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charge for local advertising (as defined in paragraph (4)) to the extent that such charge

(A) does not exceed 5 percent of the price for which the article is sold (as determined under this section by excluding any charge for local advertising),

(B) is a separate charge made when the article is sold, and

(C) is intended to be refunded to the purchaser or any subsequent vendee in reimbursement of costs incurred for local advertising.

In the case of any such charge (or portion thereof) which is not so refunded before the first day of the fifth calendar month following the calendar year during which the article was sold, the exclusion provided by the preceding sentence shall cease to apply as of such first day.

(2) AGGREGATE AMOUNT WHICH MAY BE EXCLUDED.—In the case of articles upon the sale of which tax was imposed under the same section of this chapter

(A) The sum of (i) the aggregate of the charges for local advertising excluded under paragraph (1), plus (ii) the aggregate of the readjustments for local advertising under section 6416 (b) (1) (relating to credits or refunds for price readjustments), shall not exceed

(B) 5 percent of the aggregate of the prices (determined under this section by excluding all charges for local advertising) at which such articles were sold in sales on which tax was imposed by such section of this chapter.

The preceding sentence shall be applied to each manufacturer, producer, and importer as of the close of each calendar quarter, taking into account the items specified in subparagraphs (A) and (B) for such calendar quarter and preceding calendar quarters in the same calendar year.

(3) NO ADJUSTMENT FOR OTHER ADVERTISING CHARGES.-Except to the extent provided by paragraphs (1) and (2), no charge or expenditure for advertising shall serve, for purposes of this section or section 6416 (b) (1), as the basis for an exclusion from, or as a readjustment of, the price of any article.

(4) LOCAL ADVERTISING DEFINED.-For purposes of this section and section 6416 (b) (1), the term "local advertising" means only advertising which

(A) is initiated or obtained by the purchaser or any subsequent vendee,

(B) names the article for which the price is determinable under this section and states the location at which such article may be purchased at retail, and

(C) is broadcast over a radio station or television station or appears in a newspaper.

SEC. 4217. LEASES.

(a) LEASE CONSIDERED AS SALE. For purposes of this chapter, the lease of an article (including any renewal or any extension of a lease or any subsequent lease of such article) by the manufacturer, producer, or importer shall be considered a sale of such article.

(b) LIMITATION ON TAX.-In the case of any lease described in subsection (a) of an article taxable under this chapter, if the tax under this chapter is based on the price for which such articles are sold, there shall be paid on each lease payment with respect to such article a percentage of such payment equal to the rate of tax in effect on the date of such payment, until the total of the tax payments under such lease and any prior lease to which this subsection applies equals the total tax.

(c) DEFINITION OF TOTAL TAX.-For purposes of this section, the term "total tax" means

(1) except as provided in paragraph (2), the tax computed on the constructive sale price for such article which would be determined under section 4216 (b) if such article were sold at retail on the date of the first lease to which subsection (b) applies; or

(2) if the first lease to which subsection (b) applies is not the first lease of the article, the tax computed on the fair market value of such article on the date of the first lease to which subsection (b) applies.

Any such computation of tax shall be made at the applicable rate specified in this chapter in effect on the date of the first lease to which subsection (b) applies.

(d) SPECIAL RULES.

(1) LESSOR MUST ALSO BE ENGAGED IN SELLING.-Subsection (b) shall not apply to any lease of an article unless at the time of making the lease, or any prior lease of such article to which subsection (b) applies, the person making the lease or prior lease was also engaged in the business of selling in arm's length transactions the same. type and model of article.

(2) SALE BEFORE TOTAL TAX BECOMES PAYABLE.-If the taxpayer sells an article before the total tax has become payable, then the tax payable on such sale shall be whichever of the following is smaller:

(A) the difference between (i) the tax imposed on lease payments under leases of such article to which subsection (b) applies, and (ii) the total tax, or

(B) a tax computed, at the rate in effect on the date of the sale, on the price for which the article is sold.

For purposes of subparagraph (B), if the sale is at arm's length, section 4216 (b) shall not apply.

(3) SALE AFTER TOTAL TAX HAS BECOME PAYABLE.-If the taxpayer sells an article after the total tax has become payable, no tax shall be imposed under this chapter on such sale.

(4) TRANSITIONAL RULES. For purposes of this subsection and subsections (b) and (c), in the case of any lease entered into before the effective date of subsection (b) and existing on such date

(A) such lease shall be considered as having been entered into on such date;

(B) the total tax shall be computed on the fair market value of the article on such date; and

(C) the lease payments under such lease shall include only payments attributable to periods on and after such date.

SEC. 4218. USE BY MANUFACTURER OR IMPORTER CONSIDERED SALE.

(a) GENERAL RULE.-If any person manufactures, produces, or imports an article (other than an article specified in subsection (b), (c), or (d)) and uses it (otherwise than 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), then he shall be liable for tax under this chapter in the same manner as if such article were sold by him.

(b) TIRES, TUBES, AND AUTOMOBILE RECEIVING SETS.-Except as provided in subsection (d), if any person manufactures, produces, or imports a tire or inner tube taxable under section 4071, or an automobile radio or television receiving set taxable under section 4141, and sells it on or in connection with the sale of any article, or uses it, then he shall be liable for tax under this chapter in the same manner as if such article were sold by him.

(c) AUTOMOBILE PARTS, RADIO COMPONENTS, CAMERA LENSES, ETC.-If any person manufactures, produces, or imports a part or accessory taxable under section 4061 (b), a radio or television component taxable under section 4141, or a camera lens taxable under section 4171, and uses it (otherwise than as material in the manufacture or production of, or as a component part of, any other article to be manufactured or produced by him), then he shall be liable for tax under this chapter in the same manner as if such article were sold by him. (d) BICYCLE TIRES AND TUBES.-If any person manufactures, produces, or imports a bicycle tire (as defined in section 4221 (e) (4) (B)) or an inner tube for such a tire, and uses it (otherwise than as material in the manufacture or production of, or as a component part of, a bicycle, other than a rebuilt or reconditioned bicycle, to be manufactured or produced by him), then he shall be liable for tax under this chapter in the same manner as if such article were sold by him. (e) COMPUTATION OF TAX.-Except as provided in section 4223 (b), in any case in which a person is made liable for tax by the preceding provisions of this section, the tax (if based on the price for which the article is sold) shall be computed on the price at which such or similar articles are sold, in the ordinary course of trade, by manufacturers, producers, or importers, thereof, as determined by the Secretary or his delegate.

SEC. 4219. APPLICATION OF TAX IN CASE OF SALES BY OTHER THAN MANUFACTURER OR IMPORTER.

In case any person acquires from the manufacturer, producer, or importer of an article, by operation of law or as a result of any transaction not taxable under this chapter, the right to sell such article, the sale of such article by such person shall be taxable under this chapter as if made by the manufacturer, producer, or importer, and such person shall be liable for the tax.

Subchapter G-Exemptions, Registration, Etc.

Sec. 4221. Certain tax-free sales.

Sec. 4222. Registration.

Sec. 4223. Special rules relating to further manufacture.

Sec. 4224. Exemption for articles taxable as jewelry.

Sec. 4225. Exemption of articles manufactured or produced by

Indians.

Sec. 4226. Floor stocks taxes.

Sec. 4227. Cross references.

SEC. 4221. CERTAIN TAX-FREE SALES.

(a) GENERAL RULE.-Under regulations prescribed by the Secretary or his delegate, no tax shall be imposed under this chapter on the sale by the manufacturer 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, or

(5) to a nonprofit educational organization for its exclusive use, but only if such exportation or use is to occur before any other use. (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 4063 (b), 4083, or 4093, 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.

(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 503 (b) (2) 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 (other than an article referred to in subparagraph (B)) 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 a part or accessory taxable under section 4061 (b), a radio or television component taxable under section 4141, or a camera lens taxable under section 4171, 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 to be manufactured or produced by him.

(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

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