California Issues Guidance Regarding Taxability of Sales to U.S. Government

The California Department of Tax and Fee Administration has issued a publication discussing the treatment of sales to the U.S. Government for California sales and use tax purposes. The publication explains that sales and leases of merchandise to the U.S. government are generally exempt from California sales and use tax. This exemption includes sales and leases to:

  • The United States or its unincorporated agencies and instrumentalities
  • Any incorporated agency or instrumentality of the United States that is wholly owned either by the United States or by a corporation that is wholly owned by the United States
  • The American National Red Cross, including its chapters and branches
  • Incorporated federal instrumentalities that are not wholly owned by the United States, unless federal law permits taxing them

Sales to individual members of the armed services do not qualify for the exemption even if the merchandise is billed through an exempt organization such as a service exchange or officers’ mess. Also, sales to State of California agencies and state political subdivisions (counties, cities, and special districts such as irrigation, fire, and school districts) are generally taxable, even if the purchase is made using federal funds.

Similar guidance has been issued by other states regarding accepting payment from the U.S. Government and specifically buy use of the GSA SmartPay 3 program. In order to document exempt transactions with federal employees, vendors must keep the following information in addition to a receipt:

  • Federal employee’s name
  • Federal government agency’s name
  • Type of agency card (e.g., purchase card, fleet card, travel card, integrated card)
  • Expiration date of credit card
  • Name of credit card company
  • The sixth digit of the card (for Travel or Tax Advantage Travel cards)

(Publication 102, Sales to the United States Government, California Department of Tax and Fee Administration, November 2018)

Posted on December 11, 2018