Sales Tax Exemption Certificates

Does your contract include the clause at FAR 52.229-3, Federal, State, and Local Taxes? If so, paragraph (h) applies. If not, you will have to work with whatever clause is included, if any.

You need to contact your local attorney to discuss this. Sales taxes are a tricky business. The question is upon whom does the incidence of the tax fall? If the incidence falls upon the seller (contractor), the government is not exempt from having the tax included in the contract price. What needs to be determined is if there are exemptions in state or local law for sales to the govenrment. On the other hand, if the incidence of the tax falls on the buyer (govenrment) it very well could be an unconstittuional imposition of the tax.

Tax exemption certification are only issued when the Government is awarding the procurement.

Tax exemption certification are only issued when the Government is awarding the procurement.

Prove it.

I am a newbie so I will apologize up front for not knowing how to start a new discussion, although my question is very similar to the question posed here. My 14 years of direct contracting experience is all in 'supply' and now one of my customers is asking me about a construction MATOC that they have.

My customer is a small business, matoc idiq contractor to the PA ANG. His contract is Time and Material. His KO says ANG does not pay taxes, but construction is not tax exempt so my customer must pay sales tax on his materials (my goods). When he submits his invoices for re-imbursement, the KO disallows the tax line.

Is he expected to therefore "eat" the sales tax, or should he have included a certain percentage for taxes in the re-imbursement percentage that he bid?

I found FAR 29.303 but that clause appears to only establish that each situation will be handled according to its own specifics.

but construction is not tax exempt

Says who?

What is the basis for the KO's assertion that the ANG does not pay taxes?

You should also be tax exempt for the sale of your goods. Your customer will have the same. An external auditor (from my experience) will only need to see the direct link between the sale to your customer and the use of those goods in performing on an ANG contract.

So you shouldn't pay taxes for selling them and your customer shouldn't pay taxes for selling to the ANG.

What is the basis for the KO's assertion that the ANG does not pay taxes?

It's part of the Air Force. Why would it pay taxes?

I called into the KO's office to talk with them about this and their statement to me was, "this is construction and construction is not tax-exempt," meaning that the contractor would not be able to claim a tax exemption from anything that the KO would give them. They seemed to fully expect the contractor to pay sales taxes to his suppliers, and not pass the sales tax on to the KO, at least not as a separate line item on an invoice.

We, as a re-seller, are essentially always tax-exempt with our suppliers. Our customer, (as he is being told by the KO), is not tax-exempt by virtue of the fact that this is a construction contract, according to the KO.

I called into the KO's office to talk with them about this and their statement to me was, "this is construction and construction is not tax-exempt," meaning that the contractor would not be able to claim a tax exemption from anything that the KO would give them. They seemed to fully expect the contractor to pay sales taxes to his suppliers, and not pass the sales tax on to the KO, at least not as a separate line item on an invoice.

You don't need the KO to give you permission to complete a Tax Exemption form for you as the supplier. Your customer does not need permission from the KO either.

My non-DoD research led me to this,

When Are Construction Materials Subject to Sales Tax?

In most states, construction contractors must pay sales tax when they purchase materials used in construction. This means that any materials and supplies you purchase are taxable at the time of purchase. However, you won't have to pay sales or use tax upon the sale of the finished construction. In some cases, this can be an advantage because any markup you charge to your customer on the materials, supplies and labor, won't be subject to sales tax.

Again, I am not a construction contractor, but rather mostly a supply contractor, so this is all foreign to me. Does the above paragraph apply to federal construction contracts? (assuming the contract is in one of the "most states?"

It's part of the Air Force. Why would it pay taxes?

You think that the Air Force doesn't have to pay taxes? When the Air Force awards a fixed-price contract that contains FAR 52.229-3, aren't they paying taxes? If the Air Force awards a cost-reimbursement contract that contains FAR 52.216-7, aren't some taxes an allowable cost pursuant to FAR 31.205-41?

If your customer has a T&M contract, then reimbursement for payment of state and local taxes is covered by FAR 52.216-7, "Allowable Cost and Payment," and the cost principle at FAR 31.215-41, "Taxes." See also FAR 29.101, ""Resolving tax problems," and 29.303, "Application of State and Local Taxes to Government contractors and subcontractors."

Off hand, I don't know about any special rules for construction contracts.

You think that the Air Force doesn't have to pay taxes? When the Air Force awards a fixed-price contract that contains FAR 52.229-3, aren't they paying taxes? If the Air Force awards a cost-reimbursement contract that contains FAR 52.216-7, aren't some taxes an allowable cost pursuant to FAR 31.205-41?

I agree but we're talking about a situation where the ANG DOES NOT reimburse sales tax but the contractor DOES pay taxes. I've never run into that situation.

Whenever my charges for State taxes were refused as a prime contractor, I simply complete the applicable state tax form between me (as the prime) and my supplier and none of us pay taxes. My external auditors have never had a problem with this in 10+ years.

I honestly don't think this is a question the prime contractor should be asking the KO, I think it's a question for their auditors/CPAs.

One must check the laws of the state, in this case, Pennsylvania, for sales tax and also for "use tax" on construction materials and "machinery and equipment" used in construction contracts for public entities that are not directly subject to such taxes. See, for instance:

http://www.revenue.s.../sut-03-025_pdf

Some items appear to be exempt.

Then also check the contract for any clauses that discuss taxes.