This guide explains FAR Part 29 of the Federal Acquisition Regulation (FAR), with practical examples for federal contractors.
Watch the FAR Part 29 video
FAR Part 29: federal, state, and foreign taxes
A supplier quietly removes sales tax from a quote, because the customer is the federal government. It feels logical. But is it correct? FAR Part 29 addresses taxes in federal acquisitions. Its scope is tax clauses, immunity, exemptions and refunds. It is not a complete tax code. Map FAR Part 29 in three pieces. FAR Subpart 29.2 covers federal excise taxes.
FAR Subpart 29.3 covers state and local taxes. FAR Subpart 29.4 covers contract clauses for domestic and foreign taxes. That is the codified baseline. Agencies may apply it with deviations, so check the official FAR Part deviation guide on acquisition.gov and your solicitation to see which text governs your contract. Three ideas keep your pricing honest. One: tax in the price. For federal excise taxes, FAR 29.201 directs tax-exclusive solicitation when an exemption is known, and tax-inclusive solicitation when no exemption exists.
Government immunity does not automatically extend to contractors
This federal excise-tax rule does not establish a state or local sales-tax exemption. Not every federal purchase is free of federal excise tax. A federal customer does not automatically mean no tax. The specific tax and its exemption rules decide. Two: keep three things apart. Tax built into your price, tax that may be recoverable, and tax invoiced directly are separate items.
Do not blend them. Three: foreign taxes. For performance abroad, relief may come through foreign tax relief agreements. Questions about those go through the contracting officer, who obtains agency counsel advice, as FAR 29.101 describes. Now, immunity. Under FAR 29.303, prime contractors and subcontractors are not normally government agents for the purpose of claiming immunity from state or local taxes. So a contractor's purchase exemption must rest on applicable state or local law, not on government immunity.
A contract clause allocates risk. It does not create a general exemption. Government-owned property in a contractor's possession raises distinct tax issues. The contractor raises those with the contracting officer, who obtains agency counsel advice, not a guess. Who handles what? Under FAR 29.101, the agency designates counsel for tax problems and foreign relief agreements. The contractor relies on a qualified tax professional for its own liability.
Read tax clauses and coordinate unresolved questions
Now a worked example. Maple Ridge Supply is quoting forty docking stations. Three situations come up. Situation one: a sale directed to the government. Read the solicitation. If it is tax exclusive because an exemption is known, price without that tax and note the basis. Situation two: Maple Ridge buys components from its own supplier. That is a contractor purchase. Any exemption must come from applicable state or local law, not from the government's immunity.
Situation three: some work is performed abroad. Foreign taxes may be handled through relief agreements, so ask the contracting officer, who obtains agency counsel advice, before assuming either way. Document each conclusion before pricing: the clause relied on, the law cited, and who advised. Keep that record with the quote file. A common mistake is copying an exemption from an old quote, or treating every federal customer as exempt.
Document tax assumptions before pricing
The exemption must fit the specific tax and transaction. Another mistake is assuming a contract clause grants an exemption. A clause allocates risk between the parties. It does not create relief the law does not provide. Your action checklist. First, read the FAR Part 29 clauses and the solicitation. Note whether pricing is tax exclusive or inclusive, and check for an agency deviation. Second, separate taxes in price, recoverable taxes, and taxes invoiced directly.
Third, confirm any contractor purchase exemption rests on state or local law. Fourth, send government property, foreign, or unclear questions to the contracting officer, who obtains agency counsel advice, or a qualified tax professional. Your next move: pick one open quote this week and run this checklist. For more practical government contracting guidance, visit govsuccess.com. This guide is general education, not legal or tax advice.
Confirm requirements with the official FAR text, your contracting officer, and a qualified professional.
Official sources
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