There is a great opportunity for government contractors to save on sales or use taxes paid for consumables used on government contracts. The U.S. Government is not subject to sales/use tax, however, government contractors typically pay tax on their consumable purchases. Government contractors may be paying tax on many of their overhead purchases needlessly.
Sales Tax Savings
Everything from raw materials to office supplies used to make government contracted items can be exempt from a certain amount of sales/use tax. This is due to certain title passing clauses in the government contracts. For example, a contractor may be paying 100% of the percentage of sales tax on items they need only pay 20%.
Federal Acquisition Regulations (FAR) govern the US Government’s purchases, and these regulations are strictly followed. Many federal contracts outline a resale exemption for a title transfer of contractor-acquired property. There are specific clauses in a contract that have been accepted by state tax authorities to establish an exemption for the contractor. This information can easily be overlooked. The clause numbers vary, depending on the type of contract whether it be a fixed price, cost reimbursement, etc.
In many states, “title transfer” is equivalent to “sale”, and therefore is a purchase for resale by the contractor. Transfer of possession is not always necessary for the resale exemption to apply. The exemption applies to many items depending on the state. Though the process can be complicated and cumbersome, Anders has the expertise to determine quickly if this opportunity is right for you.
Lower Sales/Use Tax, Bigger Competitive Advantage
The Anders State and Local Tax Services Group can help government contractors make sense of their contract to determine their resale exemption. Our sales and use tax advisors evaluate overhead purchases to redeem sales/use tax paid, generally going back 3-4 years. The top government contractors take advantage of this opportunity and can factor the savings into their bids, therefore outbidding contractors who are unaware of the opportunity, or who do not take advantage of it.
Many contractors are also unaware that they can also be reimbursed by the federal government for the cost to acquire the refund as it reduces the cost the federal government pays.
Anders has the in-house legal expertise to pursue these refunds, and can do so on a contingency basis. We offer valuable insights on a wide range of issues that impact the growth and visibility of your organization. Contact an Anders advisor to learn more about a reverse audit for your business, or learn more about Anders State and Local Tax Services.All Insights