Overview
FAR Subpart 29.3 establishes the policies and procedures regarding the Federal Government’s immunity from State and local taxation. It outlines how executive agencies should maximize tax exemptions for government purchases and property while clarifying the distinct tax obligations of government contractors and subcontractors.
Key Rules
- Federal Immunity: Generally, direct purchases and leases made by the Federal Government are immune from State and local taxation under the Supremacy Clause of the U.S. Constitution.
- Contractor Status: Prime contractors and subcontractors are not considered agents of the Government for tax purposes. They do not automatically inherit the Government's tax immunity unless specifically authorized by the agency head and supported by legal precedent.
- Evidence of Exemption: To claim exemptions, the Government uses specific documentation, primarily Standard Form (SF) 1094 (U.S. Tax Exemption Form), or other evidence such as shipping documents and purchase orders.
- North Carolina Special Rule: A unique provision exists for North Carolina, where the Government is entitled to refunds on sales and use taxes paid indirectly on building materials. Contractors must provide certified statements to the Government to facilitate these refund claims.
- Delivery Terms: The applicability of taxes often depends on the "place and terms of delivery." Contracting Officers (COs) are encouraged to evaluate alternative delivery points to minimize tax consequences on substantial contracts.
Responsibilities
- Contracting Officers (CO):
- Determine when it is economically feasible to seek tax exemptions.
- Provide SF 1094 or other evidence of exemption to sellers.
- Seek advice from agency-designated counsel on legal questions regarding tax immunity.
- In North Carolina, ensure contractors submit certified tax statements by November 30th annually and file for Government refunds before March 31st.
- Agency-Designated Counsel:
- Provides legal advice on whether a specific purchase or lease is immune.
- Reviews situations where states attempt to tax Government-owned property in the possession of a contractor.
- Coordinates on contract language that specifies whether prices include or exclude certain taxes.
- Agency Heads:
- Must review and approve any contention that a contractor should be designated as an agent of the Government for tax immunity purposes.
- Contractors:
- Submit certified statements for tax refunds (specifically in NC).
- Maintain records of taxes paid to support claims for exemption or reimbursement under cost-reimbursement contracts.
Practical Implications
- Strategic Sourcing: For large-scale acquisitions, the choice of F.O.B. (Free on Board) point is not just a logistics decision but a tax strategy. Shifting the delivery location can result in significant cost savings by avoiding high-tax jurisdictions.
- Equipment Rentals: Indefinite-delivery contracts for leased equipment are particularly complex because the contractor retains ownership. Contractors may pass through various local property and use taxes to the Government, requiring the CO to include specific clauses (FAR 29.401-1) to manage unknown delivery points.
- Cost Realism in Bidding: Contractors must carefully analyze whether their price includes or excludes state taxes. If a contractor mistakenly includes a tax from which the Government is immune, the Government may seek a price reduction.
- Administrative Burden in NC: Construction contractors operating in North Carolina face a higher administrative burden due to the requirement to track and certify every cent of sales tax paid on building materials to allow the Federal Government to recoup those costs.