Can you think of any situation where allowing a contractor to apply sales tax to any cost other than the bare cost of material and equipment?
The following response is based solely on the question and background information provided. As we do not have all the facts particular to your situation, we highly recommend you consult, as applicable, your contracting officer and/or Legal Office for further guidance.
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If sales tax is on an invoice for allowable, allocable work, it is chargeable to the contract. But there is no basis for sales tax on rates and factors, the contractor's labor, and especially not profit. The simplest way to resolve this is to ask for the documents that show where these sales taxes were charged and the proof of payment made to the state, county and/or municipality.
If the contractor can show you documentation, you may have a basis for defective pricing case or potentially a fraud case.