FAR Section 29.304(d)

SUBPART 29.3—STATE AND LOCAL TAXES

Subpart 29.3—State and Local Taxes
29.300 Scope of subpart.
This subpart prescribes the policies and procedures regarding the exemption or immunity of Federal Government purchases and property from State and local taxation.
29.301 [Reserved]
29.302 Application of State and local taxes to the
Government.
(a) Generally, purchases and leases made by the Federal
Government are immune from State and local taxation.
Whether any specific purchase or lease is immune, how-ever,
is a legal question requiring advice and assistance of the
agency-designated counsel.
(b) When it is economically feasible to do so, executive
agencies shall take maximum advantage of all exemptions
from State and local taxation that may be available. If appropriate, the contracting officer shall provide a Standard
Form 1094, U.S. Tax Exemption Form (see Part 53), or other
evidence listed in 28.305(a) to establish that the purchase is
being made by the Government.
29.303 Application of State and local taxes to
Government contractors and subcontractors.
(a) Prime contractors and subcontractors shall not normally be designated as agents of the Government for the purpose of claiming immunity from State or local sales or use
taxes. Before any activity contends that a contractor is an
agent of the Government, the matter shall be referred to the
agency head for review. The referral shall include all pertinent
data on which the contention is based, together with a thorough analysis of all relevant legal precedents.
(b) When purchases are not made by the Government itself,
but by a prime contractor or by a subcontractor under a prime
contract, the right to an exemption of the transaction from a
sales or use tax may not rest on the Government’s immunity
from direct taxation by States and localities. It may rest
instead on provisions of the particular State or local law
involved, or, in some cases, the transaction may not in fact be
expressly exempt from the tax. The Government’s interest
shall be protected by using the procedures in 29.101.
(c) Frequently, property (including property acquired
under the progress payments clause of fixed-price contracts or
the Government property clause of cost-reimbursement contracts) owned by the Government is in the possession of a contractor or subcontractor. Situations may arise in which States
or localities assert the right to tax Government property
directly or to tax the contractor’s or subcontractor’s possession of, interest in, or use of that property. In such cases, the
contracting officer shall seek review and advice from the

29.304
agency-designated counsel on the appropriate course of
action.
29.304 Matters requiring special consideration.
The imposition of State and local taxes may result in special contract considerations including the following:
(a) With coordination of the agency-designated counsel, a
contract may (1) state that the contract price includes or
excludes a specified tax or (2) require that the contractor take
certain actions with regard to payment, nonpayment, refund,
protest, or other treatment of a specified tax. Such special
treatment may be appropriate when there is doubt as to the
applicability or allocability of the tax, or when the applicability of the tax is being litigated.
(b) The applicability of State and local taxes to purchases
by the Federal Government may depend on the place and
terms of delivery. When the contract price will be substantial,
alternative places and terms of delivery should be considered
in light of possible tax consequences.
(c) Indefinite-delivery contracts for equipment rental may
require the contractor to furnish equipment in any of the
States. Since leased equipment remains the contractor’s property, States and local governments impose a wide variety of
property, use, or other taxes on equipment leased to the Government. The amount of these taxes can vary considerably
from jurisdiction to jurisdiction. See 29.401-1 for the prescription of the contract clause to be included in contracts
when delivery points are not known at time of contracting.
(d) The North Carolina State and local sales and use tax.
(1) The North Carolina Sales and Use Tax Act authorizes
counties and incorporated cities and towns to obtain each year
from the Commissioner of Revenue of the State of North
Carolina a refund of sales and use taxes indirectly paid on
building materials, supplies, fixtures, and equipment that
become a part of or are annexed to any building or structure
erected, altered, or repaired for such counties and incorporated cities and towns in North Carolina. In United States v.
Clayton, 250 F. Supp. 827 (1965), it was held that the United
States is entitled to the benefit of the refund, but must follow
the refund procedure of the Act and the regulations to recover
what it is due.
(2) The Act provides that, to receive the refund, claimants must file, within 6 months after the claimant’s fiscal year
closes, a written request substantiated by such records,
receipts, and information as the Commissioner of Revenue
may require. No refund will be made on an application not
filed within the time allowed and in such manner as the Commissioner may require. The requirements of the Commissioner are set forth in regulations that provide that, to
substantiate a refund claim for sales or use taxes paid on purchases of building materials, supplies, fixtures, or equipment
by a contractor, the Government must secure from the contractor certified statements setting forth the cost of the prop29.3-1