Contract tax problems are essentially legal in nature and vary widely. Specific tax questions must be resolved by reference to the applicable contract terms and pertinent tax laws and regulations. Therefore, when tax questions arise, COs must request assistance from assigned Legal Counsel.
To ensure consistent treatment within the Postal Service, the senior legal counsel, Contract Protests and Policies, must be consulted before negotiating with any taxing authority for the purpose of:
Usually, suppliers are responsible for settling tax applicability questions in consultation with authorities, independent of Postal Service involvement. When the constitutional immunity of the Postal Service from state or local taxation is at issue, however, suppliers should be discouraged from negotiating independently with taxing authorities, and assigned Legal Counsel should be consulted, if the contract is either:
Federal excise taxes are levied on the sale or use of particular supplies and services. Subtitle D of the Internal Revenue Code of 1954, Miscellaneous Excise Taxes, 26 U.S.C. 4041 et seq., and its implementing regulations, 26 CFR 40—299, cover miscellaneous federal excise tax requirements. Questions on federal excise taxes should be directed to Legal Counsel. The most common excise taxes are:
No federal manufacturers’ or special fuels excise taxes are imposed when the supplies are for any of the following:
COs must solicit price proposals on a tax-exclusive basis when it is known that the Postal Service is exempt from federal excise taxes and the exemption is at least $100. Proposals must be solicited on a tax-inclusive basis when no exemption exists or the exemption is less than $100.
State and local taxes means taxes levied by the states, the District of Columbia, Puerto Rico, possessions of the United States, or their political subdivisions.
Although the Postal Service, as an establishment of the federal government, is constitutionally immune from state and local taxes imposed directly on it, the applicability of particular taxes is a legal question often requiring the advice and assistance of Legal Counsel. The applicability of a tax in a postal transaction may depend on the nature of the tax and whether its legal incidence, as opposed to its economic burden, is on the Postal Service as purchaser. In many instances in which the Postal Service is not constitutionally exempt, it may take advantage of statutory exemptions provided by state or local law.
Prime suppliers and subcontractors may not normally be designated as agents of the Postal Service for the purpose of claiming exemption from state and local taxes. Such designation, when appropriate, must be accomplished in the RFP, and only after coordination with assigned Legal Counsel.
Whenever a state or locality asserts its right to tax Postal Service property directly or to tax a supplier’s possession or use of, or interest in, Postal Service property, the CO must obtain advice from assigned Legal Counsel concerning the appropriate course of action.
Under paragraph k of Clause 4-1: General Terms and Conditions or if the contract includes Clause 7-6: Federal, State, and Local Taxes, Clause 7-7: Federal, State, and Local Taxes (Short Form), or Clause 7-8: Federal, State, and Local Taxes (Noncompetitive Contract), it is the supplier’s responsibility to determine to what extent state and local taxes are applicable to its proposal. The CO should make no representations concerning the applicability of any state or local tax, and the Postal Service should have no involvement in resolving any dispute between the supplier and a taxing authority concerning tax applicability.
As an exception, regarding fixed-price contracts, the Postal Service must, upon the supplier’s request, furnish the supplier evidence to establish exemption from any specified tax if a reasonable basis for the exemption exists. When requested, the CO may furnish such evidence under cost-reimbursement contracts. Evidence may also be furnished upon request under other contracts that contain no tax provision if the supplier (a) certifies that the contract price does not include the tax or, if the transaction or property is granted an exemption, (b) consents to a reduction in the contract price.
Evidence of exemption may include:
The resolution of tax issues requiring special consideration must be coordinated with Legal Counsel in the course of RFP preparation. The following are examples of state and local tax issues that may require special contract treatment:
