Sec.

11.402

11.403

11.403-1

11.403-2

11.500 11.501 11.501-1

Cost-reimbursement type con

tracts.

Foreign tax clauses.

General.

Contract clauses.

Subpart E-Tax Exemption Forms

General.

Federal excise taxes.

Certificate of export to a possession or to Puerto Rico. 11.501-2 Exemption certificate for supplies for vessels of war. Cutting oil certificate. State and local taxes.

11.501-3 11.502 11.502-1 Types of evidence of exemption. 11.502-2 When evidence of exemption is to be furnished.

AUTHORITY: The provisions of this Part 11 issued under R.S. 161, secs. 2202, 2301-2314, 70A Stat. 120, 127-133; 5 U.S.C. 301, 10 U.S.C. 2202, 2301-2314.

§ 11.000 Resolution of tax problems.

(a) The problems presented in connection with the administration of the tax aspects of a contract or transaction are widely varied. The right to immunity, exemption, refund, credit, or drawback depends upon the nature of the tax, the particular tax law, the party sought to be taxed, the items being procured, and the provisions of the contract. These problems are essentially legal; therefore, when questions arise, contracting officers shall request the assistance of counsel.

(b) It is desirable that uniform and consistent tax policies and procedures be maintained throughout the Department of Defense. Accordingly, negotiations will not be undertaken or directed by procuring activities with any taxing authority for the purpose of determining the validity or applicability of, or for obtaining exemption from or refund of, any tax, except with the approval of: Chief, Procurement Law Division, Office of the Judge Advocate General, for the Army; the General Counsel, for the Navy; The Judge Advocate General, Headquarters, USAF, for the Air Force; and The Counsel, for the Defense Supply Agency. In addition, where the constitutional immunity of the United States from State or local taxation may reasonably be in issue, contracting officer should discourage contractors having cost-reimbursement type contracts or fixedprice type contracts containing a tax escalation clause from undertaking independent negotiations with taxing authorities pending approval as indicated above.

(c) Occasionally, a contractor having

a cost-reimbursement type contract or a fixed-price type contract containing a tax escalation clause will be directed, after coordination with the other Military Departments through the Armed Services Tax Group, to litigate the applicability of a particular tax. In such cases, guidance will be issued in Defense Procurement Circulars informing purchasing activities of the litigation, the need for special contract clauses covering the tax in question, and instructions to be given contractors regarding nonpayment, payment, protest or other specific treatment of the tax (see § 11.4014). In addition, similar guidance may be furnished concerning an anticipated repeal or reduction in the rate of a tax. It is particularly important that this guidance be considered by those negotiating incentive type contracts in order that the tax in question may be treated separately in the establishment of target price.

[29 F.R. 2834, Feb. 29, 1964, as amended at 31 F.R. 1051, Jan. 27, 1966]

Subpart A-Federal Excise Taxes

SOURCE: The provisions of this Subpart A appear at 31 F.R. 13332, Oct. 14, 1966, unless otherwise noted.

A tax at the indicated rates is imposed upon any liquid, other than that taxable as gasoline under section 4081 of the Internal Revenue Code (see § 11.102-3), which is (a) sold by any person to an owner, lessee, or other operator of a diesel-powered highway vehicle, for use as a fuel in such vehicle, or (b) used by any person as a fuel in a diesel-powered highway vehicle unless there was a taxable sale of such liquid pursuant to paragraph (a) of this section, as follows:

(1) At 4 cents per gallon, if sold for use or if used as fuel in a diesel-powered highway vehicle

(i) Which, at the time of such sale or use, is registered, or is required to be

registered, for highway use under the laws of any State or foreign country; or (ii) Which, if owned by the United States, is used on the highway; or

(2) At 2 cents per gallon, if sold for use or if used as fuel in a diesel-powered highway vehicle

(i) Which, at the time of such sale or use, is not registered, and is not required to be registered, for highway use under the laws of any State or foreign country;

or

(ii) Which, if owned by the United States, is not used on the highway; and

(3) At an additional 2 cents per gallon, if fuel on which a tax of 2 cents was paid pursuant to subparagraph (2) of this paragraph, is used as fuel in a dieselpowered highway vehicle

(i) Which, at the time of such use, is registered, or is required to be registered, for highway use under the laws of any State or foreign country; or

(ii) Which, if owned by the United States, is used on the highway.

No tax is imposed on diesel fuel sold for use or used as fuel in a nonhighway vehicle, such as certain military vehicles, construction equipment, and equipment designed for use at mines, factories, railroad stations, and farms.

§ 11.101-2 Special motor fuels.

A tax at the rates indicated below is imposed upon benzol, benzene, naphtha, liquefied petroleum gas, casinghead and natural gasoline, or any other liquid (other than kerosene, gas oil, fuel oil, or a product taxable as diesel fuel under § 11.101-1, or as gasoline under section 4081 of the Internal Revenue Code (see § 11.102-3), which is (a) sold by any person to an owner, lessee, or other operator of a motor vehicle, motorboat, or airplane for use as a fuel for the propulsion thereof, or (b) used by any person as a fuel for the propulsion of a motor vehicle, motorboat, or airplane, unless there was a taxable sale of such liquid pursuant to paragraph (a) of this section, as follows:

(1) At 4 cents per gallon, if such liquid is sold for use or is used as a fuel for a highway vehicle

(i) Which, at the time of such sale or use, is registered, or is required to be registered, for highway use under the laws of any State or foreign country; or (ii) Which, if owned by the United States, is used on the highway, or

(2) At 2 cents per gallon, if such liquid is sold for use or is used as a fuel

for the propulsion of a motorboat or airplane, or a motor vehicle

(i) Which, at the time of such sale or use, is not registered, and is not required to be registered, for highway use under the laws of any State or foreign country;

or

(ii) Which, if owned by the United States, is not used on the highway; and

(3) At an additional 2 cents per gallon, if a liquid on which a tax of 2 cents was paid pursuant to subparagraph (2) of this paragraph, is used as fuel in @ highway vehicle

(i) Which, at the time of such use, i registered, or required to be registered, for highway use under the laws of any State or foreign country; or

(ii) Which, if owned by the United States is used on the highway.

§ 11.101-3 Procedures.

(a) General. The sale of diesel fuel to an owner, lessee, or other operator of a diesel-powered highway vehicle, or of special motor fuel to an owner, lessee, or other operator of a motor vehicle, motor boat, or airplane is considered as a taxable sale by the Internal Revenue Service only (1) if the liquid is delivered by the seller into the fuel supply tank of the vehicle, motor boat, or airplane, or (2) where not so delivered, the purchaser indicates in writing to the seller prior to or at the time of the sale that the entire quantity of the liquid covered by the sale is for use by him for a taxable purpose as a fuel in such a vehicle, motor boat, or airplane. If such a written statement is not furnished by the purchaser, he is liable for the tax at the applicable rate on that quantity of the liquid which is used by him as fuel in such a vehicle, motor boat, or airplane, or which is sold by him in a taxable transaction.

(b) Diesel fuel. Within the Departments, diesel fuel is the only product which could be taxable under § 11.101-1. Diesel fuel shall be procured by the Departments at a price exclusive of the tax on diesel fuel unless the contract under which such fuel is to be furnished requires the contractor to deliver it into the fuel supply tank of a diesel-powered highway vehicle. The activity of any Department using diesel fuel in a dieselpowered highway vehicle, where the fuel had not been delivered by the contractor into the fuel supply tank of the vehicle and had therefore been procured tax free, shall be responsible for making pay

ment of the tax, at the applicable rate, directly to the Internal Revenue Service. Such payment shall be made quarterly on TD Form 720 “Quarterly Federal Excise Tax Return." A Certificate of Export is not required to support a taxfree sale of diesel fuel exported to a foreign country or shipped to a possession of the United States or to Puerto Rico.

(c) Special motor fuel (jet fuel). The only product procured by the Departments to which the tax under § 11.101-2 could apply is jet fuel. Benzol, benzene, naphtha, liquefied petroleum gas, casinghead and natural gasoline, or any other liquid (other than kerosene, gas oil, fuel oil, or a product taxable as diesel fuel or as gasoline) is not used by the Departments as a fuel for the propulsion of motor vehicles, motor boats, or airplanes and, therefore, the procurement of these products by the Departments would not be subject to the tax on special motor fuel. Moreover, none of these products is subject to the manufacturers excise tax on gasoline. The procurement of jet fuel by the Departments, except on AF Form 15, shall be at a price exclusive of the tax on special motor fuels. The furnishing of a tax exemption certificate (vessel-ofwar) is not required unless the contract under which such fuel is to be furnished requires the contractor to deliver it into the fuel supply tank of aircraft or unless such fuel meets the specification requirements of motor gasoline set forth in paragraph (A) of section 314.30 of Regulation 44 of the Internal Revenue Service. The contract price for jet fuel procured by any Department shall not include an amount for manufacturers excise tax on gasoline used in the production of such fuel.

(If the manufac

turers excise tax on gasoline has been paid on any material used in the production of jet fuel, the manufacturer of the gasoline is entitled to a refund or credit of such tax.) Jet fuel procured on AF Form 15 shall be at a price inclusive of the tax on special motor fuels.

§ 11.102 Manufacturers' excise taxes. § 11.102-1 Motor vehicles.

(a) A tax at the rates indicated below is imposed upon the following articles (including parts and accessories sold therewith) sold by a manufacturer, producer, or importer:

(1) Chassis and bodies of trucks, buses, truck and bus trailers, and semi

trailers, and tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer-10 percent; except that this tax does not apply to equipment designed for off-theroad use, such as certain military vehicles (including oxygen or bomb dollies), construction equipment, and equipment designed for use at mines, factories, railroad stations, and farms;

(2) Chassis and bodies of automobiles, and of trailers and semitrailers (other than house trailers) suitable for use with passenger automobiles-10 percent prior to June 22, 1965; 7 percent from June 22, 1965, through December 31, 1965; 6 percent from January 1, 1966, through March 15, 1966; 7 percent from March 16, 1966, through March 31, 1968; 2 percent from April 1, 1968, through December 31, 1968; 1 percent after December 31, 1968; and

(3) Parts or accessories for trucks and buses-when sold separately from a truck, bus, or other item taxable as indicated in subparagraph (1) of this paragraph 8 percent. Parts or accessories are defined to include any article

(i) The primary use of which is to improve, repair, replace, or serve as a component part of a truck or bus;

(ii) Designed to be attached to or used in connection with a truck or bus or to add to its utility or ornamentation; or

(iii) The primary use of which is in connection with a truck or bus whether or not essential to its operation or use. Spark plugs, storage batteries, leaf springs, coils, timers, and tire chains, which are suitable for use on or in connection with, or as component parts of, a taxable vehicle are treated as parts or accessories whether or not primarily adapted for such use. However, the

term "parts or accessories" does not inIclude tires or inner tubes. The tax on parts or accessories does not apply to any article sold for use (or for a single resale for use) as material in the manufacture of, or as a component part of any article whether or not such article is subject to a manufacturers excise tax. The contract price of supplies purchased by any Department shall not include an amount for the manufacturers excise tax on parts or accessories purchased for use in the manufacture of any article.

(b) Bodies are exempt from tax when sold by the manufacturer to a manufacturer of motor vehicles to be sold by the purchaser; however, a chassis manufac

turer who purchases a body tax free is required to pay a tax on his sale of the completed vehicle as the manufacturer of both the chassis and the body. A manufacturer of motor vehicle chassis cannot sell such chassis tax free to manufacturers of motor vehicle bodies.

§ 11.102-2 Tires and tubes.

(a) A tax at the rates indicated below is imposed on the following supplies, made wholly or in part of rubber, including synthetic and substitute rubber, sold by a manufacturer, producer, or importer:

(1) Tires of the type used on highway vehicles, which includes motor vehicles which are highway vehicles, and vehicles of the type used with motor vehicles which are highway vehicles-10 cents per pound;

(2) Other tires, which are designed to fit the wheel of any type of vehicle capable of transporting a person or burden (other than laminated tires which consist wholly of scrap rubber from used tire casings with an internal metal fastening agent)-5 cents per pound;

(3) Inner tubes, which include any type of air container for pneumatic tires-10 cents per pound on total weight, including air valves and stems;

(4) Laminated tires (not of the type used on highway vehicles) which consist wholly of scrap rubber from used tire casings with an internal metal fastening agent-1 cent per pound; and

(5) Tread rubber, which includes any material commonly or commercially known as tread rubber or camelback of a type used in retreading or recapping tires-5 cents per pound. An exemption exists for the sale of tread rubber or camelback by a manufacturer to a purchaser for use by that purchaser other than for recapping or retreading tires of the type used on highway vehicles. In addition, if tread rubber, upon which the tax has been paid, is sold for use or is used other than for recapping or retreading tires of the type used on highway vehicles, the manufacturer is entitled to a refund or credit of the tax: Provided, That the credit under paragraph (b) of this section is not available. The contract price for supplies purchased by any Department will not include an amount for the manufacturers excise tax on tread rubber to the extent that this exemption or refund or credit is available to the manufacturer. In determining weight

of taxable tires under subparagraphs (1) and (2) of this paragraph, metal rims or rim bases are excluded, but any other material or fastening device that forms a part of the tire is included. The tax imposed under subparagraphs (1) and (2) of this paragraph, does not apply to tires which are not more than 20 inches in diameter and not more than 14 inches in cross section, if such tires are of all-rubber construction without fabric or metal reinforcement, nor does it apply to tires of extruded tiring with an internal wire fastening agent.

(b) The exemption for sales for further manufacture does not apply to taxable tires and tubes (see § 11.202). However, if tax-paid tires and tubes normally sold in connection with the sale by a manufacturer of a taxable motor vehicle are sold therewith, a credit against the tax on the motor vehicle is allowed to the extent of the motor vehicle tax rate applied to the manufacturers purchase price on the tires and tubes. The contract price for supplies purchased by any Department shall not include an amount for manufacturers excise tax on tires and tubes to the extent that this credit is available to the manufacturer.

§ 11.102-3 Gasoline.

(a) General. A tax of 4 cents per gallon is imposed on gasoline sold by a producer or importer. Gasoline means all products commonly or commercially known or sold as gasoline which are suitable for use as a motor fuel. The tax does not apply to the sale of gasoline to a producer, which is defined to include a refiner, compounder, blender, or dealer who sells gasoline exclusively to producers of gasoline.

(b) Procedure. Products procured by the Departments which are subject to the tax under paragraph (a) of this section include motor gasoline, clear unleaded gasoline, automotive combat gasoline, and aviation gasoline for reciprocating engines. The procurement of motor gasoline, clear unleaded gasoline and automotive combat gasoline shall be at a price inclusive of the tax unless the product is to be exported to a foreign country or shipped to a possession of the United States or to Puerto Rico, or is to be used as supplies for vessels, in which event the procedure in § 11.202 (b) or (d) shall be followed. The procurement of aviation gasoline for reciprocating engines, if to be used for the propulsion of military aircraft and if not made on

AF Form 15, shall be at a price exclusive of the tax under paragraph (a) of this section, and a vessel-of-war tax exemption certificate shall be furnished in accordance with § 11.202(d). The procurement of aviation gasoline which is not to be used for the propulsion of military aircraft or which is made on AF Form 15 shall be at a price inclusive of the tax on gasoline.

(c) Refunds. The ultimate purchaser of gasoline is entitled to a refund of 2 cents per gallon for gasoline used otherwise than as fuel in a highway vehicle, and in certain circumstances to fuel used in such a vehicle. However, activities of the Department of Defense will not apply for such refunds.

§ 11.102-4 Lubricating oils.

(a) General. A tax of 6 cents per gallon is imposed on lubricating oil (other than cutting oils) sold by the manufacturer or producer unless sold to another manufacturer or producer of lubricating oils for resale. Lubricating oil means all oils which are either sold for use as a lubricant or are suitable for use as a lubricant. The tax applies unless

(1) The sale is exempt from tax under § 11.202; or

(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) "Seldom used as a lubricant." The following oils have been determined by the Commissioner of Internal Revenue to be "seldom used as a 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) Cutting oils. Oil sold as cutting oil is not subject to the tax if the manufacturer or producer follows one of three procedures. First, lubricating oils may be sold tax free by the manufacturer or producer as cutting oil in any case where:

(1) 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;

(2) 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

(3) 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.

Second, 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. Third, 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 § 11.501-3 shall be utilized for this purpose.

(d) Refunds. The ultimate purchaser of lubricating oil (other than cutting oils, imported lubricating oils, or rerefined 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. However, activities of the Department of Defense will not apply for such refunds.

§ 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.

§ 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.