Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2013
 

Sales and Use Tax Annotations


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U

565.0000 UNITED STATES CONTRACTORS

Annotation 565.1292

(e) TITLE-PASSAGE CLAUSES

565.1292 Impact of DCAA Audits of Federal Contractors. Audits by the Defense Contract Administration and Audit Agency generally have no impact on tax paid to the Board by federal contractors because of disallowed cost.

Under FAR and DOD title clauses, passage of title to the U.S. government is not contingent upon the government reimbursing the contractor for the purchase price of the property. Therefore, the subsequent disallowance of the expense, especially pursuant to a DCAA Audit, cannot be held to cancel the original transference of the title. The DOD FAR Supplement, Subpart 242.70, does not give the DCAA authority to rescind contracts. The only remedy which the DOD FAR Supplement outlines is that of voluntary refunds, either unsolicited or made pursuant to a request by the government. Generally, a voluntary refund is to be used as a set-off against future debt. The regulations do not contemplate the unwinding of property transfers as a matter of course.

In the case of a disallowance where a refund is sought from the contractor, what happens, at most, is a forced re-sale of the property by the government back to the contractor. Such transactions are exempt from tax under section 6402. In case of nondurable overhead items, there is a likelihood they do not exist. There can be no transfer of title to property not in existence. 4/10/91.