52.229-3 Federal, State, and Local Taxes
Source: FAR 52.229-3 on acquisition.gov
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.
As prescribed in 29.401-3 , insert the following clause:
Federal, State, and Local Taxes (Feb 2013)
(a) As used in this clause-
After-imposed Federal tax means any new or increased Federal excise tax or duty, or tax that was exempted or excluded on the contract date but whose exemption was later revoked or reduced during the contract period, on the transactions or property covered by this contract that the Contractor is required to pay or bear as the result of legislative, judicial, or administrative action taking effect after the contract date. It does not include social security tax or other employment taxes.
After-relieved Federal tax means any amount of Federal excise tax or duty, except social security or other employment taxes, that would otherwise have been payable on the transactions or property covered by this contract, but which the Contractor is not required to pay or bear, or for which the Contractor obtains a refund or drawback, as the result of legislative, judicial, or administrative action taking effect after the contract date.
All applicable Federal, State, and local taxes and duties means all taxes and duties, in effect on the contract date, that the taxing authority is imposing and collecting on the transactions or property covered by this contract.
Contract date means the date set for bid opening or, if this is a negotiated contract or a modification, the effective date of this contract or modification.
Local taxes includes taxes imposed by a possession or territory of the United States, Puerto Rico, or the Northern Mariana Islands, if the contract is performed wholly or partly in any of those areas.
(b)
(1) The contract price includes all applicable Federal, State, and local taxes and duties, except as provided in subparagraph (b)(2)(i) of this clause.
(2) Taxes imposed under http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section5000&num=0&edition=prelim" target="_blank">26 U.S.C. 5000 C may not be-
(i) Included in the contract price; nor
(ii) Reimbursed.
(c) The contract price shall be increased by the amount of any after-imposed Federal tax, provided the Contractor warrants in writing that no amount for such newly imposed Federal excise tax or duty or rate increase was included in the contract price, as a contingency reserve or otherwise.
(d) The contract price shall be decreased by the amount of any after-relieved Federal tax.
(e) The contract price shall be decreased by the amount of any Federal excise tax or duty, except social security or other employment taxes, that the Contractor is required to pay or bear, or does not obtain a refund of, through the Contractor’s fault, negligence, or failure to follow instructions of the Contracting Officer.
(f) No adjustment shall be made in the contract price under this clause unless the amount of the adjustment exceeds $250.
(g) The Contractor shall promptly notify the Contracting Officer of all matters relating to any Federal excise tax or duty that reasonably may be expected to result in either an increase or decrease in the contract price and shall take appropriate action as the Contracting Officer directs.
(h) The Government shall, without liability, furnish evidence appropriate to establish exemption from any Federal, State, or local tax when the Contractor requests such evidence and a reasonable basis exists to sustain the exemption.
(End of clause)