FAR 29.202—General exemptions.
Plain-English Summary
FAR 29.202 explains when Federal manufacturers’ excise taxes and special-fuels excise taxes do not apply to Government purchases. It identifies the main exemption categories: supplies for the exclusive use of a State or political subdivision (including the District of Columbia), shipments for export to a foreign country or outlying area of the United States, supplies bought for further manufacture or resale for further manufacture, certain fuel supplies and vessel/aircraft-related uses on vessels of war and related Government aircraft and missiles, purchases by nonprofit educational organizations, and emergency vehicles. The section also gives practical conditions for claiming the exemptions, such as the 6-month shipment rule for exports, the requirement that “for export” appear on the contract or purchase document, the need for proof of export, and the use of tax-exclusive pricing and exemption certificates for vessels of war. In practice, this section matters because tax treatment can change the total contract price and the documentation needed at award and delivery. Contracting officers must know when to structure the purchase as tax-exclusive and when to provide certificates or proof, while contractors must know when they may lawfully omit excise taxes from their pricing. The section is a compliance checkpoint for both acquisition planning and invoice review, especially where the tax exemption depends on the end use, destination, or status of the buyer.
Key Rules
State and local government use
No Federal manufacturers’ or special-fuels excise taxes are imposed when the supplies are for the exclusive use of a State or political subdivision, including the District of Columbia. The exemption depends on the exclusive-use purpose, so the contracting file should support that the supplies are not for mixed or nonexempt use.
Export shipments only
Supplies shipped for export to a foreign country or an outlying area of the United States may qualify for exemption, but shipment must occur within 6 months after title passes to the Government. When the exemption is claimed, the contract or purchase document must state “for export,” and the contracting officer must provide the seller proof of export.
Further manufacture exemption
Supplies purchased for further manufacture, or for resale for further manufacture, are exempt from the listed excise taxes. This exemption does not apply to tires and inner tubes, so those items remain outside the rule even when intended for further manufacture.
Vessels of war and related uses
Fuel supplies, ships or sea stores, and legitimate equipment on vessels of war are exempt, including certain aircraft owned by the United States and part of the armed forces, as well as guided missiles and pilotless aircraft owned or chartered by the United States. When this exemption is claimed, the purchase should be made on a tax-exclusive basis and the contracting officer must furnish the seller the required exemption certificate.
Certificate for vessel exemptions
For supplies for vessels of war, the contracting officer must provide an exemption certificate, and the IRS accepts a single certificate covering all orders under one contract for a specified period of up to 12 calendar quarters. This reduces repetitive paperwork, but the certificate must still match the qualifying contract and period.
Nonprofit educational organizations
Supplies for a nonprofit educational organization are exempt under the cited tax provisions. The exemption applies only when the buyer meets the nonprofit educational organization standard, so the contracting record should support that status.
Emergency vehicles
Emergency vehicles are also listed as exempt under the cited tax provisions. The exemption depends on the vehicle qualifying under the tax rules, so the acquisition team should verify that the item and use fit the statutory definition.
Responsibilities
Contracting Officer
Determine whether the purchase qualifies for an excise-tax exemption, ensure the contract or purchase document reflects required language such as “for export,” use tax-exclusive pricing when required, furnish the seller proof of export when applicable, and provide the proper exemption certificate for supplies for vessels of war.
Contractor/Seller
Apply the exemption only when the legal conditions are met, price the contract correctly based on whether the purchase is tax-exclusive or tax-inclusive, and rely on the contracting officer’s required documentation before omitting excise taxes.
Agency/Buying Activity
Support the contracting officer with end-use, destination, and status information needed to justify the exemption, and maintain records showing why the tax exemption was claimed.
End User/Program Office
Provide accurate information about the intended use of the supplies, including whether items are for export, state or local government use, further manufacture, vessel-of-war use, nonprofit educational use, or emergency-vehicle use.
Practical Implications
This section can materially change the contract price, so tax treatment should be resolved before award rather than corrected later on invoices.
Export exemptions are documentation-sensitive: if “for export” is missing from the purchase document or shipment does not occur within 6 months after title passes, the exemption may fail.
The vessel-of-war exemption requires active contracting officer action; forgetting to issue the exemption certificate can cause the seller to charge tax unnecessarily.
Not every end use qualifies just because the buyer is a Government customer; the exemption depends on the specific statutory purpose, destination, or status.
Items like tires and inner tubes are specifically carved out of the further-manufacture exemption, so they should be reviewed separately even in otherwise exempt transactions.
Official Regulatory Text
No Federal manufacturers’ or special-fuels excise taxes are imposed in many contracting situations as, for example, when the supplies are for any of the following: (a) The exclusive use of any State or political subdivision, including the District of Columbia ( 26 U.S.C. 4041 and 4221 ). (b) Shipment for export to a foreign country or an outlying area of the United States. Shipment must occur within 6 months of the time title passes to the Government. When the exemption is claimed, the words "for export" must appear on the contract or purchase document, and the contracting officer must furnish the seller proof of export (see 26 CFR 48.4221-3). (c) Further manufacture, or resale for further manufacture (this exemption does not include tires and inner tubes) (26 CFR 48.4221-2). (d) Use as fuel supplies, ships or sea stores, or legitimate equipment on vessels of war, including (1) aircraft owned by the United States and constituting a part of the armed forces and (2) guided missiles and pilotless aircraft owned or chartered by the United States. When this exemption is to be claimed, the purchase should be made on a tax-exclusive basis. The contracting officer shall furnish the seller an exemption certificate for Supplies for Vessels of War (an example is given in 26 CFR 48.4221-4(d)(2) ; the IRS will accept one certificate covering all orders under a single contract for a specified period of up to 12 calendar quarters) ( 26 U.S.C. 4041 and 4221 ). (e) A nonprofit educational organization ( 26 U.S.C. 4041 and 4221 ). (f) Emergency vehicles ( 26 U.S.C. 4053 and 4064(b)(1)(c) ).