FAR 52.229-2—North Carolina State and Local Sales and Use Tax.
Plain-English Summary
FAR 52.229-2 addresses how North Carolina State and local sales and use taxes are handled on federal construction contracts performed in North Carolina, and it also provides an alternate version for vessel repair work in North Carolina. The clause defines what counts as "materials" for tax purposes, distinguishes between fixed-price and cost-reimbursement contracts, and tells the contractor when those taxes are included in the price or are allowable as a reimbursable cost. It also requires the contractor to collect and submit certified statements showing vendor-by-vendor material costs, the amount of State and local sales and use taxes paid, invoice details for multiple purchases, and tax paid on warehouse withdrawals. The clause further requires the contractor to obtain similar certified statements from subcontractors and to provide any additional information needed to support a refund claim with the North Carolina Commissioner of Revenue. Finally, it sets the timing for submission of these statements, either within 60 days after completion or annually by November 30 for contracts extending beyond September 30. In practice, this clause is a tax documentation and reimbursement mechanism: it helps the Government and the contractor identify eligible North Carolina sales and use taxes, supports refund claims, and prevents disputes over whether those taxes are included in the contract price or allowable as costs.
Key Rules
Applies to North Carolina work
This clause is prescribed for solicitations and contracts for construction performed in North Carolina, and Alternate I applies when the requirement is for vessel repair in North Carolina. The alternate changes the definition of materials so it fits vessel repair rather than building construction.
Defines taxable materials narrowly
For construction, "materials" means building materials, supplies, fixtures, and equipment that become part of or are annexed to a building or structure. Under Alternate I, the definition is adjusted to cover items that become part of or are annexed to a vessel.
Fixed-price includes the tax
In a fixed-price contract, the contract price is deemed to include North Carolina State and local sales and use taxes on materials, regardless of any other contract language. The contractor generally bears the pricing risk of those taxes unless another clause or adjustment mechanism applies elsewhere in the contract.
Cost-reimbursement allows the tax
In a cost-reimbursement contract, North Carolina State and local sales and use taxes paid on materials are allowable costs if otherwise properly incurred. The contractor must still support the costs with adequate documentation.
Certified statements are required
The contractor must furnish certified statements showing the cost of materials purchased from each vendor and the amount of State and local sales and use taxes paid. The statement must separately identify local taxes from State taxes and include warehouse-stock withdrawals and related tax paid.
Subcontractor documentation must be collected
The contractor must obtain and provide similar certified statements from subcontractors. This ensures the Government has a complete record of taxes paid throughout the contracting chain.
Submission timing is specific
If the contract is completed before the next October 1, the certified statements are due within 60 days after completion. If the contract continues past that date, the statements are due by November 30 each year and must cover the 12-month period ending the preceding September 30.
Additional substantiation may be required
The contractor must provide any additional information the North Carolina Commissioner of Revenue requires to support a refund claim. This means the contractor may need to maintain records beyond the clause’s minimum statement format.
Responsibilities
Contracting Officer
Insert the clause in covered North Carolina construction solicitations and contracts, or use Alternate I for vessel repair. Review the certified statements and supporting documentation to confirm the tax amounts claimed are properly documented and tied to the contract work.
Contractor
Price fixed-price work to include North Carolina State and local sales and use taxes on materials, or claim such taxes as allowable costs under a cost-reimbursement contract. Collect, certify, and submit the required statements, separate State and local tax amounts, include invoice and warehouse-withdrawal details, obtain subcontractor statements, and provide any additional substantiation needed for refund claims.
Subcontractors
Provide similar certified statements to the prime contractor showing material costs and North Carolina State and local sales and use taxes paid on covered materials used in the subcontracted work.
North Carolina Commissioner of Revenue
May require additional information to substantiate a refund claim for sales or use taxes. The agency administers the State tax refund process, so the contractor must be prepared to provide whatever documentation the State requires.
Government finance or audit personnel
Use the certified statements and attachments to verify tax treatment, support payment or reimbursement decisions, and ensure the contract file contains adequate evidence for any claimed tax amounts.
Practical Implications
Contractors should track North Carolina sales and use taxes separately from the start of performance; waiting until closeout often leads to missing invoices, incomplete vendor data, or inability to separate State and local tax amounts.
The clause is documentation-heavy: invoice numbers, inclusive invoice dates, total invoice amounts, warehouse withdrawals, and separate State/local tax figures all matter, so accounting systems and job-cost records need to capture these details.
For fixed-price work, contractors should not expect a separate tax adjustment just because taxes were paid; the clause says the price already includes them, so underpricing the tax can erode margin.
For cost-reimbursement work, taxes may be allowable, but only if properly supported and otherwise allowable under the contract and cost principles; unsupported or poorly documented taxes can be questioned or disallowed.
Subcontractor compliance is a common weak point. Prime contractors should flow down the documentation requirement operationally, even if the clause text places the duty on the prime to obtain the statements, because missing subcontractor records can delay closeout or refund claims.
Official Regulatory Text
As prescribed in 29.401-2 , insert the following clause in solicitations and contracts for construction to be performed in North Carolina: North Carolina State and Local Sales and Use Tax (Apr 1984) (a) "Materials," as used in this clause, means building materials, supplies, fixtures, and equipment that become a part of or are annexed to any building or structure erected, altered, or repaired under this contract. (b) If this is a fixed-price contract, the contract price includes North Carolina State and local sales and use taxes to be paid on materials, notwithstanding any other provision of this contract. If this is a cost-reimbursement contract, any North Carolina State and local sales and use taxes paid by the Contractor on materials shall constitute an allowable cost under this contract. (c) At the time specified in paragraph (d) of this section, the Contractor shall furnish the Contracting Officer certified statements setting forth the cost of the materials purchased from each vendor and the amount of North Carolina State and local sales and use taxes paid. In the event the Contractor makes several purchases from the same vendor, the certified statement shall indicate the invoice numbers, the inclusive dates of the invoices, the total amount of the invoices, and the North Carolina State and local sales and use taxes paid. The statement shall also include the cost of any tangible personal property withdrawn from the Contractor’s warehouse stock and the amount of North Carolina State and local sales or use tax paid on this property by the Contractor. Any local sales or use taxes included in the Contractor’s statements must be shown separately from the State sales or use taxes. The Contractor shall furnish any additional information the Commissioner of Revenue of the State of North Carolina may require to substantiate a refund claim for sales or use taxes. The Contractor shall also obtain and furnish to the Contracting Officer similar certified statements by its subcontractors. (d) If this contract is completed before the next October 1, the certified statements to be furnished pursuant to paragraph (c) of this clause shall be submitted within 60 days after completion. If this contract is not completed before the next October 1, the certified statements shall be submitted on or before November 30 of eachyear and shall cover taxes paid during the 12-month period that ended the preceding September 30. (e) The certified statements to be furnished pursuant to paragraph (c) of this clause shall be in the following form: I hereby certify that during the period ______ to _____ [ insert dates ], ____ [ insert name of Contractor or subcontractor ] paid North Carolina State and local sales and use taxes aggregating $______ (State) and $______ (local), with respect to building materials, supplies, fixtures, and equipment that have become a part of or annexed to a building or structure erected, altered, or repaired by _________ [ insert name of Contractor or subcontractor ] for the United States of America, and that the vendors from whom the property was purchased, the dates and numbers of the invoices covering the purchases, the total amount of the invoices of each vendor, the North Carolina State and local sales and use taxes paid on the property (shown separately), and the cost of property withdrawn from warehouse stock and North Carolina State and local sales or use taxes paid on this property are as set forth in the attachments. (End of clause) Alternate I (Apr 1984) . If the requirement is for vessel repair to be performed in North Carolina, substitute the following paragraph (a) for paragraph (a) of the basic clause: (a) "Materials," as used in this clause, means materials, supplies, fixtures, and equipment that become a part of or are annexed to any vessel altered or repaired under this contract.