FAR 29.401-4—New Mexico gross receipts and compensating tax.
Plain-English Summary
FAR 29.401-4 explains when the New Mexico gross receipts and compensating tax rules matter in federal contracting and when the special New Mexico clause must be used. It covers the New Mexico definition of "services," including activities performed for consideration, services performed for members or shareholders, construction activities, and tangible personal property that becomes an ingredient or component part of a construction project. It also explains the limited circumstances in which the contracting officer must insert FAR 52.229-10, State of New Mexico Gross Receipts and Compensating Tax: only for certain agency contracts, only when the contract is cost-reimbursement, only when the contractor is authorized to acquire tangible personal property as a direct cost with title passing directly to the United States on delivery, and only when the services will be performed in whole or in part in New Mexico. Finally, it identifies the agencies that have an agreement with New Mexico to avoid double taxation and notes that other agencies should seek a similar agreement if they expect to award cost-reimbursement contracts in New Mexico. In practice, this section is about preventing unnecessary state tax burden on qualifying government purchases while making sure the clause is used only in the specific situations the regulation covers.
Key Rules
New Mexico service definition
For this subsection, "services" is defined by New Mexico law and is broader than ordinary service work. It includes activities performed for consideration, services to members or shareholders, construction activities, and tangible personal property that will become part of a construction project in New Mexico.
Intent does not control
When deciding whether something is a service, the intended use, principal objective, or ultimate objective of the contracting parties is not controlling. The legal characterization under New Mexico law governs, not how the parties describe the transaction.
Property keeps its character
Tangible personal property that will become part of a construction project remains tangible personal property until it is installed as an ingredient or component part of the project in New Mexico. This matters for tax treatment and for determining when the property is treated as part of the service/construction activity.
Clause required only for qualifying contracts
The contracting officer must insert FAR 52.229-10 only when all three conditions are met: the contract is cost-reimbursement, the contractor is authorized to acquire tangible personal property as a direct cost with title passing directly to the United States on delivery, and the services will be performed in whole or in part in New Mexico.
Agency participation is limited
The clause applies only to solicitations and contracts issued by the listed participating agencies that have agreements with New Mexico. Agencies not on the list are not automatically covered and should seek a similar agreement if they expect to award qualifying cost-reimbursement contracts in New Mexico.
Purpose is to avoid double taxation
The participating-agency agreements are intended to eliminate double taxation on government cost-reimbursement contracts when contractors or subcontractors buy tangible personal property for use in performing services in New Mexico and title passes to the United States upon delivery.
Responsibilities
Contracting Officer
Determine whether the contract meets all three triggering conditions and whether the issuing agency is one of the participating agencies. If so, insert FAR 52.229-10 in the solicitation and contract; if not, do not use the clause under this section.
Contractor
Understand that New Mexico tax treatment may apply to services and construction-related purchases performed in New Mexico under qualifying cost-reimbursement contracts. Ensure purchases of tangible personal property are handled consistently with the contract’s title-passing and direct-cost requirements.
Participating Agency
Use the clause only in contracts covered by its agreement with New Mexico and ensure its contracting personnel apply the rule correctly for qualifying New Mexico performance.
Nonparticipating Federal Agency
If it expects to award cost-reimbursement contracts to be performed in New Mexico, contact the New Mexico Taxation and Revenue Department to pursue a similar agreement before relying on this tax treatment.
Subcontractors and Vendors
Recognize that purchases of tangible personal property for qualifying New Mexico performance may be part of the tax framework addressed by the agreement, especially where title passes to the United States upon delivery.
Practical Implications
This section is mainly a clause-selection rule, so the key day-to-day task is checking all three conditions before adding FAR 52.229-10.
The biggest pitfall is assuming any New Mexico performance triggers the clause; it does not unless the contract is cost-reimbursement, title passes directly to the United States on delivery, and the work is services performed in whole or in part in New Mexico.
Another common mistake is overlooking the agency limitation: only the listed agencies are covered by the existing agreement, so other agencies cannot simply copy the clause without addressing the state agreement issue.
Because New Mexico’s definition of services includes construction-related activity and certain materials, contractors and COs should pay close attention to whether purchases are treated as tangible personal property, construction components, or services under state law.
For contractors, the practical effect is potential relief from double taxation on qualifying purchases, but only if contract administration, title passage, and procurement documentation are aligned with the clause and the state agreement.
Official Regulatory Text
(a) Definition . Services , as used in this subsection, is as defined in the Gross Receipts and Compensating Tax Act of the State of New Mexico, Sec 7-9-3(k) NM SA1978, and means all activities engaged in for other persons for a consideration, which activities involve predominately the performance of a service as distinguished from selling or leasing property. "Services" includes activities performed by a person for its members or shareholders. In determining what is a service, the intended use, principal objective or ultimate objective of the contracting parties shall not be controlling. "Services" also includes construction activities and all tangible personal property that will become an ingredient or component part of a construction project. Such tangible personal property retains its character as tangible personal property until it is installed as an ingredient or component part of a construction project in New Mexico. However, sales of tangible personal property that will become an ingredient or component part of a construction project to persons engaged in the construction business are sales of tangible personal property. (b) Contract clause . The contracting officer shall insert the clause at 52.229-10 , State of New Mexico Gross Receipts and Compensating Tax, in solicitations and contracts issued by the agencies identified in paragraph (c) of this subsection when all three of the following conditions exist: (1) The contractor will be performing a cost-reimbursement contract. (2) The contract directs or authorizes the contractor to acquire tangible personal property as a direct cost under a contract and title to such property passes directly to and vests in the United States upon delivery of the property by the vendor. (3) The contract will be for services to be performed in whole or in part within the State of New Mexico. (c) Participating agencies. (1) The agencies listed below have entered into an agreement with the State of New Mexico to eliminate the double taxation of Government cost-reimbursement contracts when contractors and their subcontractors purchase tangible personal property to be used in performing services in whole or in part in the State of New Mexico and for which title to such property will pass to the United States upon delivery of the property to the contractor and its subcontractors by the vendor. Therefore, the clause applies only to solicitations and contracts issued by the- United States Defense Advanced Research Projects Agency; United States Defense Threat Reduction Agency; United States Department of Agriculture; United States Department of the Air Force; United States Department of the Army; United States Department of Energy; United States Department of Health and Human Services; United States Department of the Interior; United States Department of Labor; United States Department of the Navy; United States Department of Transportation; United States General Services Administration; United States Missile Defense Agency; and United States National Aeronautics and Space Administration. (2) Any other Federal agency which expects to award cost-reimbursement contracts to be performed in New Mexico should contact the New Mexico Taxation and Revenue Department to execute a similar agreement.