If these costs are paid by the public agency, they should be included in the total contract cost on an amortized basis. Some contracting will create new revenue for the public agency. New revenue should be deducted from the total cost of contract service for comparison to the cost of in-house service. Revenues may be the result of government asset sales, income from operations, or new tax revenues generated by the private contractor. Foregone Tax Revenue.
Private contractors pay taxes.
They pay corporate income tax, property tax, sales tax, user fees and other taxes, which accrue to the public. Public-sector providers pay very few, if any, of these taxes. Public officials should consider tax revenue in the decision of whether to contract for services. Governments in New Zealand and Australia assess a tax equivalency charge to public units in managed competitions. Other factors, such as performance, are important when making decisions about who will provide a service.