Tax Provisions in Services Agreements

You’ll often see service agreement provisions making a particular party responsible for taxes. This post breaks down what these provisions do and how you should handle them.

A typical provision might read something like this:

Any charges payable under this Agreement are exclusive of any applicable taxes, tariff surcharges or other like amounts assessed by any governmental entity arising as a result of the provision of the Services by the Agency to the Client under this Agreement and such shall be payable by the Client to the Agency in addition to all other charges payable hereunder.

That is more than a mouthful and could certainly be written more simply. But the upshot is pretty straight forward:

  • This says that (i) that the Agency’s fee does not include any applicable taxes and (ii) if taxes are assessed with respect to the services provided, that the Client is responsible for paying those taxes.
  • The taxes at issue here are things like sales and use taxes. For these types of taxes (if they apply to your transaction) the Agency has a duty to collect those taxes from the Client and remit them to the government.
  • Note that this IS NOT referring to income taxes imposed on the Agency’s earnings. You are still responsible for those.
  • Be sure to supplement a provision like this with a clause that allows you to invoice for taxes after the project is complete.

A simpler provision that incorporates these recommendations might read:

Client shall pay Agency the fees described in the SOW plus any applicable taxes, even if assessed after the project is complete.

See this summary for more posts examining the Anatomy of a Services Agreement.