Publication 102, Sales to the United States Government
Exempt Sales and Leases
Your sales and leases of merchandise to the United States government are generally exempt from California sales and use tax. This includes sales and leases to:
- The United States or its unincorporated agencies and instrumentalities. Examples include: the Postal Service, branches of the armed services, military exchanges, federal courts, and agencies such as the U.S. Forest Service, and the Department of Housing and Urban Development.
- 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. Examples include: the Resolution Trust Corporation and the Federal National Mortgage Association (Fannie Mae).
- 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. Examples of the former include: federal reserve banks, federal credit unions, federal land banks, and federal home loan banks.
If you are unsure whether an agency, corporation, or other organization fits into one of the categories listed here, please contact the California Department of Tax and Fee Administration (CDTFA) Customer Service Center for assistance at 1-800-400-7115 (CRS:711).
Please note: Sales to individual members of the armed services do not qualify for this exemption even if the merchandise is billed through an exempt organization such as a service exchange or officers’ mess. In addition, 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. This holds true even if the purchase is made using federal funds.
Please note: This publication summarizes the law and applicable regulations in effect when the publication was written, as noted. However, changes in the law or in regulations may have occurred since that time. If there is a conflict between the text in this publication and the law, decisions will be based on the law and not on this publication.
U.S. Government Bankcards
The GSA SmartPay Program provides charge card services to federal government agencies and organizations for use in conducting official business. All U.S. government debit and credit cards:
- Are issued to federal employees,
- Bear 16-digit account numbers with unique prefixes,
- Contain government-designed artwork,
- Are imprinted with "United States of America" and for "Official Government Use Only," and
- Contain a "SmartPay logo."
GSA SmartPay3 — Effective November 30, 2018, through November 29, 2031
GSA SmartPay3 credit card brands are MasterCard, Visa, Wright Express (WEX), and Voyager, effective November 30, 2018, through November 29, 2031. These cards are issued by Citibank and U.S. Bank.
The unique prefix for each card type is listed below:
(WEX) and Voyager
All purchases made with a "Purchase" or "Fleet" card are billed directly to the U.S. government and are exempt from sales or use tax. This exemption also applies to the non-bulk purchases of diesel fuel.
Purchases billed directly to the federal employee are not considered sales to the U.S. government and are subject to sales or use tax.
Purchases made using "Travel" cards may be billed directly to the federal government (exempt from sales or use tax) or to the federal employee (subject to sales or use tax). For travel cards:
- If the sixth digit of the account number on the card is 1, 2, 3, or 4, purchases are billed to the federal employee and are subject to sales or use tax.
- If the sixth digit is 0, 6, 7, 8, or 9, purchases are billed to the U.S. government and exempt from sales or use tax.
Purchases may also be made using "Integrated" cards. Purchases made using "Integrated" cards may be billed directly to the federal government or to the federal employee. Unlike the GSA SmartPay2 contract, the number structure for "Integrated" cards under GSA SmartPay3 is specific to each agency/organization using the card. For more information, visit the GSA SmartPay website at https://smartpay.gsa.gov/.
If a card is used to make a purchase and that card does not cover that type of purchase, generally, purchases are automatically denied.
Sales to individuals insured under the Medicare program
Your sales to individuals insured under Part A of the Medicare program are tax-exempt when Medicare pays you directly. However, your sales to individuals covered under Medicare Part B do not qualify for this exemption, even when the patient assigns the claim for reimbursement to you. Please see Regulation 1591, Medicines and Medical Devices, for additional information.
Sales to federal contractors
Businesses working under contract to the federal government are usually not considered agents of the United States. Consequently, sales to those contractors do not qualify as tax-exempt sales to the U.S. government. However, federal supply contractors may issue a resale certificate when they buy tools, equipment, direct consumable supplies, and overhead materials that they will use on a government contract, provided that title to the property passes to the U.S. government before the contractor uses it. For more information, see Regulation 1618, United States Government Supply Contracts.
U.S. government construction contractors are considered end users of materials and fixtures they furnish and install as part of their government construction contracts. Sales of materials, fixtures, and supplies to contractors are generally taxable. However, U.S. government contractors are considered retailers of machinery and equipment they furnish in fulfilling their government contracts. They may issue a resale certificate for the purchase of these items, provided title to the machinery or equipment will pass to the United States before the contractor makes any use of it. For additional information, see Regulation 1521, Construction Contractors, publication 9, Construction and Building Contractors, and the Tax Guide for Construction Contractors.
Sales to federal instrumentalities not wholly owned by the United States
Sales tax does not apply to sales to certain incorporated federal instrumentalities not wholly owned by the United States (Regulation 1614, subdivision (a)(4)). Examples of such entities are federal credit unions, federal reserve banks, federal land banks, and federal home loan banks. When a construction contractor enters into a contract with one of these entities, the construction contractor is not considered a United States Construction Contractor (see: Sales and Use Tax annotation 565.0276).
The general rules for construction contracts apply with respect to such instrumentalities not wholly owned by the United States. The contractor is generally the consumer of materials and retailer of fixtures furnished and installed according to the contract. Therefore, tax generally applies to sales of materials to, and used by the contractor under the contract, but tax would not apply to the sales of fixtures and equipment to such instrumentalities. For examples of what are considered materials or fixtures and equipment, please see publication 9, Construction and Building Contractors.
Special Taxes and Fees
Special taxes and fees
The State of California imposes, in addition to sales and use tax, several special taxes and fees. How these other taxes and fees apply to sales to the United States government vary. Below are the general rules for the application of the taxes and fees administered by the California Department of Tax and Fee Administration (CDTFA).
Motor Vehicle Fuel Tax
Sales of motor vehicle fuel to the United States and its agencies and instrumentalities, are subject to the motor vehicle fuel tax except when sold to the United States government armed forces for use in ships or aircrafts, or for use outside of California. A licensed supplier making an exempt sale of motor vehicle fuel without tax should retain supporting documentation from the armed forces branch purchasing the motor vehicle fuel such as a U.S. government purchase order. Any person who makes sales of tax-paid motor vehicle fuel to the United States armed forces for use in ships or aircraft, or use outside of California may file a claim for refund for the tax paid with the California State Controller. Or, in lieu of filing a claim for refund with the State Controller, a licensed supplier may claim a credit on their CDTFA Supplier of Motor Vehicle Fuel Tax Return.
Diesel Fuel Tax
Sales of diesel fuel to the United States and its agencies and instrumentalities, are not subject to the diesel fuel tax. Agencies and instrumentalities of the United States include, but are not limited to: the American Red Cross; U.S. Postal Service; branches of the armed services; and military exchanges and agencies such as the USDA Forest Service and the Department of Housing and Urban Development.
A licensed supplier making sales to the United States should retain government purchase orders or other supporting documentation and may claim an exemption on their Diesel Fuel Tax Return. If the diesel fuel tax was paid on the diesel fuel sold to the United States, its agencies, or its instrumentalities, in lieu of filing a claim for refund with the State Controller, a licensed supplier may claim a credit on their CDTFA Supplier of Diesel Fuel Tax Return. A licensed ultimate vendor may claim a refund on its CDTFA Diesel Fuel Ultimate Vendor Report/Claim for Refund.
An unlicensed person may file a claim for refund for the gallons of diesel fuel it sold ex-tax to the United States and its agencies and instrumentalities. The claim for refund may only be filed by the person that owned the tax-paid diesel fuel and directly sold to the United States or its agencies and instrumentalities.
Emergency Telephone Users Surcharge
The Emergency Telephone Users Surcharge is not imposed upon the United States, its agencies and instrumentalities, its unincorporated agencies or instrumentalities, the American National Red Cross, or a corporation wholly owned by the United States. For additional information, see our Tax Guide for Sellers of Prepaid Mobile Telephony Services (MTS) and Telecommunication Service Suppliers
Sales to the United States, its agencies and instrumentalities are not subject to the California's environmental fee. For additional information, see publication 90, Environmental Fee.
Covered Electronic Waste Recycling (eWaste) Fee
Sales to government entities are subject to the eWaste fee. For additional information, see publication 95, Electronic Waste Recycling Fee.
California Tire Fee
Sales to government entities are subject to the California Tire Fee. For additional information, see publication 91, California Tire Fee.
Lead-Acid Battery Fees
Government entities are subject to both the California battery fee and manufacturer battery fee. The definition of a person who is subject to the fees, includes the United States and its agencies and instrumentalities to the extent permitted by law. For additional information, see our Tax and Fee Guide, Lead Acid Battery Fees.
Underground Storage Tank Fee
The underground storage tank maintenance fee is not imposed upon the United States, its agencies and instrumentalities, its unincorporated agencies or instrumentalities, or a corporation wholly owned by the United States. For additional information, see publication 88, Underground Storage Tank Fee.
Documentation required for your records
When you make a tax-exempt sale or lease, be sure to retain documentation that clearly shows that the transaction is tax-exempt. For sales to the U.S. government, documentation can include items such as:
- Government purchase orders,
- A copy of a U.S. government credit card or credit card number (see U.S. Government Bankcards tab to determine if the card qualifies),
- Documents showing direct payment by the U.S. government, and
- Shipping and related documents if there is a question that the merchandise might have been sold directly to an individual in the armed services rather than to the U.S. government.
For sales to incorporated federal instrumentalities not wholly owned by the United States, such as federal reserve banks, federal credit unions, federal land banks, and federal home loan banks, and other entities that fall within Regulation 1614, subdivision (a)(4), the seller should obtain an exemption certificate according to Regulation 1667, in addition to any of the above listed documents that are available.
For more information
You may view and download the publications in PDF format below.
1521 Construction Contractors
1591 Medicines and Medical Devices
1614 Sales to the United States and Its Instrumentalities
1618 United States Government Supply Contracts
1667 Exemption Certificates
9 Construction and Building Contractors
39A Emergency Telephone Users (911) Surcharge and Prepaid 911 Surcharge
88 Underground Storage Tank Fee
90 Environmental Fee
91 California Tire Fee
95 Electronic Waste Recycling Fee