52.229-4
Federal, State, and Local Taxes (State and Local Adjustments)
FAR 52.229-4 ensures contract prices are fairly adjusted for significant changes in Federal, State, or local taxes after award, requiring prompt contractor notification and strict compliance with procedures.
Overview
FAR 52.229-4 addresses how Federal, State, and local taxes are handled in government contracts, specifically focusing on adjustments to the contract price due to changes in tax obligations after contract award. The clause defines key terms such as after-imposed tax, after-relieved tax, and excepted tax, and establishes procedures for increasing or decreasing the contract price based on tax changes. It also outlines the responsibilities of both contractors and contracting officers regarding tax notifications, exemptions, and adjustments, and sets a $250 threshold for any price adjustment under this clause.
Key Rules
- Inclusion of Taxes in Contract Price
- Unless otherwise specified, the contract price includes all applicable Federal, State, and local taxes and duties in effect on the contract date, except for certain 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 taxes or taxes specifically excluded from the contract price, provided the contractor did not include a contingency for such taxes and was not at fault.
- The contract price must be decreased for after-relieved taxes or for taxes included in the contract price that the contractor is not required to pay due to their own fault or negligence.
- Notification and Documentation
- Contractors must promptly notify the Contracting Officer of any tax matters that could affect the contract price and follow the Contracting Officer’s directions.
- Threshold for Adjustments
- No adjustment is made unless the amount exceeds $250.
- Tax Exemptions
- The Government will provide evidence for tax exemption if requested and justified by the contractor.
Responsibilities
- Contracting Officers: Must review contractor notifications, direct appropriate actions, and provide exemption documentation when justified.
- Contractors: Must include all applicable taxes in pricing (unless excluded), notify the Contracting Officer of tax changes, request exemptions when appropriate, and comply with directions regarding tax matters.
- Agencies: Oversee compliance and ensure equitable adjustments are made as required.
Practical Implications
- This clause ensures that contractors are neither unfairly penalized nor unduly enriched by tax changes after contract award. Contractors must be diligent in tracking tax changes and communicating with the Contracting Officer. Failure to notify or follow instructions can result in loss of reimbursement or required repayment. Common pitfalls include misunderstanding which taxes are included/excluded and missing the $250 adjustment threshold.