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Hawaii Excise Tax

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We placed an order for Radio equipment to a stateside company for delivery to Hawaii. The order was competitive with less than two hundred dollars difference between the low bidder and 2nd low. The Radios were delivered and the invoice was sent to finance which included a 4% sales tax. Finance correctly did not pay the sales tax but otherwise paid the invoice in full.

The vendor is now telling me the 4% sales tax is really an excise tax the state of Hawaii charges all companies doing business in Hawaii or with customers in Hawaii. I have some experience with this excise tax and know it is legit, but for me the real question is, the vendor did not include this 4% cost ($1,048.97) in his quote and although legit, to pay him after the fact would mean his total price would now exceed the price of the 2nd low bidder.

My first take on this issue is to not authorize this tax based on the fact he did not include this cost in his original quote. On the other hand, since this is a legitimate cost the vendor has to incur, he may be entitled to recovery of this cost.

Comments are appreciated

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By "order", do you mean purchase order (from the open market) or delivery order (under an indefinite delivery contract)?

If you mean purchase order, did the order contain FAR 52.212-4 or FAR 52.229-3?

If you mean delivery order, does the indefinite delivery contract contain FAR 52.212-4 or FAR 52.229-3?

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Well, I suggest you find that out.

I agree with Don.

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FAR 52.212-4 and 52.229-3 both say "The contract price includes all applicable Federal, State, and local taxes and duties." 52.212-4 is required in all contracts for commercial items. 52.229-3 is required in contracts if --

(1) The contract is to be performed wholly or partly in the United States or its outlying areas;

(2) A fixed-price contract is contemplated; and

(3) The contract is expected to exceed the simplified acquisition threshold.

If your contract contains one or the other of these clauses, it doesn't leave much room for paying anything additional, absent a "mutual mistake," see FAR 33.205.

But, see:

- FAR 29.302(a) -- "Generally, purchases and leases made by the Federal Government are immune from State and local taxation. Whether any specific purchase or lease is immune, however, is a legal question requiring advice and assistance of the agency-designated counsel,"

- FAR 33.205(a) -- "In case of a question whether the contracting officer has authority to settle or decide specific types of claims, the contracting officer should seek legal advice," and

- FAR 33.205( B) -- "Due to the complex legal issues likely to be associated with allegations of legal entitlement, contracting officers shall make written decisions, prepared with the advice and assistance of legal counsel, either granting or denying relief in whole or in part."

Looks like you may need to spend some time with your attorney.

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