used in all noncompetitive negotiated fixed-price contracts in excess of $10,000, where the contracting officer is satisfied (1) that the contract price does not include contingencies for State and local taxes and (2) that unless this clause is used the contract price will include such contingencies.

(b) Description: The clause provides that the contract price includes all applicable Federal, State, and local taxes. It provides for an increase or decrease in the contract price to compensate for changes in Federal excise taxes or duties, and, with some exceptions, for changes in State and local taxes.

(c) Contract clause.

FEDERAL, STATE, AND LOCAL TAXES (JULY 1960)

(a) As used throughout this clause, the term "contract date" means 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.

(b) Except as may be otherwise provided in this contract, the contract price includes, to the extent allocable to this contract, all Federal, State, and local taxes which, on the contract date:

(i) by Constitution, statute, or ordinance, are applicable to this contract, or to the transactions covered by this contract, or to property or interests in property; or

(ii) pursuant to written ruling or regulation, the authority charged with administering any such tax is assessing or applying to, and is not granting or honoring an exemption for, a contractor under this kind of contract, or the transactions covered by this contract, or property or interests in property.

(c) Except as may be otherwise provided in this contract, duties in effect on the contract date are included in the contract price, to the extent allocable to this contract.

(d) (1) If the Contractor is required to pay or bear the burden

(i) of any tax or duty which either was not to be included in the contract price pursuant to the requirements of paragraphs (b) and (c), or of a tax or duty specifically excluded from the contract price by a provision of this contract; or

(ii) of an increase in rate of any tax or duty, whether or not such tax or duty was excluded from the contract price; or

(iii) of any interest or penalty on any tax or duty referred to in (1) or (ii) above; the contract price shall be increased by the amount of such tax, duty, interest, or penalty allocable to this contract; provided, that the Contractor warrants in writing that no amount of such tax, duty, or rate increase was included in the contract price as a contingency reserve or otherwise; and provided further, that liability for such tax, duty, rate increase, interest or penalty was not incurred

through the fault or negligence of the Contractor or his failure to follow instructions of the Contracting Officer.

(2) If the Contractor is not required to pay or bear the burden, or obtains a refund or drawback, in whole or in part, of any tax, duty, interest, or penalty which:

(1) was to be included in the contract price pursuant to the requirements of paragraphs (b) and (c);

(ii) was included in the contract price; or (ii) was the basis of an increase in the contract price; the contract price shall be decreased by the amount of such relief, refund, or drawback allocable to this contract, or the allocable amount of such relief, refund, or drawback shall be paid to the Government, as directed by the Contracting Officer. The contract price also shall be similarly decreased if the Contractor, through his fault or negligence or his fallure to follow instructions of the Contracting Officer, is required to pay or bear the burden, or does not obtain a refund or drawback of any such tax, duty, interest, or penalty. Interest paid or credited to the Contractor incident to a refund of taxes shall inure to the benefit of the Government to the extent that such interest was earned after the Contractor was paid or reimbursed by the Government for such taxes.

(3) Invoices or vouchers covering any adjustment of the contract price pursuant to shall this paragraph (d) set forth the amount thereof as a separate item and shall identify the particular tax or duty involved.

(4) This paragraph (d) shall not be applicable to social security taxes; income and franchise taxes, other than those levied on or measured by (i) sales or receipts from sales, or (ii) the Contractor's possession of, interest in, or use of property, title to which is in the Government; excess profits taxes; capital stock taxes; unemployment compensation taxes; or property taxes, other than such property taxes, allocable to this contract, as are assessed either on completed supplies covered by this contract, or on the Contractor's possession of, interest in, or use of property, title to which is in the Government.

(5) No adjustment of less than $100 is required to be made in the contract price pursuant to this paragraph (d).

(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 appropriate 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) (1) The Contractor shall promptly notify the Contracting Officer of all matters pertaining to Federal, State, and local taxes, and duties, that reasonably may be expected to result in either an increase or decrease in the contract price.

(2) Whenever an increase or decrease in the contract price may be required under this clause, the Contractor shall take action as directed by the Contracting Officer, and the contract price shall be equitably adjusted to cover the costs of such action, including any interest, penalty, and reasonable attorneys' fees.

[25 F.R. 14266, Dec. 31, 1960, as amended at 29 F.R. 2837, Feb. 29, 1984; 33 F.R. 7401, May 18, 1968]

§ 11.401-3 Supplementary clause for possessions of the United States and Puerto Rico.

When a contract will be performed in whole or in part in a possession of the United States or in Puerto Rico, and either the clause set forth in § 11.401-1 or that in § 11.401-2 is used, the contract shall contain the following supplementary clause:

TAXES (NOV. 1963)

The term "local taxes" as used in the clause of this contract entitled "Federal, State, and Local Taxes" includes taxes imposed by a possession of the United States, and the Commonwealth of Puerto Rico. [29 F.R. 2837, Feb. 29, 1964]

§ 11.401-4 Matters requiring special

consideration.

(a) A contract may, in accordance with paragraph (b) of this section, provide that the contract price include or exclude a specific tax, or require that the contractor take certain actions with regard to nonpayment, payment, protest or other treatment of a specific tax. Such special treatment may be required, for example, where the State or local tax law has been recently changed, where there is doubt as to the applicability or allocability of the tax, or where the applicability of the tax is being litigated.

(b) The specific provisions described in paragraph (a) of this section shall be used only with the approval of the officials designated in § 11.000 (b) except in the case of the Air Force, approval may be given by the Staff Judge Advocate of the Air Force Logistics Command.

(c) (1) Whether State or local taxes are applicable to a purchase of supplies by the Government may depend upon the place and terms of delivery. For example,

if the legal incidence of a State tax is on the vendor, and performance of the contract and delivery to the Government are in that State, the tax may apply. If, however, the contract requires delivery to the Government outside that State, the tax may not apply because the transaction is in interstate commerce. The form of bill of lading used (i.e., Government bill, commercial bill, commercial bill convertible to Government bill at destination) may also affect the taxability of the transaction.

(2) Where a contract will be in a substantial amount, available alternative places and terms of delivery should be considered in the light of possible tax consequences.

(d) When Government property is provided under a facilities contract, the contracting officer shall review the facilities contract when negotiating a subsequent supply contract to assure that the contractor is not reimbursed twice for the same taxes.

[33 F.R. 7401, May 18, 1968]

No specific tax clause is required in any cost-reimbursement type contract. In all such contracts the problem of Federal, State, and local taxes (which presents solely a question of allowability of costs in connection with the performance of cost-reimbursement type contracts) is covered in the contract clause set forth in § 7.203-4 of this subchapter and is treated in Part 15 of this subchapter. [25 F.R. 14267, Dec. 31, 1960]

§ 11.403 Foreign tax clauses. [32 F.R. 537, Jan. 18, 1967]

(a) Use of clauses. Tax agreements have been made with Belgium, Republic of China, Denmark, France, Federal Republic of Germany (including West Berlin), Greece, Iceland, Italy, Japan, Republic of Korea, Luxembourg, the Netherlands, Norway, the Philippines, Portugal, Spain, Turkey, the United Kingdom, and Yugoslavia, under which the United States expenditures for the common defense are exempt from certain specified taxes of the countries in which these expenditures are made. Countries which have not executed a tax agreement with the United States may nevertheless grant relief from certain internal taxes in order to promote or subsidize exports. Ac

cordingly, the appropriate clause of those contained in § 11.403-2 shall be included in all contracts to be performed by contractors or by foreign governments in foreign countries. However, such clauses need not be included in contracts under $1,000 if the contracting officer determines that the administrative burden of securing relief from such taxes would be out of proportion to the relief obtained: Provided, That such clauses shall be included in all contracts in support of NATO infrastructure programs involving the expenditure of funds under section 503(b) of the Foreign Assistance Act of 1961, as amended.

(b) Exclusion of specific taxes from the contract price. The contracting officer, at the time of negotiation of a contract that is to contain one of the clauses in § 11.403-2, shall obtain and make a part of the contract file detailed information concerning the specific taxes and amounts, normally applicable to the transaction, from which the Government of the United States is exempt under the provisions of applicable tax agreements. [25 F.R. 14267, Dec. 31, 1960, as amended at 32 F.R. 537, Jan. 18, 1967; 32 F.R. 12099, Aug. 23, 1967]

§ 11.403-2 Contract clauses.

(a) Fixed-price contracts, other than with foreign governments.

Except as provided in § 11.403-1(a), the following clause shall be included in all fixed-price contracts (other than contracts with foreign governments) to be performed wholly or partly in a foreign country, regardless of whether a tax agreement is in effect between the United States and the foreign country. TAXES, DUTIES, AND CHARGES FOR DOING BUSINESS (OCTOBER 1966)

(a) To the extent that this contract provides for the furnishing of supplies or the performance of services outside the United States, its possessions, and Puerto Rico, the following clause is applicable in lieu of the clause in this contract, if any, entitled "Federal, State, and Local Taxes."

(b) As used throughout this clause, the words and terms defined in this paragraph shall have the meanings set forth herein.

(1) The term "country concerned" means any country in which expenditures under this contract are made.

(ii) The words "tax" and "taxes" include fees and charges for doing business that are levied by the government of the country concerned or by political subdivisions thereof.

(iii) The term "contract date" means the date of this contract or, if this is a formally

advertised contract, the date set for bid opening; as to additional supplies or services procured by modification to this contract, the term means the date of the modification.

(c) Except as may be otherwise provided in this contract, the contract price includes all taxes and duties in effect and applicable to this contract on the contract date, except taxes and duties (1) from which the Government of the United States, the Contractor, any subcontractor, or the transactions or property covered by this contract are exempt under the laws of the country concerned or political subdivision thereof, or (ii) which the Government of the United States and the government of the country concerned have agreed shall not be applicable to expenditures in such country by or on behalf of the United States.

(d) (1) If the Contractor is required to pay or bear the burden

(i) of any tax or duty which either was not to be included in the contract price pursuant to the requirements of paragraph (c) hereof, or was specifically excluded from the contract price by a provision of this contract; or

(ii) of an increase in rate of any tax or duty, whether or not such tax or duty was excluded from the contract price; or

(ii) of any interest or penalty on any tax or duty referred to in (i) or (ii) above, the contract price shall be correspondingly increased: Provided, That the Contractor warrants in writing that no amount of such tax, duty, or increase therein was included in the contract price as a contingency reserve or otherwise: And provided further, That liability for such tax, duty, increase therein, interest or penalty was not incurred through the fault or negligence of the Contractor or his failure to follow instructions of the Contracting Officer or to comply with the provisions of subparagraph (e) (1) below.

(2) If the Contractor is not required to pay or bear the burden, or obtains a refund or drawback, in whole or in part, of any tax, duty, increase therein, interest or penalty which (1) was to be included in the contract price pursuant to the requirements of paragraph (c), (ii) was included in the contract price, or (iii) was the basis of an increase in the contract price, the contract price shall be correspondingly decreased or the amount of such relief, refund, or drawback shall be paid to the Government of the United States, as directed by the Contracting Officer. The contract price also shall be correspondingly decreased if the Contractor, through his fault or negligence or his failure to follow instructions of the Contracting Officer or to comply with the provisions of subparagraph (e) (1) below, is required to pay or bear the burden, or does not obtain a refund or drawback of any such tax, duty, increase therein, interest or penalty. Interest paid or credited to the Contractor incident to a refund of taxes or duties shall inure to the benefit of the Government of the United States to the extent

that such interest was earned after the Contractor was paid or reimbursed by the Government of the United States for such taxes or duties.

(3) If the Contractor obtains a reduction in his tax liability under the U.S. Internal Revenue Code of 1954, as amended (Title 26, U.S. Code), on account of the payment of any tax or duty which either (1) was to be included in the contract price pursuant to the requirements of paragraph (c) of this clause, (ii) was included in the contract price, or (iii) was the basis of an increase in the contract price, the amount of the reduction shall be paid or credited to the Government of the United States as the Contracting Officer directs.

(4) Invoices or vouchers covering any adjustment of the contract price pursuant to this paragraph (d) shall set forth the amount thereof as a separate item and shall identify the particular tax or duty involved.

(5) No adjustment in the contract price or payment or credit to the United States is required pursuant to this paragraph (d) if the total amount thereof for the contract period will be less than one hundred dollars ($100).

(6) Subparagraphs (1) and (2) of this paragraph (d) shall not be applicable to social security taxes; income and franchise taxes, other than those levied on or measured by (1) sales or receipts from sales, or (ii) the Contractor's possession of, interest in, or use of property, title to which is in the Government; excess profits taxes; capital stock taxes; transportation taxes; unemployment compensation taxes; or property taxes, other than such property taxes, allocable to this contract, as are assessed either on completed supplies covered by this contract, or on the Contractor's possession of, interest in, or use of property, title to which is in the Government.

(e) (1) The Contractor shall take all reasonable action to obtain exemption from or refund of any taxes or duties, including interest or penalty, from which the U.S. Government, the Contractor, any subcontractor, or the transactions or property covered by this contract are exempt under the laws of the country concerned or political subdivisions thereof, or which the Government of the United States and the government of the country concerned have agreed shall not be applicable to expenditures in such country by or on behalf of the United States.

(2) The Contractor shall promptly notify the Contracting Officer of all matters pertaining to taxes or duties which reasonably may be expected to result in either an increase or a decrease in the contract price.

(3) Whenever an increase or decrease in the contract price may be required under this clause, the Contractor shall take action as directed by the Contracting Officer, and the contract price shall be equitably adjust

ed to cover the cost of such action, including any interest, penalty, and reasonable attorneys' fees.

(b) Fixed-price contracts with foreign governments. Except as provided in § 11.403-1(a), the following clause shall be inserted in all fixed-price contracts to be performed by foreign governments. TAXES (JULY 1960)

(a) The contract price, including the prices in any subcontracts hereunder, does not include any tax or duty which the Government of the United States and the Government of

have

(a) This subpart prescribes forms and procedures to provide evidence appropriate to establish exemption from Federal, State, and local taxes, and the form required to purchase cutting oil at the tax rate of three cents per gallon rather than six cents per gallon.

(b) Unless the contract otherwise requires, evidence of exemption shall not be issued if the amount of taxes on any one invoice or purchase is one dollar or less.

(c) With respect to the forms set out in §§ 11.501–2 and 11.501-3, the Internal Revenue Service will accept one certificate covering all orders under a single contract for a specified period not exceeding four calendar quarters.

[29 F.R. 2838, Feb. 29, 1964, as amended at 31 F.R. 13336, Oct. 14, 1966]

§ 11.501 Federal excise taxes.

The forms of certificates set forth in §§ 11.501-1 through 11.501-3 may be reproduced locally.

[31 F.R. 13336, Oct. 14, 1966] § 11.501-1

Certificate of export to a possession or to Puerto Rico. The following form of exemption certificate shall be used as proof of exportation or shipment to a possession or Puerto Rico, in accordance with §§ 11.201(b) and 11.202(b).

supplies were shipped, is being retained in the files of

(Official address of office)

(Signature)

(Title)

(Address)

This certificate is not intended for use as proof in claiming drawback of import taxes.

§ 11.501-2 Exemption certificate for supplies for vessels of war.

The following form of exemption certificate shall be used in claiming an exemption for supplies for vessels of war (including aircraft), in accordance with §§ 11.201(d) and 11.202(d).

EXEMPTION CERTIFICATE

(For use by purchasers of articles for use as fuel supplies, ships' stores, sea stores, or legitimate equipment on certain vessels under Sections 4041(e) and 4221(a)(3), Internal Revenue Code of 1954)

19.

The undersigned hereby certifies that he is an authorized agent of the United States of America and that the article or articles specified in the accompanying order, or as specified below or on the reverse side hereof, will be used only for fuel supplies, ships' stores, sea stores, or legitimate equipment on vessels of war of the United States or of a foreign nation, including aircraft owned by the United States or by a foreign nation and constituting a part of the armed forces thereof.

The undersigned understands that if the article or articles are used for any purpose other than as stated in this certificate, or are resold or otherwise disposed of, the purchaser must report such fact to the manufacturer; or, in the case of special motor fuel, that if the fuel is sold or used otherwise than as stated in this certificate and for a taxable purpose specified in Section 4041 (b) of the Internal Revenue Code, liability for the tax upon such sale or use will attach. The undersigned also understands that the purchaser must be prepared to establish by satisfactory evidence the purposes for which the article was used.

The fraudulent use of this certificate for the purpose of securing exemption from the payment or adjustment of taxes will subject the guilty party to a fine of not more than $10,000 or imprisonment for not more than five (5) years, or both, together with costs of prosecution.

(Signature) (Title)

(Address)