FAR 52.229—[Reserved]

State and Local Taxes.

FAR 52.229-1, State and Local Taxes, addresses how state and local taxes are treated in a federal contract when those taxes are levied on or measured by the contract price or the sales price of the services or completed supplies furnished under the contract. The clause establishes that the contract price excludes those taxes, even if another taxes clause might otherwise apply, and it requires the contractor to identify the excluded taxes separately on invoices. It also gives the Government two ways to handle the tax burden: either pay the tax amount to the contractor or provide documentation that supports a tax exemption. In practice, this clause is meant to prevent tax costs from being unintentionally built into the contract price, while also creating a clear billing process for taxes that are not included in the price. It matters because it affects pricing, invoicing, tax compliance, and the evidence needed to claim an exemption from state or local taxation.

North Carolina State and Local Sales and Use Tax.

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.

Federal, State, and Local Taxes.

FAR 52.229-3, Federal, State, and Local Taxes, allocates tax risk between the Government and the contractor for fixed-price contracts by stating what taxes are included in the contract price and when that price must be adjusted. This clause defines key terms such as after-imposed Federal tax, after-relieved Federal tax, all applicable Federal, State, and local taxes and duties, contract date, and local taxes, including taxes imposed by U.S. possessions and territories such as Puerto Rico and the Northern Mariana Islands when performance occurs there. It also addresses special treatment for taxes imposed under 26 U.S.C. 5000C, which may not be included in the contract price or reimbursed. The clause provides upward price adjustments for certain new or increased Federal excise taxes or duties, downward adjustments for tax relief or refunds, and reductions when the contractor’s fault, negligence, or failure to follow the Contracting Officer’s instructions causes the contractor to bear a tax it otherwise would not have borne. It sets a $250 threshold before any adjustment is made, requires prompt contractor notice of tax matters that may affect price, and obligates the Government to furnish evidence of tax exemption when a reasonable basis exists. In practice, this clause is important because it prevents hidden tax contingencies from being shifted into the price, preserves fairness when tax laws change after award, and creates a clear process for handling tax-related price changes during performance.

Federal, State, and Local Taxes (State and Local Adjustments).

FAR 52.229-4 allocates responsibility for Federal, State, and local taxes and duties in fixed-price contracting when tax laws or tax administration change after contract award. It defines key tax terms such as after-imposed tax, after-relieved tax, all applicable taxes and duties, contract date, excepted tax, and local taxes, including special treatment for taxes in U.S. possessions and territories. The clause also states the baseline rule that the contract price includes applicable taxes in effect on the contract date, while excluding taxes imposed under 26 U.S.C. 5000C from both inclusion and reimbursement. It then explains when the contract price must be increased for new or increased taxes, decreased for tax relief or refunds, and decreased when the contractor loses a tax benefit through its own fault, negligence, or failure to follow contracting officer instructions. The clause sets a $250 threshold for adjustments, requires prompt contractor notice of tax matters that may affect price, and obligates the Government to provide evidence of tax exemption when requested and justified. In practice, this clause is about preventing either party from unfairly bearing tax changes that occur after award, while also making sure contractors manage tax issues diligently and document them properly.

[Reserved]

Taxes-Foreign Fixed-Price Contracts.

FAR 52.229-6, Taxes-Foreign Fixed-Price Contracts, allocates foreign tax risk in fixed-price contracts performed outside the United States and its outlying areas. It explains when the clause applies in place of other tax clauses, defines key terms such as contract date, country concerned, taxes, all applicable taxes and duties, after-imposed tax, after-relieved tax, and excepted tax, and sets the baseline rule that the contract price normally includes applicable foreign taxes and duties. The clause then provides for price increases for certain after-imposed taxes and excluded taxes, price decreases for after-relieved taxes and taxes caused by contractor fault or negligence, and special treatment for taxes imposed under 26 U.S.C. 5000C. It also addresses the $250 threshold for adjustments, the Government’s right to recover tax-related benefits and refunds, the contractor’s duty to seek exemptions and refunds, and the duty to notify the contracting officer and follow directions on tax matters. In practice, this clause is a key risk-allocation mechanism for overseas fixed-price work because foreign tax regimes can change during performance, and both parties need a clear process for identifying, documenting, and adjusting for tax events.

Taxes-Fixed-Price Contracts with Foreign Governments.

FAR 52.229-7 addresses how taxes and duties are treated in fixed-price contracts performed in foreign countries when the United States has tax arrangements with the host government. It defines the term “contract date,” explains that the contract price generally excludes certain taxes and duties that are not applicable to U.S. expenditures in the foreign country, and requires downward price adjustments if such taxes were mistakenly included. The clause also bars inclusion of taxes imposed under 26 U.S.C. 5000C, which is a separate statutory tax rule. In addition, it provides for price reduction if the U.S. and the foreign government later agree that a tax or duty included in the price should not apply after contract award, and it establishes a $250 threshold below which no adjustment is made. In practice, this clause protects the Government from paying foreign taxes it is not supposed to bear, shifts the pricing burden to accurate tax identification at proposal time, and gives contracting officers a mechanism to correct the contract price when tax exemptions or agreements change.

Taxes-Foreign Cost-Reimbursement Contracts.

FAR 52.229-8, Taxes-Foreign Cost-Reimbursement Contracts, allocates responsibility for certain foreign taxes and duties in cost-reimbursement contracts performed overseas. It addresses two main subjects: first, it makes taxes or duties nonallowable when the United States is exempt from them by treaty or agreement with the foreign government, or when the contractor or subcontractor is exempt under the foreign country’s laws; second, it requires the contractor to remit or credit to the Government any foreign tax credit that reduces U.S. Federal income tax liability because a reimbursed foreign tax or duty was paid. In practice, the clause prevents the Government from paying costs it should not bear and avoids double recovery when a contractor gets both reimbursement and a tax benefit. It is especially important in foreign environments where tax treaties, host-nation exemptions, VAT/GST regimes, customs duties, and local tax credits can materially affect contract cost. Because this is a cost-reimbursement clause, careful accounting, documentation, and coordination with tax advisors are essential to determine what is allowable and what must be returned to the Government.

Taxes-Cost-Reimbursement Contracts with Foreign Governments.

FAR 52.229-9, Taxes-Cost-Reimbursement Contracts with Foreign Governments, addresses how taxes and duties are treated when the Government is buying on a cost-reimbursement basis and the work involves a foreign government or foreign tax regime. The clause covers two main subjects: first, it makes certain taxes or duties unallowable when the United States is exempt from them by agreement with a foreign government, or when a subcontractor is exempt under the laws of the foreign country; second, it requires repayment to the U.S. Treasury when a subcontractor receives a foreign tax credit that lowers its U.S. Federal income tax because a reimbursed foreign tax or duty was paid. In practice, the clause prevents the Government from paying costs it should not bear under international tax exemptions and avoids double benefit to subcontractors who both receive reimbursement and later obtain a tax credit. It is used only in cost-reimbursement contracts where foreign tax issues can affect allowable cost, and it requires careful coordination among the contracting officer, prime contractor, and subcontractors to identify exempt taxes, document eligibility, and track any later tax-credit benefit. The clause also ties directly to the contract’s cost allowability rules, meaning the contractor must segregate and exclude disallowed taxes from billed costs and ensure any required remittance to Treasury is made on time.

State of New Mexico Gross Receipts and Compensating Tax.

FAR 52.229-10 addresses how federal contractors handle New Mexico gross receipts tax and compensating tax when contract performance occurs in New Mexico. It requires the contractor to register the contract with the New Mexico Taxation and Revenue Department within 30 days of award, identify the contract number, and pay New Mexico gross receipts taxes assessed against contract fee and costs for work performed in the state. The clause also explains how tax allowability is treated under the contract’s Allowable Cost and Payment clause, and it creates a special process for obtaining and using Type 15 Nontaxable Transaction Certificates (NTTCs) so vendors do not improperly charge gross receipts tax on qualifying purchases. It further requires the contractor to provide NTTCs to New Mexico vendors, pay compensating use tax when property bought under an NTTC is not used for federal purposes, and follow special rules for out-of-state purchases of tangible personal property. The clause also allows the agency to receive information from the state tax authority and participate in related proceedings, requires flowdown of the clause to certain subcontracts, and states that the clause becomes void if the underlying state agreement is terminated, except for obligations already incurred. In practice, this clause is about tax compliance, cost allowability, vendor documentation, and coordination between the contractor, the agency, and New Mexico tax authorities.

Tax on Certain Foreign Procurements—Notice and Representation.

FAR 52.229-11 is the solicitation provision that gives offerors notice of the 2 percent excise tax imposed by 26 U.S.C. 5000C on certain foreign procurement payments and collects the offeror’s representation about foreign-person status. It defines the key terms used in the provision, including foreign person, specified Federal procurement payment, and United States person, so parties can determine whether the tax may apply. The provision explains that, unless an exemption applies, payments to a foreign person for covered goods or services performed in a foreign country that is not party to an international procurement agreement with the United States may be subject to withholding. It also tells offerors how to claim an exemption using IRS Form W-14, notes that the form is submitted to the acquiring agency rather than the IRS, and warns that claimed exemptions are subject to IRS audit. In addition, it requires the offeror to represent whether it is a foreign person and, if so, whether it is claiming a full, partial, or no exemption. The provision further explains the contract consequences of a foreign-person representation, including incorporation of FAR 52.229-12 into the resulting contract and withholding if the W-14 is not submitted or if only partial/no exemption is claimed. Finally, it clarifies that disputes over the tax are tax matters for the IRS, not contract disputes, and points users to IRS guidance on private letter rulings and revenue rulings.

Tax on Certain Foreign Procurements.

FAR 52.229-12 is the contract clause that gives notice of, and implements the contractor-side reporting and withholding mechanics for, the 2 percent excise tax under 26 U.S.C. 5000C on certain foreign procurements. It defines the key terms "foreign person" and "United States person," explains that the clause applies only to foreign persons, and ties the clause to the IRS regulations at 26 CFR 1.5000C-1 through 1.5000C-7. The clause requires foreign contractors to submit IRS Form W-14 with each invoice or voucher when they have a partial or no exemption, and to update that form as the applicable exemption changes from payment to payment. It also addresses the default withholding rule, how the Government calculates withholding when the contractor claims a partial exemption or identifies exempt and nonexempt amounts, and what happens if a contractor’s full exemption later disappears during performance. The clause further states that exemption claims are subject to IRS audit, that disputes over the tax are tax matters handled by the IRS rather than contract disputes, and that the tax may not be included in the contract price or reimbursed. In practice, this clause is important because it shifts the burden of identifying and documenting exemption status to the foreign contractor and gives the Government a clear withholding mechanism at payment time.

Taxes—Foreign Contracts in Afghanistan.

FAR 52.229-13, Taxes—Foreign Contracts in Afghanistan, tells contractors how Afghan taxes and similar charges are treated when a U.S. Government contract is performed in Afghanistan in support of U.S. Forces. It defines the term “U.S. Forces,” ties the clause to the Security and Defense Cooperation Agreement between Afghanistan and the United States, and explains the scope of the Afghan tax exemption for the Government, contractors, and subcontractors that are not Afghan legal entities or residents. The clause also addresses which taxes, customs, duties, fees, and similar charges must be excluded from the contract price, and it makes clear that Afghan employees of contractors and subcontractors are not exempt from Afghan tax laws. In addition, it requires contractors to withhold and remit Afghan income taxes from covered employees’ wages when Afghan law requires it, and it clarifies that those withholdings are the employees’ liability rather than a tax on the contractor. Finally, it requires flowdown of the clause, including the subcontract paragraph, to all subcontracts, including those for commercial products and commercial services. In practice, this clause is important because it determines who bears Afghan tax costs, prevents improper pricing of exempt charges, and ensures subcontractors follow the same tax treatment and withholding obligations.

Taxes—Foreign Contracts in Afghanistan (North Atlantic Treaty Organization Status of Forces Agreement).

FAR 52.229-14 addresses how taxes are treated when a federal acquisition is covered by the NATO Status of Forces Agreement (SOFA) in Afghanistan. It defines the term “NATO Forces,” explains the tax exemption for NATO Forces and their contractors and subcontractors when work is performed on behalf of or in support of NATO Forces, and identifies the categories of Afghan taxes, customs, duties, fees, and similar charges that must be excluded from the contract price. The clause also makes clear that Afghan legal entities and Afghan residents are not covered by the exemption in the same way, and that Afghan citizens employed by NATO contractors and subcontractors remain subject to Afghan income tax laws, with withholding required when Afghan law says so. Finally, it requires flowdown of the clause to all subcontracts, including those for commercial products and commercial services. In practice, this clause is meant to prevent the U.S. Government from paying contract prices that include taxes the SOFA exempts, while ensuring contractors still comply with Afghan tax withholding obligations for local employees and pass the same tax-treatment rules down the supply chain.