Prior to submitting first invoice, Sub requested from Prime their Tax exempt Number. Prime is NOT tax exempt. Sub assumed Prime was tax exempt on pass through costs on Federal Contracts. In submitting their bid, Sub failed to include their VA sales and use taxes in their FFP bid.

The RFP and subsequent Subcontract Agreement stated "Except as may be otherwise provided in this Contract, the contract price includes all applicable federal, state, and local taxes and duties."

Sub explained that he is registered to collect Sales and Use Taxes in MD and DC. He would have to "eat" the costs if the Prime does not provide the equivalent MD forms for exemption.

Please provide guidance re: pass through costs to the Government and when sales/use taxes are applicable.

Thank you.

Have you read FAR 29.303, "Application of State and local taxes to Government contractors and subcontractors"? If not, it may answer your questions. If so, what do you not understand?

I have read the clause but still don't have full understanding of what it means in "plain english." Prime pays Federal and State taxes and this issue has never come up with a Sub charging S&U taxes.

FAR 29.303 is not a clause.

I presume that your contract with the government includes the clause 52.229-3, "Federal, State, and Local Taxes (APR 2003)" and that the work is not in North Carolina or New Mexico. Do your or the sub qualify for any state exemptions? If so, can you get evidence to establish exemption from the contracting officer in accordance with paragraph (h) of that clause? If so, get it and pass it on to your sub.

As for subcontract price adjustments, keep it simple. You said that the subcontract includes the following clause: "Except as may be otherwise provided in this Contract, the contract price includes all applicable federal, state, and local taxes and duties." Is anything "otherwise provided"? If not, tell the sub that the clause means what it says. That is what the government is going to tell you.

j

The contract with the Government does not include clause 52.229-3. The only reference regarding taxes was in the General Contract Provisions Section of the RFP. This section was in our contract and the provision flow downs went to the Sub.

Re: Is anything "otherwise provided." No.

The only item other item under the section of Federal, state and local taxes addresses federal excise tax or duty.

j

I mentioned this in my initial post. Yes, this is a FFP contract with the government.

The General Contract Provisions appeared as Section M in the RFP and in the Prime Contract.

This are no clause numbers in the section entitled "Federal, State, and Local Taxes."

a. Except as may be otherwise provided in this Contract, the contract price includes all applicable federal, state, and local taxes and duties.

b. Nevertheless, with respect to any federal excise tax or duty on the transaction or property covered by this Contract, if a statute, court decision, written ruling, or regulation takes effect after the contract date and

1. results in the Contractor being required to pay or bear the burden of any such federal excise tax or duty or increase in the rate thereof which would not otherwise have been payable on such transactions or property, the Contract price shall be increased by the amount of such tax, duty, or rate increase, provided that the Contractor, if requested by the Contracting Officer, warrants in writing that no amount for such newly imposed federal excise tax, duty, or rate increase was included in the contract price as a contingency reserve or otherwise; or

2. results in the Contractor not being required to pay or bear the burden of, or in its obtaining a refund or drawback of, any such federal excise tax or duty which would otherwise have been payable on such transactions or property or which was the basis of an increase in the Contract price, the Contract price shall be decreased by the amount of the relief, refund, or drawback, or that amount shall be paid to the Board as directed by the Contracting Officer. The Contract price shall be similarly decreased if the Contractor, through its fault or negligence or its failure to follow instructions of the Contracting Officer, is required to pay or bear the burden of or does not obtain a refund or drawback of any such federal excise tax or duty.

c. No adjustment pursuant to paragraph (b) above shall be made under this Contract unless the aggregate amount thereof is or may reasonably be expected to be more than two hundred and fifty dollars ($250).

d. As used in paragraph (b) above, the term "contract date" means the date set for the bid opening or, if this is a negotiated Contract, the date of this Contract. As to additional supplies or services procured by modificaiton to this Contract, the term "contract date" means the date of such modification.

e. Unless there does not exist any reasonable basis to sustain an exemption, the Board, upon request to the Contractor, without further liability, agrees, except as otherwise provided in this Contract to furnish evidence appropriate to establish exemption from any tax which the Contractor warrants in writing was excluded from the contract price. In addition, the Contracting Officer may furnish evidence to establish exemption from any tax that may, pursuant to this clause, give rise to either an increase or decrease in the contract price. Except as otherwise provided in this Contract, evidence appropriate to establish exemption from duties will be furnished only at the discretion of the Contracting Officer.

j

This is a Federal prime contract with the Board of Governors of the Federal Reserve.

Sub INSISTS that we must be tax exempt since we do work for the Government. We are not tax exempt. Our position is that there are no sales taxes OR sales and use taxes to the Government for our services (i.e. labor). If the sub provided "widgets" to us or some other type of tangible property, then we would be subject to sales taxes. Is this a fair assumption?

Thank you, J!

j

e:

Don't assume anything with respect to exemption from state taxes. Exemption eligibility varies by state and the fact that a US Government contract is involved is not, in and of itself, determinative. I've had evil surprises on state tax liability under US Government O&M services contracts in Colorado and Washington, DC.

Get advice on this from an expert practicing in the state(s) involved.

Ju

I may have been wrong to do this,
but on a federal contract performed in Colorado
where I was a sub supplying materials I bought at Home Depot,
I showed Home Depot a copy of the PRIME contract
and filled out a form
and they didn't charge me sales tax.

Last year on a federal contract performed in Arizona,
my first out-of-state job in years,
for sales tax exemption,
the State required an application in advance,
a $2,000 "bond" or escrow, which they would hold onto for 2 years,
all to avoid 7% tax on less than $20,000 in materials.
I learned this at the sales counter of a supplier,
as my workforce was mobilizing to the jobsite.
Poor planner that I was, I just sucked it up.

SO-
absolutely, it varies by State.
Check it out when bidding.

If it had been performed on tribal lands,
rather than on federal lands,
there was another set of rules altogether.

While researching another issue I found that taxes are discussed in GAO's Red Book regarding appropriation law. While not exactly on topic with this discussion thread I am adding the information for future reference. The discussion can be found beginning at Page 4-289 of Vol 1 Chapter 4.