type conEtracts except those to be performed entirely outside the United States, its possessions, and Puerto Rico.

§ 1-11.401-1 Advertised and certain negotiated contracts.

(a) Use of clause. Except as provided in § 1-11.401-4, the clause set forth in paragraph (c) of this § 1-11.401-1 shall be used in:

(1) All formally advertised contracts except construction contracts;

(2) All formally advertised construction contracts when the contract price may reasonably be expected to exceed $10,000;

(3) Negotiated fixed-price type contracts in excess of $10,000 where the contracting officer is satisfied, because of competition or otherwise, that the contract price does not include any contingency for State and local taxes; and

(4) At the discretion of the contracting officer in negotiated fixed-price type contracts in excess of $2,500 but not in excess of $10,000.

(b) Description. The clause provides that the contract price includes all applicable taxes. It provides for an increase or decrease in the contract price to compensate for changes in applicable Federal excise taxes or duties. It does not provide for any adjustment in the contract price to compensate for changes in State or local taxes (but see § 1-11.401-4(b)). (c) Contract clause.

FEDERAL, STATE, AND LOCAL TAXES

(a) Except as may be otherwise provided in this contract, the contract price includes all applicable Federal, State, and local taxes and duties.

(b) Nevertheless, with respect to any Federal excise tax or duty on the transactions or property covered by this contract, if a statute, court decision, written ruling, or regulation takes effect after the contract date, and

(1) Results in the Contractor being required to pay or bear the burden of any such Federal excise tax or duty or increase in the rate thereof which would not otherwise have been payable on such transactions or property, the contract price shall be increased by the amount of such tax or duty or rate increase: Provided, That the Contractor if requested by the contracting officer, warrants in writing that no amount for such newly imposed Federal excise tax or duty or rate increase was included in the contract price as a contingency reserve or otherwise; or

(2) Results in the Contractor not being required to pay or bear the burden of, or in his obtaining a refund or drawback of, any such Federal excise tax or duty which would otherwise have been payable on such transactions or property or which was the basis of an increase in the contract price, the contract price shall be decreased by the amount of the relief, refund, or drawback, or that amount shall be paid to Government, as directed by the Contracting Officer. The contract price shall be similarly decreased if the Contractor, through his fault or negligence or his failure to follow instructions of the Contracting Officer, is required to pay or bear the burden of, or does not obtain a refund or drawback of, any such Federal excise tax or duty.

(c) No adjustment pursuant to paragraph (b) above will be made under this contract unless the aggregate amount thereof is or may reasonably be expected to be over $100.

(d) As used in paragraph (b) above, the term "contract date" means the date set for the bid opening, or if this is a negotiated contract, the date of this contract. As to additional supplies or services procured by modification to this contract, the term "contract date" means the date of such modification.

(e) Unless there does not exist any reasonable basis to sustain an exemption, the Government, upon request of the Contractor, without further liability, agrees, except as otherwise provided in this contract, to furnish evidence appropriate to establish exemption from any tax which the Contractor warrants in writing was excluded from the contract price. In addition, the Contracting Officer may furnish evidence to establish exemption from any tax that may, pursuant to this clause, give rise to either an increase or decrease in the contract price. Except as otherwise provided in this contract, evidence appropriate to establish exemption from duties will be furnished only at the discretion of the Contracting Officer.

(f) The Contractor shall promptly notify the Contracting Officer of matters which will result in either an increase or decrease in the contract price, and shall take action with respect thereto as directed by the Contracting Officer.

[29 F.R. 10254, July 24, 1964, as amended at 31 F.R. 6373, Apr. 27, 1966]