FAR Part 29: Taxes

In plain English

FAR Part 29 covers how the government handles taxes in contracts, including federal, state, local, and foreign taxes. It explains when the government is exempt from taxes, how to claim exemptions, and what tax clauses to include in contracts. For contractors, it matters because taxes can affect contract price, performance, and compliance obligations.

Key rules

• Contracting officers must consult agency legal counsel for tax questions and before negotiating with taxing authorities. (29.101)
• The Federal Government is generally immune from State and local taxes, and agencies should take maximum advantage of available exemptions. (29.302)
• Contractors are not normally considered agents of the Government for claiming immunity from State or local sales or use taxes. (29.303)
• Specific tax clauses must be included in certain contracts, such as fixed-price contracts over the simplified acquisition threshold performed in the U.S., foreign fixed-price contracts, and construction contracts in North Carolina. (29.401-2, 29.401-3, 29.402-1)
• For certain foreign procurements, the government withholds a section 5000C excise tax, and contractors must submit IRS Form W-14. (29.204, 29.402-3)
• Contracts performed in Afghanistan may require specific tax clauses depending on whether they are for U.S. Forces or NATO. (29.402-4)

Who does what

In practice

• When bidding, check if the solicitation includes a tax clause and understand how taxes affect your price.
• If performing abroad, be aware of foreign tax clauses and potential withholding, such as the section 5000C tax.
• For state and local taxes, do not assume you are exempt just because the government is immune; the exemption may depend on state law or contract terms.

Common pitfalls

• Assuming you are an agent of the Government for tax immunity without proper authorization; this must be referred to the agency head.
• Failing to include required tax clauses in contracts, which can lead to disputes or unexpected tax liabilities.
• Ignoring the need to submit IRS Form W-14 for foreign procurements subject to section 5000C tax.

Written by AI from this part's codified text (2026-10-04); cited sections are checked against the part. A guide, not legal advice: the regulation text, the solicitation and your contract rule.