(a) In general. Section 4221(a) of the Code sets forth the following exempt purposes for which an article subject to tax under chapter 32 of the Code may be sold tax-free by the manufacturer, producer, or importer:
(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, and
(5) To a nonprofit educational organization for its exclusive use.
Section 4221(a) of the Code applies only in those cases where the exportation or use referred to is to occur before any other use, and where the seller, first purchaser, and second purchaser, as may be appropriate, have registered as required under section 4222 of the Code and paragraph (a) of § 53.140. See paragraph (c) of this section for provisions relating to evidence required in support of tax-free sales. See § 53.141 for exceptions to the requirement for registration. Where tax is paid on the sale of an article, but the article is used or resold for use for an exempt purpose, a claim for credit or refund may be filed in accordance with and to the extent provided in sections 6402(a) and 6416 of the Code, and the regulations thereunder (§§ 53.161 and 53.171-53.186).
(b) Manufacturer relieved of liability in certain cases -
(1) General rule. Under the provisions of section 4221(c) of the Code, if an article subject to tax under Chapter 32 of the Code is sold free of tax by the manufacturer of the article for an exempt purpose referred to in section 4221(c) of the Code and paragraph (b)(2) of this section, the manufacturer shall be relieved of any tax liability under chapter 32 of the Code with respect to such sale if the manufacturer in good faith accepts a proper certification by the purchaser that the article or articles will be used by the purchaser in the stated exempt manner. See paragraph (b)(2) of this section for a list of the exempt purposes referred to in section 4221(c) of the Code.
(2) Situations wherein section 4221(c) of the Code is applicable. The following are situations wherein section 4221(c) of the Code is applicable with respect to sales made tax free on the assumption that one of the following sections of the Code provides exemption for such sales:
(i) Section 4221(a)(1) of the Code, to the extent that it relates to sales for further manufacture by a first purchaser (see § 53.132),
(ii) Section 4221(a)(3) of the Code, relating to supplies for vessels and aircraft (see § 53.134),
(iii) Section 4221(a)(4) of the Code, relating to sales to State or local governments (see § 53.135),
(iv) Section 4221(a)(5) of the Code, relating to sales to nonprofit educational organizations (see § 53.136).
(3) Situations wherein section 4221(c) of the Code is not applicable. The relief from liability for the payment of tax provided by section 4221(c) of the Code is not applicable with respect to sales made tax free on the assumption that one of the following sections of the Code provides exemption for such sales:
(i) Section 4221(a)(1) of the Code, to the extent that it relates to sales for resale to a second purchaser for use by the second purchaser in further manufacture (see § 53.132),
(ii) Section 4221(a)(2) of the Code, relating to sales for export (see § 53.133).
(4) Duty of seller to ascertain validity of tax-free sale. If the manufacturer at the time of its sale has reason to believe that the article sold by it is not intended for the exempt purpose indicated by the purchaser, or that the purchaser has failed to register as required, the manufacturer is not considered to have accepted certification from the purchaser in good faith, and is not relieved from liability under the provisions of section 4221(c) of the Code.
(5) Information to be furnished to purchaser. A manufacturer selling articles free of tax under this section shall indicate to the purchaser that:
(i) Certain articles normally subject to tax are being sold tax free, and
(ii) The purchaser is obtaining those articles tax free for an exempt purpose under an exemption certificate or its equivalent.
(6) The manufacturer may transmit this information by any convenient means, such as coding of sales invoices, provided that the information is presented with sufficient particularity so that the purchaser is informed that he has obtained the articles tax free and:
(i) The purchaser can compute and remit the tax due if an article sold tax free for further manufacture is diverted to a taxable use,
(ii) The manufacturer can remit the tax due with respect to an article purchased tax free for resale for use in further manufacture or for export if, within the 6-month period described in § 53.132(c) or § 53.133(c), the manufacturer does not receive proof that the article has been exported or resold for use in further manufacturer, or
(iii) The purchaser can notify the manufacturer if an article otherwise purchased tax free is diverted to a taxable use.
(c) Evidence required in support of tax-free sales -
(1) Purchasers required to be registered. Every purchaser who is required to be registered (see § 53.140) shall furnish to the seller, as evidence in support of each tax-free sale made by the seller to such purchaser, the exempt purpose for which the article or articles are being purchased and the registration number of the purchaser. Such information must be in writing and may be noted on the purchase order or other document furnished by the purchaser to the seller in connection with each sale.
(2) Purchasers not required to be registered. For the evidence which purchasers not required to register must furnish to the seller in support of each tax-free sale made by the seller to such purchasers, see paragraph (b) of § 53.133 for sales or resales to a foreign purchaser for export, paragraph (d) of § 53.134 for sales of supplies to vessels or aircraft, paragraph (c) of § 53.135 for sales to State and local governments, and paragraph (c) of § 53.141 for sales and purchases by the United States.
[T.D. ATF-308, 56 FR 303, Jan. 3, 1991, as amended by T.D. ATF-380, 61 FR 37005, July 16, 1996]