Sales to the United States Government (Publication 102)
Federal Contractors

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 United States (U.S.) government. However, federal supply contractors may issue a resale certificate when they buy tools, equipment, direct consumable supplies, and overhead materials 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 additional 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 U.S. 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 U.S. construction contractor as defined in Regulation 1521 (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 U.S. 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.