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  • Question

    Is the contractor exempt from paying Puerto Rico state taxes on material coming in on a ship from the U.S.A (New Jersey) that will be used on their federal government construction contract on federal land in Puerto RIco?


    Answer

    Your situation is addressed in FAR 29.305 -- State and Local Tax Exemptions.
     
    (a) Evidence of exemption. Evidence needed to establish exemption from State or local taxes depends on the grounds for the exemption claimed, the parties to the transaction, and the requirements of the taxing jurisdiction. Such evidence may include the following:
     
    (1) A copy of the contract or relevant portion.
     
    (2) Copies of purchase orders, shipping documents, credit-card-imprinted sales slips, paid or acknowledged invoices, or similar documents that identify an agency or instrumentality of the United States as the buyer.
     
    (3) A U.S. Tax Exemption Form (SF 1094).
     
    (4) A State or local form indicating that the supplies or services are for the exclusive use of the United States.
     
    (5) Any other State or locally required document for establishing general or specific exemption.
     
    (6) Shipping documents indicating that shipments are in interstate or foreign commerce.
     
    Taxes can be very complex and carry legal implications if not handled correctly.  Regardless of what you determine here with paying or not paying the state taxes, this is definitely a matter that you will want to ensure is coordinated with concurrence of your legal staff.

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