FAR 29.2—Subpart 29.2

General.

FAR 29.201 explains the basic federal policy for handling federal excise taxes in contracting. It identifies what federal excise taxes are, points readers to the Internal Revenue Code and Treasury regulations that govern them, and notes that questions should be sent to agency-designated counsel. The section highlights the most common excise taxes relevant to procurement, including manufacturers’ excise taxes on certain motor-vehicle articles, tires and inner tubes, gasoline, lubricating oils, coal, fishing equipment, firearms, shells, and cartridges, as well as special-fuels excise taxes on diesel fuel and special motor fuels. It then sets the contracting rule for pricing solicitations: use tax-exclusive pricing when the Government is known to be exempt, and tax-inclusive pricing when no exemption exists. Finally, it directs executive agencies to take maximum advantage of any available federal excise tax exemptions, making tax treatment a practical acquisition issue that affects solicitation preparation, price evaluation, and overall contract cost.

General exemptions.

FAR 29.202 explains when Federal manufacturers’ excise taxes and special-fuels excise taxes do not apply to Government purchases. It identifies the main exemption categories: supplies for the exclusive use of a State or political subdivision (including the District of Columbia), shipments for export to a foreign country or outlying area of the United States, supplies bought for further manufacture or resale for further manufacture, certain fuel supplies and vessel/aircraft-related uses on vessels of war and related Government aircraft and missiles, purchases by nonprofit educational organizations, and emergency vehicles. The section also gives practical conditions for claiming the exemptions, such as the 6-month shipment rule for exports, the requirement that “for export” appear on the contract or purchase document, the need for proof of export, and the use of tax-exclusive pricing and exemption certificates for vessels of war. In practice, this section matters because tax treatment can change the total contract price and the documentation needed at award and delivery. Contracting officers must know when to structure the purchase as tax-exclusive and when to provide certificates or proof, while contractors must know when they may lawfully omit excise taxes from their pricing. The section is a compliance checkpoint for both acquisition planning and invoice review, especially where the tax exemption depends on the end use, destination, or status of the buyer.

Other Federal tax exemptions.

FAR 29.203 explains two specific federal tax exemptions that apply when the United States is the purchaser or user: the communications excise tax exemption and the federal highway vehicle users tax exemption. It implements Treasury determinations under the Internal Revenue Code and tells contracting personnel when these taxes do not apply to federal acquisitions. In practice, this section matters because it can affect pricing, invoicing, and tax treatment for communications services and supplies, as well as for vehicles owned or leased by the Government. The key practical point is that the exemption is not automatic for every transaction involving the Government; for the communications excise tax, the supplies and services must be for the exclusive use of the United States, and for the highway vehicle users tax, the exemption applies whether the vehicle is owned or leased by the United States. Contractors and contracting officers should use this section to avoid paying or charging taxes that the Government is exempt from, while also making sure the exemption is applied only when the statutory conditions are met.

Federal excise tax on specific foreign contract payments.

FAR 29.204 explains how the Federal excise tax under 26 U.S.C. 5000C applies to certain foreign contract payments and how the government implements that tax through withholding. It covers the role of the acquiring agency in collecting the tax for the IRS, the contracting officer’s limited role, the contractor’s duty to submit IRS Form W-14 with vouchers or invoices, and the default 2 percent withholding when that form is missing. The section also explains which exemptions are handled by the contracting officer at the solicitation stage, which exemptions must be claimed by the offeror on Form W-14, and that any exemption claims are subject to IRS audit. It further clarifies that disputes about the tax itself are tax matters for the IRS, not contract administration issues for the contracting officer, and that the general FAR tax exemptions in 29.201 through 29.302 do not apply here. In practice, this section matters because it determines whether withholding will occur, what documentation must be provided up front, and where contractors must go to resolve tax questions or challenge IRS-related determinations.