29.303 Application of State and local taxes to Government contractors and subcontractors
Source: FAR 29.303 on acquisition.gov
Contractors and subcontractors cannot automatically claim state or local tax immunity as government agents; exemptions depend on specific laws and must follow proper procedures.
Overview
FAR 29.303 addresses how state and local taxes apply to government contractors and subcontractors. It clarifies that contractors and subcontractors are generally not considered agents of the government for the purpose of claiming immunity from state or local sales or use taxes. If an agency believes a contractor should be treated as a government agent for tax immunity, the issue must be escalated to the agency head with supporting documentation and legal analysis. The section also explains that tax exemptions for purchases made by contractors or subcontractors depend on specific state or local laws, not on federal immunity, and directs contracting officers to follow procedures in FAR 29.101 to protect government interests. Additionally, when government-owned property is held by contractors or subcontractors, and state or local authorities attempt to tax that property or its use, contracting officers must consult agency counsel for guidance.
Key Rules
- No Automatic Government Agent Status for Tax Immunity
- Contractors and subcontractors are not usually considered government agents for tax immunity purposes; agency head review is required for exceptions.
- Tax Exemption Depends on State/Local Law
- Exemptions for contractor purchases are based on state/local law, not federal immunity, and proper procedures must be followed.
- Taxation of Government Property in Contractor Possession
- If states/localities attempt to tax government property held by contractors, contracting officers must seek legal counsel.
Responsibilities
- Contracting Officers: Refer agency agent status questions to the agency head, follow FAR 29.101 procedures, and consult counsel on property tax issues.
- Contractors: Understand that tax exemptions are not automatic and depend on state/local law; comply with relevant procedures.
- Agencies: Review agent status claims and provide legal guidance on property tax matters.
Practical Implications
- This section ensures contractors do not improperly claim tax immunity and that government interests are protected in tax matters. Contractors must be aware that tax exemptions are not guaranteed and must follow proper procedures, while contracting officers must seek legal review when necessary. Common pitfalls include assuming automatic immunity or failing to consult legal counsel on complex tax issues.
(a) Prime contractors and subcontractors shall not normally be designated as agents of the Government for the purpose of claiming immunity from State or local sales or use taxes. Before any activity contends that a contractor is an agent of the Government, the matter shall be referred to the agency head for review. The referral shall include all pertinent data on which the contention is based, together with a thorough analysis of all relevant legal precedents.
(b) When purchases are not made by the Government itself, but by a prime contractor 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 local law involved, or, in some cases, the transaction may not in fact be expressly exempt from the tax. The Government’s interest shall be protected by using the procedures in 29.101.
(c) Frequently, property (including property acquired under the progress payments clause of fixed-price contracts or the Government property clause of cost-reimbursement contracts) owned by the Government is in the possession of a contractor or subcontractor. Situations may arise in which States or localities assert the right to tax Government property directly or to tax the contractor’s or subcontractor’s possession of, interest in, or use of that property. In such cases, the contracting officer shall seek review and advice from the agency-designated counsel on the appropriate course of action.