Federal, State, and Local Taxes
Contractors must include all applicable taxes in their contract price, promptly notify the government of tax changes, and follow strict procedures for any price adjustments due to tax law changes.
Overview
FAR 52.229-3, Federal, State, and Local Taxes, establishes how taxes are handled in government contracts. It defines key tax-related terms, clarifies which taxes are included in the contract price, and outlines procedures for price adjustments due to changes in federal tax law after contract award. The clause also sets forth contractor notification and documentation requirements, and specifies when the government will provide tax exemption evidence.
Key Rules
- Inclusion of Taxes in Contract Price
- The contract price includes all applicable federal, state, and local taxes and duties in effect on the contract date, except for taxes under 26 U.S.C. 5000C, which cannot be included or reimbursed.
- Adjustments for Tax Changes
- The contract price may be increased for after-imposed federal taxes (new or increased taxes after contract award) if the contractor did not already include them in the price, and must be decreased for after-relieved federal taxes or for taxes not refunded due to contractor fault.
- Notification and Documentation
- Contractors must promptly notify the contracting officer of any tax matters that could affect the contract price and follow the officer’s instructions.
- Threshold for Adjustments
- No price adjustment is made unless the change exceeds $250.
- Government Support for Exemptions
- The government will provide evidence to support tax exemptions when requested and justified by the contractor.
Responsibilities
- Contracting Officers: Ensure proper inclusion/exclusion of taxes, process price adjustments, and provide exemption documentation when appropriate.
- Contractors: Include all applicable taxes in pricing, exclude 26 U.S.C. 5000C taxes, notify the government of tax changes, warrant tax status, and request exemption evidence as needed.
- Agencies: Oversee compliance and support exemption processes.
Practical Implications
This clause ensures clarity and fairness in handling taxes for government contracts, preventing disputes over tax changes and ensuring contractors are neither unfairly burdened nor unjustly enriched. Contractors must be diligent in tracking tax changes, communicating with the government, and maintaining documentation to support any price adjustments or exemption requests.