26 USC 4221 - Certain Tax-free Sales

(a) General rule

Under regulations prescribed by the Secretary, no tax shall be imposed under this chapter (other than under section 4121 or 4081) on the sale by the manufacturer (or under subchapter A or C of chapter 31 on the first retail sale) of an article—

(1) for use by the purchaser for further manufacture, or for resale by the purchaser to a second purchaser for use by such second purchaser in further manufacture,

(2) for export, or for resale by the purchaser to a second purchaser for export,

(3) for use by the purchaser as supplies for vessels or aircraft,

(4) to a State or local government for the exclusive use of a State or local government,

(5) to a nonprofit educational organization for its exclusive use, or

(6) to a qualified blood collector organization (as defined in section 7701(a)(49)) for such organization's exclusive use in the collection, storage, or transportation of blood,

but only if such exportation or use is to occur before any other use. Paragraphs (4), (5), and (6) shall not apply to the tax imposed by section 4064. In the case of taxes imposed by section 4051,1 or 4071, paragraphs (4) and (5) shall not apply on and after October 1, 2016. In the case of the tax imposed by section 4131, paragraphs (3), (4), and (5) shall not apply and paragraph (2) shall apply only if the use of the exported vaccine meets such requirements as the Secretary may by regulations prescribe. In the case of taxes imposed by subchapter A of chapter 31, paragraphs (1), (3), (4), and (5) shall not apply. In the case of taxes imposed by subchapter C or D, paragraph (6) shall not apply. In the case of the tax imposed by section 4191, paragraphs (3), (4), (5), and (6) shall not apply.

(b) Proof of resale for further manufacture; proof of export

Where an article has been sold free of tax under subsection (a)—

(1) for resale by the purchaser to a second purchaser for use by such second purchaser in further manufacture, or

(2) for export, or for resale by the purchaser to a second purchaser for export,

subsection (a) shall cease to apply in respect of such sale of such article unless, within the 6-month period which begins on the date of the sale by the manufacturer (or, if earlier, on the date of shipment by the manufacturer), the manufacturer receives proof that the article has been exported or resold for use in further manufacture.

(c) Manufacturer relieved from liability in certain cases

In the case of any article sold free of tax under this section (other than a sale to which subsection (b) applies), and in the case of any article sold free of tax under section 4001(c), 4001(d), or 4053(6), if the manufacturer in good faith accepts a certification by the purchaser that the article will be used in accordance with the applicable provisions of law, no tax shall thereafter be imposed under this chapter in respect of such sale by such manufacturer.

(d) Definitions

For purposes of this section—

(1) Manufacturer

The term "manufacturer" includes a producer or importer of an article, and, in the case of taxes imposed by subchapter A or C of chapter 31, includes the retailer with respect to the first retail sale.

(2) Export

The term "export" includes shipment to a possession of the United States; and the term "exported" includes shipped to a possession of the United States.

(3) Supplies for vessels or aircraft

The term "supplies for vessels or aircraft" means fuel supplies, ships' stores, sea stores, or legitimate equipment on vessels of war of the United States or of any foreign nation, vessels employed in the fisheries or in the whaling business, or vessels actually engaged in foreign trade or trade between the Atlantic and Pacific ports of the United States or between the United States and any of its possessions. For purposes of the preceding sentence, the term "vessels" includes civil aircraft employed in foreign trade or trade between the United States and any of its possessions, and the term "vessels of war of the United States or of any foreign nation" includes aircraft owned by the United States or by any foreign nation and constituting a part of the armed forces thereof.

(4) State or local government

The term "State or local government" means any State, any political subdivision thereof, or the District of Columbia.

(5) Nonprofit educational organization

The term "nonprofit educational organization" means an educational organization described in section 170(b)(1)(A)(ii) which is exempt from income tax under section 501(a). The term also includes a school operated as an activity of an organization described in section 501(c)(3) which is exempt from income tax under section 501(a), if such school normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

(6) Use in further manufacture

An article shall be treated as sold for use in further manufacture if—

(A) such article is sold for use by the purchaser as material in the manufacture or production of, or as a component part of, another article taxable under this chapter to be manufactured or produced by him; or

(B) in the case of gasoline taxable under section 4081, such gasoline is sold for use by the purchaser, for nonfuel purposes, as a material in the manufacture or production of another article to be manufactured or produced by him.

(7) Qualified bus

(A) In general

The term "qualified bus" means—

(i) an intercity or local bus, and

(ii) a school bus.

(B) Intercity or local bus

The term "intercity or local bus" means any automobile bus which is used predominantly in furnishing (for compensation) passenger land transportation available to the general public if—

(i) such transportation is scheduled and along regular routes, or

(ii) the seating capacity of such bus is at least 20 adults (not including the driver).

(C) School bus

The term "school bus" means any automobile bus substantially all the use of which is in transporting students and employees of schools. For purposes of the preceding sentence, the term "school" means an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are carried on.

(e) Special rules

(1) Reciprocity required in case of civil aircraft

In the case of articles sold for use as supplies for aircraft, the privileges granted under subsection (a)(3) in respect of civil aircraft employed in foreign trade or trade between the United States and any of its possessions, in respect of aircraft registered in a foreign country, shall be allowed only if the Secretary of the Treasury has been advised by the Secretary of Commerce that he has found that such foreign country allows, or will allow, substantially reciprocal privileges in respect of aircraft registered in the United States. If the Secretary of the Treasury is advised by the Secretary of Commerce that he has found that a foreign country has discontinued or will discontinue the allowance of such privileges, the privileges granted under subsection (a)(3) shall not apply thereafter in respect of civil aircraft registered in that foreign country and employed in foreign trade or trade between the United States and any of its possessions.

(2) Tires

(A) Tax-free sales

Under regulations prescribed by the Secretary, no tax shall be imposed under section 4071 on the sale by the manufacturer of a tire if—

(i) such tire is sold for use by the purchaser for sale on or in connection with the sale of another article manufactured or produced by such purchaser; and

(ii) such other article is to be sold by such purchaser in a sale which either will satisfy the requirements of paragraph (2), (3), (4), or (5) of subsection (a) for a tax-free sale, or would satisfy such requirements but for the fact that such other article is not subject to tax under this chapter.

(B) Proof

Where a tire has been sold free of tax under this paragraph, this paragraph shall cease to apply unless, within the 6-moth period which begins on the date of the sale by him (or, if earlier on the date of the shipment by him), the manufacturer of such tire receives proof that the other article referred to in clause (ii) of subparagraph (A) has been sold in a manner which satisfies the requirements of such clause (ii) (including in the case of a sale for export, proof of export of such other article).

(C) Subsection (a)(1) does not apply

Paragraph (1) of subsection (a) shall not apply with respect to the tax imposed under section 4071 on the sale of a tire.

(3) Tires used on intercity, local, and school buses

Under regulations prescribed by the Secretary, the tax imposed by section 4071 shall not apply in the case of tires sold for use by the purchaser on or in connection with a qualified bus.

(Added Pub. L. 85–859, title I, §119(a), Sept. 2, 1958, 72 Stat. 1282; amended Pub. L. 86–70, §22(a), June 25, 1959, 73 Stat. 146; Pub. L. 86–344, §2(b), Sept. 21, 1959, 73 Stat. 617; Pub. L. 86–418, §1, Apr. 8, 1960, 74 Stat. 38; Pub. L. 86–624, §18(e), July 12, 1960, 74 Stat. 416; Pub. L. 87–61, title II, §205(a), June 29, 1961, 75 Stat. 126; Pub. L. 89–44, title II, §208(d), title VIII, §801(c), (d)(1), June 21, 1965, 79 Stat. 141, 158; Pub. L. 91–172, title I, §101(j)(26), Dec. 30, 1969, 83 Stat. 529; Pub. L. 92–178, title IV, §401(a)(3)(A), Dec. 10, 1971, 85 Stat. 531; Pub. L. 94–455, title XIX, §1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95–227, §2(b)(2), Feb. 10, 1978, 92 Stat. 12; Pub. L. 95–600, title VII, §701(ff)(2)(A), Nov. 6, 1978, 92 Stat. 2924; Pub. L. 95–618, title II, §§201(c)(1), 232(a), 233(c)(1), (2), Nov. 9, 1978, 92 Stat. 3183, 3189, 3191, 3192; Pub. L. 96–222, title I, §108(c)(5), Apr. 1, 1980, 94 Stat. 227; Pub. L. 97–424, title V, §§515(b)(1), 516(b)(2), Jan. 6, 1983, 96 Stat. 2181, 2183; Pub. L. 98–369, div. A, title VII, §735(c)(8), July 18, 1984, 98 Stat. 983; Pub. L. 99–499, title V, §521(d)(4), Oct. 17, 1986, 100 Stat. 1779; Pub. L. 99–514, title XVII, §1703(c)(2)(C), Oct. 22, 1986, 100 Stat. 2776; Pub. L. 100–17, title V, §502(b)(4), Apr. 2, 1987, 101 Stat. 257; Pub. L. 100–203, title IX, §9201(b)(1), title X, §10502(d)(4), Dec. 22, 1987, 101 Stat. 1330–330, 1330–444; Pub. L. 101–239, title VII, §7841(d)(17), Dec. 19, 1989, 103 Stat. 2429; Pub. L. 101–508, title XI, §§11211(d)(3), 11221(b), (d)(1), (2), Nov. 5, 1990, 104 Stat. 1388–427, 1388–444; Pub. L. 102–240, title VIII, §8002(b)(3), Dec. 18, 1991, 105 Stat. 2203; Pub. L. 103–66, title XIII, §13161(b)(1), Aug. 10, 1993, 107 Stat. 452; Pub. L. 105–178, title IX, §9002(b)(1), June 9, 1998, 112 Stat. 500; Pub. L. 105–206, title VI, §6023(17), July 22, 1998, 112 Stat. 825; Pub. L. 108–357, title VIII, §853(d)(2)(F), Oct. 22, 2004, 118 Stat. 1613; Pub. L. 109–59, title XI, §11101(b)(1), Aug. 10, 2005, 119 Stat. 1944; Pub. L. 109–280, title XII, §1207(b)(1)–(3)(A), Aug. 17, 2006, 120 Stat. 1070; Pub. L. 111–152, title I, §1405(b)(1), Mar. 30, 2010, 124 Stat. 1065; Pub. L. 112–30, title I, §142(d), Sept. 16, 2011, 125 Stat. 356; Pub. L. 112–102, title IV, §402(d), Mar. 30, 2012, 126 Stat. 282; Pub. L. 112–140, title IV, §402(c), June 29, 2012, 126 Stat. 403; Pub. L. 112–141, div. D, title I, §40102(d)(1), July 6, 2012, 126 Stat. 845.)

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Last modified: October 26, 2015