ples of sovereign immunity and the provisions of the particular State and local law involved.The Government is constitutionally immune from State and local taxes, the legal incidence of which is on the vendee. In cases where the legal incidence of State and local taxes is on the vendor, the Government may be exempt if State or local law or regulations so provide. Personal and real property are immune from State and local property taxes when title is vested in the Government and the property is both owned and possessed by the Government. In all cases, the immunity or exemption shall be used to the fullest extent possible by providing adequate evidence that an agency of the Government is the purchaser of the goods or services or the owner of the property and is thus not subject to the taxes. However, in the interest of economy and reduced paperwork, §§ 1-3.604-7 and 111.502-2(b) limit the assertion of immunity or an exemption to transactions on which a particular State or local tax exceeds $10.

(b) 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 loal law involved or, in some cases, the transaction may not in fact be expressly exempt from tax. Similarly, Government-owned property in the possession of a contractor or subcontractor on tax day may give rise to situations where States or localities may have the right 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 § 111.000(b).

(d) The types of evidence of tax immunity or exemption which may be employed are identified in § 1-11.5021. Usually this evidence is provided by documents created in the normal

course of transacting purchase, and no additional evidence, such as a tax exemption certificate, will be necessary. [46 FR 17560, Mar. 19, 1981]

Subpart 1-11.4-Contract Clauses 81-11.401 Fixed-price type contracts.

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

81-11.401-1 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. However, this clause shall not be used in purchases made pursuant to Subpart 1–3.6.

(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 FR 10254, July 24, 1964, as amended at 31 FR 6373, Apr. 27, 1966; 40 FR 44140, Sept. 25, 1975]

§ 1-11.401-2 Certain negotiated contracts.

(a) Use of clause. Except as provided in § 1-11.401-4, the clause set forth in paragraph (d) of this § 1-11.401-2 shall be used in all negotiated fixed-price contracts in excess of $10,000 when the contracting officer is not satisfied that the contract price excludes contingencies for State and local taxes.

(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) Instruction. If the clause set forth in paragraph (d) of this § 111.401-2 is used and the contract price includes an estimated amount for anticipated taxes on completed supplies covered by the contract or on the contractor's possession of, interest in, or use of property, title to which is in the Government, the contracting officer shall (1) include in the contract file detailed information with regard thereto and (2) insure that the contract price does not include taxes not allowable under § 1-15.205-41(a). (d) Contract clause.

FEDERAL, STATE, AND LOCAL TAXES

(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 of 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:

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

(2) 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 (i) 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, if requested by the Contracting Officer, 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:

(i) 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 (iii) 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 failure 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 this paragraph (d) shall 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 pursuant to this paragraph (d) will be made under this contract unless the aggregate amount thereof is or may reasonably be expected to be over $100.

(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 Contractors 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 attorney's fees.

§ 1-11.401-3 Supplementary clauses.

(a) Contracts performed in possessions of the United States or 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 § 1-11.401-1 or that in § 1-11.401-2 is

used, the contract shall contain the following supplementary clause:

TAXES

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.

(b) Contracts for supplies to be exported. When a contract containing either the clause set forth in § 111.401-1 or that in § 1-11.401-2 will be for supplies to be exported to foreign destinations and it is determined that the amounts of Federal excise taxes or drawbacks of duties involved are substantial, a clause substantially as follows should be included in invitations and solicitations:

FEDERAL EXCISE TAXES AND DUTIES

(a) The items covered by this invitation for bids are being procured for export. Bidders are requested to exclude from their bid prices all Federal excise taxes from which this transaction is exempt by virtue of exportation and also an amount equal to any drawback or refund of import duties which may be obtained upon shipment of the supplies. Bids will be evaluated and payments made exclusive of the amounts stated above.

(b) Upon the timely request of the Contractor, the Government will furnish such proof of exports as may be necessary to establish an exemption from Federal excise taxes or to enable the Contractor to obtain any applicable refund or drawback for his own account.

The clause set forth above may be appropriately amended by deletion of references to drawbacks, if shipment to a possession of the United States or to Puerto Rico is contemplated.

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

§ 1-11.401-4 Matters requiring special consideration.

(a) A contract may, in accordance with paragraph (d) of this § 1-11.4014, 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) When the amount of any specific State or local tax is substantial in relation to the contract price (such as in the case of gasoline taxes) and where for this reason it is determined that procurement without providing for tax escalation (upward or downward) is impracticable, the contract may permit such escalation, in accordance with paragraph (d) of this section.

(c) Special consideration should be accorded taxes assessed on the contractor's possession of, interest in, or use of Government-owned real or personal property. The following clause may be inserted in any contract under which the contractor has possession of property to which the Government has title on tax assessment date, pursuant to progress payment clauses or otherwise:

All property taxes assessed on the Contractor's possession of, interest in, or use of property, title to which is in the Government, are excluded from the contract price.

(d) The specific provisions described in paragraphs (a) and (b) of this section and the additional clause set forth in paragraph (c) of this section shall be used in accordance with agency procedures.

(e) (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 the 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.

(f) When Government property is furnished 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.

[31 FR 6373, Apr. 27, 1966]

§ 1-11.402 Cost-reimbursement type contracts.

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 conection with the performance of cost-reimbursement type contracts) is treated in Part 1-15 of this chapter.

Subpart 1-11.5-Tax Exemption Forms

81-11.500 Scope of subpart.

This subpart sets forth procedures to provide evidence to establish basis for exemptions from Federal, State, and local taxes, and suggested forms to be used.

§ 1-11.501 Federal excise tax exemption forms.

(a) Unless the contract requires otherwise, evidence of exemption shall not be issued unless the amount of taxes on any one transaction (purchase, invoice, aggregate billing, or payment for multiple purchases) exceeds $10.

(b) With respect to the forms set out in §§ 1-11.501-2 and 1-11.501-3, 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 FR 10254, July 24, 1964, as amended at 31 FR 6373, Apr. 27, 1966; 46 FR 17560, Mar. 19, 1981]

81-11.501-1 Certificate of export to a pos

session or Puerto Rico.

The following form of exemption certificate which is not intended for use as proof in claiming drawback of import taxes, may be used as proof of exportation or shipment to a posses