“It always seems impossible until it's done.”

—Nelson Mandela

If you are doing service business in a jurisdiction with a Gross Receipts Tax (“GRT”), like New Mexico or Guam, it is caveat emptor time. A GRT is a tax on extra service contract revenue imposed by the state of local government. If the contractor gets additional wage or fringe benefit reimbursement, then the contractor must pay a portion of that extra revenue to the taxing authority.

Under the Service Contract Act (“SCA”), federal service contractors are supposed to get price adjustments for increases in wages and fringe benefits mandated by certain federal laws, regulations or contract. This includes all kinds of enumerated federal and state taxes like FICA, FUTA, SUTA and worker’s compensation. However, while some specific additive payroll taxes are picked up and adjusted under the SCA, the situation with the GRT and other similar state or local taxes is fraught with uncertainties. They are not specifically listed as recoverable. The argument must be that they are like kind. But that argument has generally not succeeded.

If you are not careful, you will join a line of contractors who have run afoul of a GRT and SCA Price Adjustment clause rules.  Whether you recover can depend on the facts and your contract terms. In particular, does your contract have the standard FAR 52.229-3 or -4 clauses on FEDERAL, STATE, AND LOCAL TAXES?  Those clauses purport to say you have included all applicable state taxes in your contract price.  

The case law is littered with a few bodies of contractors who have tried and failed to get a recovery for GRT costs. In Holmes & Narver, ASBCA Nos. 52429, 52551, 02-1 BCA ¶ 31,849 at 157,395, the contractor was stymied in the recovery for the GRT as a mistake in bid or misrepresentation. And, there is a second case, Ellis Environmental Group, LC, ASBCA Nos. 54066, 54067 (4/9/07), which  also rejected the mistake in bid claim for the omission of the GRT costs from a bid price.  The Board stated the following rule of law: 

In Holmes & Narver Constructors, Inc., ASBCA Nos. 52429, 52551, 02-1 BCA ¶ 31,849 at 157,395, we stated with respect to this clause as follows:  

[T]he contract in this case incorporated the FAR’s standardized FEDERAL, STATE, AND LOCAL TAXES clause, which expressly warned that “[t]he contract price includes all applicable Federal, State, and local taxes and duties.” (SOF 15) Such a clause “places upon the contractor the burden of determining which taxes are applicable and of including in his bid price a sufficient amount to cover the payment of those taxes.” Eller Constr., Inc., ASBCA No. 22654, 78-2 BCA ¶ 13,511 at 66,199 (interpreting predecessor clause to FAR 52.229-3). In other words, “a bidder must include the amount of a tax in its bid or assume the risk of paying it without reimbursement since the duty of determining tax applicability is on the bidder.” Gibson Motor & Machine Serv., Inc., ASBCA No. 24363, 80-1 BCA ¶ 14,442 at 71,202. See also Allied Painting & Decorating Co., ASBCA No. 43287, 93-3 BCA ¶ 26,218 at 130,483, aff’d, 39 F.3d 1197 (Fed. Cir. 1994) (table).  

Because FAR 52.229-4 unambiguously required appellant to include all taxes in the contract price, the sole argument left was for appellant to argue that it is not bound by that clause due to its own unilateral mistake.  

Nonetheless, there is a dearth of cases which focus exclusively on the SCA Price Adjustment clause and GRT claims. However, here too the government has staked out grounds that there is no SCA price adjustment for the GRT cost. One example is the Air Force's SCA Price Adjustment Guide which states: 

Increases in general liability insurance, state gross receipts taxes, and bonding costs are also not allowable as part of an SCA adjustment (despite such costs being calculated based on total wages or total revenue).

 And there at least one more item. The Ask A Professor website has this Q&A: 

FAR 52.222-43, Fair Labor Standards Act and Service Contract Act -- Price Adjustment (Multiple Year and Option Contracts) (Nov 2006), provides the authority to adjust the contract price for SCA-covered labor; this clause can only be included in firm-fixed price contracts or labor-hour contracts.

 FAR 52.222-43(e) states that any adjustment will be limited to increases or decreases in wages and fringe benefits…, and the accompanying increases or decreases in social security and unemployment taxes and workers’ compensation insurance, but shall not otherwise include any amount for general and administrative costs, overhead, or profit.  

Certain tax increases must "accompany" (be caused by) the Wage Determination (WD) increase.  The clause provides no relief from tax increases from other causes or tax increases on a Contractor's total payroll.

* * * 

…. Increases in general liability insurance, state gross receipts taxes and bonding costs are also not allowable as part of an SCA adjustment (despite such costs being calculated based on total wages or total revenue)" 

 https://dap.dau.mil/aap/pages/qdetails.aspx?cgiSubjectAreaID=21&cgiQuestionID=125535 (Posted - 8/8/2016 3:33:00 PM). 

So that is what a contractor seeking a price adjustment is up against. There is a wall to scale. Nothing is definitive on the issue. But there is no evidence any contractor has successfully scaled the wall to date.