Overview
FAR 52.229 serves as the introductory heading for the "Taxes" subpart of contract clauses, which defines how Federal, State, local, and foreign taxes are treated regarding contract pricing, allowability, and adjustments. While 52.229 itself is "[Reserved]," it introduces a series of clauses that allocate tax-related risks and responsibilities between the Government and the contractor.
Key Rules
- Tax Inclusion and Exclusion: Generally, fixed-price contracts include all applicable taxes in the contract price unless a specific clause (like 52.229-1) explicitly excludes them or provides for later adjustment.
- After-Imposed and After-Relieved Taxes: Clauses 52.229-3 and 52.229-4 allow for contract price adjustments (increases or decreases) if new Federal taxes are imposed or existing taxes are abolished after the contract date, typically subject to a $250 threshold.
- State-Specific Requirements: Certain clauses are location-specific, such as 52.229-2 (North Carolina sales tax on construction) and 52.229-10 (New Mexico Gross Receipts tax), requiring contractors to provide certified statements or Nontaxable Transaction Certificates (NTTCs).
- Foreign Tax Treatment: For overseas performance, clauses 52.229-6 through 52.229-9 govern how international tax treaties and local foreign laws impact contract costs, emphasizing that the U.S. Government should not pay taxes from which it is exempt.
- 26 U.S.C. 5000C Excise Tax: Under 52.229-11 and 52.229-12, a 2% excise tax is imposed on foreign persons for certain procurements; this tax cannot be included in the contract price or reimbursed by the Government.
Practical Implications
- Pricing Precision: Contractors must carefully determine which taxes are "applicable" at the time of the bid; failing to account for an existing tax often prevents a later price adjustment, while including taxes the Government is exempt from can make a bid non-competitive.
- Administrative Compliance: For specific jurisdictions like New Mexico or North Carolina, contractors must maintain rigorous records and provide specific certifications to ensure tax reimbursements are allowed and to avoid double taxation.
- Withholding Risks: Foreign contractors must proactively submit IRS Form W-14 to claim exemptions; otherwise, the Government is mandated to withhold 2% of every contract payment, which can significantly impact cash flow and profit margins.