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Sales And Use Tax Regulations

Title 18. Public Revenues
Division 2. California Department of Tax and Fee Administration — Business Taxes (State Board of Equalization — Business Taxes — See Chapters 6 and 9.9)
Chapter 4. Sales and Use Tax

Article 10. Matters Involving the Federal Government

• 1614 Sales to the United States and Its Instrumentalities
• 1615 United States Contractors [Repealed.]
• 1616 Federal Areas
• 1617 Federal Taxes
• 1618 United States Government Supply Contracts
• 1619 Foreign Missions and Consuls

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Regulation 1614. Sales to the United States and Its Instrumentalities.

Reference: Sections 6381 and 6381.5, Revenue and Taxation Code.

Construction contractors generally, see Regulation 1521.

Motion pictures produced for United States Government, see Regulation 1529.

For Banks Generally, see Regulation 1567.

Leases and rentals in general, see Regulation 1660.

(a) Generally. Sales tax does not apply to sales to:

(1) The United States or its unincorporated agencies and instrumentalities.

(2) Any incorporated agency or instrumentality of the United States wholly owned by either the United States, or by a corporation wholly owned by the United States

(3) The American National Red Cross, its chapters and branches.

(4) Incorporated federal instrumentalities not wholly owned by the United States, unless federal law permits taxing the instrumentality. Examples of incorporated federal instrumentalities exempt from tax are federal reserve banks, federal credit unions, federal land banks, and federal home loan banks.

Application of the use tax to the storage, use, or other consumption of tangible personal property by agencies or instrumentalities of the United States is prohibited unless federal law permits taxing the agency or instrumentality.

Where payment for tangible personal property sold or consumed in this state is made partly by the United States or its instrumentalities and partly by nonexempt persons, the payment is exempt to the extent of the United States' or its instrumentality's share provided it is made directly to the vendor by the United States or its instrumentality. If the nonexempt party makes full payment and then seeks reimbursement from the United States or its instrumentality, the entire amount is taxable even though the United States or its instrumentality may reimburse the party in full or in part.

(b) Army and Air Force Exchange Services, Navy Exchanges, Coast Guard Exchanges, Open Messes, and Officers' Messes. Army and air force exchange services, navy exchanges, coast guard exchanges, open messes, and officers' messes, established pursuant to regulations of the appropriate branch of the armed services are instrumentalities of the United States, and tax does not apply to sales to these organizations.

Tax applies to sales to persons in the armed services of the United States, notwithstanding the circumstance that the merchandise may be billed through any army or air force exchange service, navy exchange, coast guard exchange, or similar organization.

(c) Company and Other Unit Funds. Tax does not apply to sales to the armed services of merchandise purchased with unit and similar funds (company, troop, hospital, recreation, welfare, etc.) where the expenditures are made in accordance with appropriate regulations of the armed services for the general benefit of armed services personnel.

(d) Civilian Welfare Funds. Civilian welfare funds are established and administered under armed services regulations under which post restaurants are also administered. Both are nonappropriated fund activities and are unincorporated governmental instrumentalities. Accordingly, sales tax does not apply to sales made to such organizations properly conducted and operated at military installations in this state in accordance with appropriate regulations.

Any seller to such organizations claiming a transaction as exempt from sales tax must obtain from the purchaser a certificate similar to the following:

(e) The Selective Service System. Tax does not apply to receipts from sales, to State Procurement Officers for selective service authorized by selective service regulations.

(f) Medicare Program. Tax does not apply to the sale of items to a person insured pursuant to Part A of the Medicare Act as such sales are considered exempt sales to the United States.

Tax applies to the sale of an item to a person insured pursuant to Part B of the Medicare Act even though the person assigns the claim for reimbursement to the retailer and the retailer files the claim with, and is paid by, a carrier administering medicare claims under contract with the United States.

(g) Supporting Documents. Any seller claiming a transaction as exempt from tax under Section 6381 must obtain from the purchaser, and retain, a government purchase order or documents demonstrating direct payment by the United States to support the claim.

History—Effective as follows: Use Tax July 1, 1935; Sales Tax August 1, 1933, except Subdivisions (2) and (3) of Division (a), and Division (b) which became effective May 22, 1943.

Adopted as of January 1, 1945, as a restatement of previous rulings.

Amended August 2, 1965, applicable on and after August 1, 1965.

Amended and renumbered February 17, 1970, effective March 22, 1970.

Amended August 17, 1976, effective September 19, 1976. Added a reference, noted change in incidence of sales tax, that tax on banks is legal only where permitted by federal law, and that State law prohibits use tax on banks, and deleted leases as taxable items.

Amended December 7, 1978, effective January 28, 1979. Amends subsection (a), and added new subsection (b) to provide that sales tax does not apply to sales other than leases to the United States or its instrumentalities, and added new subsection (c) to impose sales tax on sales to various corporations. The old subsection (b) and (c) and (d) thru (f) renumbered (d) thru (h) and added new subsection (i).

Amended February 6, 1980, effective March 29, 1980. In (a)(3) deleted last sentence in first paragraph; in (b) added conditions for exemption; in (f) added lines for printed or typed name, and date; added (h), and relettered remaining subsections.

Amended May 9, 1984, effective August 29, 1984. Added new (a)(4); deleted former (b) and (c) and relettered succeeding subdivisions; deleted reference to leases from (b), (c), and (e) and deleted former (j).

Amended March 23, 2004, effective May 25, 2004. In subdivision (a)(4), the word "him" replaced with "the party." Subdivision (g)- phrase "a government remittance advice" replaced with "documents demonstrating direct payment by the United States" and word "his" replaced with "the."

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Regulation 1615. United States Contractors.

[Repealed February 4, 1976, effective April 1, 1976. Added to Regulation 1521.]

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Regulation 1616. Federal Areas.

Reference: Sections 6017, 6021, and 6352, Revenue and Taxation Code.

Public Law No. 817-76th Congress (Buck Act).

Vending machines sales generally, see Regulation 1574.

(a) In General. Tax applies to the sale or use of tangible personal property upon Federal areas to the same extent that it applies with respect to sale or use elsewhere within this state.

(b) Alcoholic Beverages. Manufacturers, wholesalers and rectifiers who deliver or cause to be delivered alcoholic beverages to persons on Federal reservations, shall pay the state retailer sales tax on the selling price of such alcoholic beverages so delivered, except when such deliveries are made to persons or organizations which are instrumentalities of the Federal Government or persons or organizations which purchase for resale.

Sales to officers' and non-commissioned officers' clubs and messes may be made without sales tax when the purchasing organizations have been authorized, under appropriate regulations and control instructions, duly prescribed and issued, to sell alcoholic beverages to authorized purchasers.¹

(c) Sales Through Vending Machines. Sales through vending machines located on Army, Navy, or Air Force installations are taxable unless the sales are made by operators who lease the machines to exchanges of the Army, Air Force, Navy, or Marine Corps, or other instrumentalities of the United States, including Post Restaurants and Navy Civilian Cafeteria Associations, which acquire title to and sell the merchandise through the machines to authorized purchasers.

For the exemption to apply, the contracts between the operators and the United States instrumentalities and the conduct of the parties must make it clear that the instrumentalities acquire title to the merchandise and sell it through machines leased from the operators to authorized purchasers.

(d) Indian Reservations.

(1) In General. Except as provided in this regulation, tax applies to the sale or use of tangible personal property upon Indian reservations to the same extent that it applies with respect to sale or use elsewhere within this state.

(2) Definitions. For purposes of this regulation "Indian" means any person of Indian descent who is entitled to receive services as an Indian from the United States Department of the Interior.

Indian organizations are entitled to the same exemption as an Indian. "Indian organization" includes Indian tribes and tribal organizations and also includes partnerships all of whose members are Indians. The term includes corporations organized under tribal authority and wholly owned by Indians. The term excludes other corporations, including other corporations wholly owned by Indians. "Reservation" means Indian country as defined in section 1151 of title 18 of the United States Code. The term includes reservations, rancherias, and any land held by the United States in trust for any Indian tribe or individual Indian. "On a reservation" and "on an Indian reservation"mean within the boundaries of a reservation.

(3) Sales by On-Reservation Retailers.

(A) Sales by Indians.

1. Sales by Indians to Indians who reside on a reservation. Sales tax does not apply to sales of tangible personal property made to Indians by Indian retailers negotiated at places of business located on Indian reservations if the purchaser resides on a reservation and if the property is delivered to the purchaser on a reservation. The purchaser is required to pay use tax only if, within the first 12 months following delivery, the property is used off a reservation more than it is used on a reservation.

2. Sales by Indians to non-Indians and Indians who do not reside on a reservation. Sales tax does not apply to sales of tangible personal property by Indian retailers made to non-Indians and Indians who do not reside on a reservation when the sales are negotiated at places of business located on Indian reservations if the property is delivered to the purchaser on the reservation. Except as exempted below, Indian retailers are required to collect use tax from such purchasers and must register with the Department for that purpose.

3. Use tax does not apply to meals, food, and beverages purchased from an Indian retailer at an eating or drinking establishment, such as a restaurant or bar, on an Indian reservation when the meals, food, and beverages that are purchased for consumption on the Indian reservation.

(B) Sales by non-Indians.

1. Sales by non-Indians to Indians who reside on a reservation. Sales tax does not apply to sales of tangible personal property made to Indians who reside on a reservation by retailers when the sales are negotiated at places of business located on Indian reservations if the property is delivered to the purchaser on a reservation. The sale is exempt whether the retailer is a federally licensed Indian trader or is not so licensed. The purchaser is required to pay use tax only if, within the first 12 months following delivery, the property is used off a reservation more than it is used on a reservation.

2. Sales by non-Indians to non-Indians and Indians who do not reside on a reservation. Either sales tax or use tax applies to sales of tangible personal property by non-Indian retailers to non-Indians and Indians who do not reside on a reservation, except as provided in subdivision (d)(3)(B)3.

3. Sales tax does not apply to sales of meals, food, and beverages to a non-Indian or an Indian who does not reside on a reservation by a non-Indian operating an eating or drinking establishment, such as a restaurant or bar, on an Indian reservation, pursuant to a lease or sublease, when the sales are subject to an Indian tribe’s sales tax and the meals, food, and beverages are sold for consumption on the Indian reservation. Sales tax does not apply to sales of meals, food, and beverages to an Indian who resides on a reservation by a non-Indian operating an eating or drinking establishment on an Indian reservation, as provided in subdivision (d)(3)(B)1. Use tax does not apply to meals, food, and beverages purchased by a non-Indian or an Indian who does not reside on a reservation from a non-Indian operating an eating or drinking establishment, such as a restaurant or bar, on an Indian reservation, pursuant to a lease or sublease, when the purchase is subject to an Indian tribe’s sales or use tax and the meals, food, and beverages are purchased for consumption on the Indian reservation. Use tax does not apply to meals, food, and beverages purchased by an Indian who resides on a reservation from a non-Indian operating an eating or drinking establishment on an Indian reservation, when the meals, food, and beverages are purchased for consumption on the Indian reservation, as provided in subdivision (d)(3)(B)1.

4. Presumptions.

The following presumptions apply to subdivisions (d)(3)(A)3 and (d)(3)(B)3 of this regulation:

a. It shall be presumed that all meals, food, and beverages sold or purchased from an eating or drinking establishment on an Indian reservation are for consumption on the reservation, except meals, food, and beverages sold or purchased from a drive through counter or window or for delivery off the reservation.

b. It shall be presumed that meals, food, and beverages sold or purchased from an eating or drinking establishment’s drive through counter or window are for consumption off the Indian reservation.

5. Subdivisions (d)(3)(A)3 and (d)(3)(B)3 of this regulation do not apply to meals, food, and beverages sold or purchased for delivery off an Indian reservation. When sales of meals, food, and beverages delivered by the retailer from their establishment to a location off the Indian reservation are taxable, the retailer may report the tax using a percentage developed from a test period. This test is subject to audit, and it is the retailer’s responsibility to maintain records to support that their percentage accurately reflects the taxable percentage.

6. Regulation 1603, Taxable Sales of Food Products, prescribes the application of tax to meals, food, and beverages when they are sold or purchased for consumption off an Indian reservation.

(C) Resale Certificates. Persons making sales for resale of tangible personal property to retailers conducting business on an Indian reservation should obtain resale certificates from their purchasers. If the purchaser does not have a permit and all the purchaser's sales are exempt under paragraph (d)(3)(A) of this regulation, the purchaser should make an appropriate notation to that effect on the certificate in lieu of a seller's permit number (see Regulation 1668, Sales for Resale).

(4) Sales by Off-Reservation Retailers.

(A) Sales Tax—In General. Sales tax does not apply to sales of tangible personal property made to Indians negotiated at places of business located outside Indian reservations if the property is delivered to the purchaser and ownership to the property transfers to the purchaser on the reservation. Generally, ownership to property transfers upon delivery if delivery is made by facilities of the retailer and ownership transfers upon shipment if delivery is made by mail or carrier. Except as otherwise expressly provided herein, the sales tax applies if the property is delivered off the reservation or if the ownership to the property transfers to the purchaser off the reservation.

(B) Sales Tax—Permanent Improvements—In General. Sales tax does not apply to a sale to an Indian of tangible personal property (including a trailer coach) to be permanently attached by the purchaser upon the reservation to realty as an improvement if the property is delivered to the Indian on the reservation. A trailer coach will be regarded as having been permanently attached if it is not registered with the Department of Motor Vehicles. Sellers of property to be permanently attached to realty as an improvement should secure exemption certificates from their purchasers (see Regulation 1667, Exemption Certificates).

(C) Sales Tax—Permanent Improvements—Construction Contractors.

1. Indian contractors. Sales tax does not apply to sales of materials to Indian contractors if the property is delivered to the contractor on a reservation. Sales tax does not apply to sales of fixtures furnished and installed by Indian contractors on Indian reservations. The term "materials" and "fixtures" as used in this paragraph and the following paragraph are as defined in Regulation 1521, Construction Contractors.

2. Non-Indian contractors. Sales tax applies to sales of materials to non-Indian contractors notwithstanding the delivery of the materials on the reservation and the permanent attachment of the materials to realty. Sales tax does not apply to sales of fixtures furnished and installed by non-Indian contractors on Indian reservations.

(D) Use Tax—In General. Except as provided in paragraphs (d)(4)(E) and (d)(4)(F) of this regulation, use tax applies to the use in this state by an Indian purchaser of tangible personal property purchased from an off-reservation retailer for use in this state.

(E) Use Tax—Exemption. Use tax does not apply to the use of tangible personal property (including vehicles, vessels, and aircraft) purchased by an Indian from an off-reservation retailer and delivered to the purchaser on a reservation unless, within the first 12 months following delivery, the property is used off a reservation more than it is used on a reservation.

(F) Leases. Neither sales nor use tax applies to leases otherwise taxable as continuing sales or continuing purchases as respects any period of time the leased property is situated on an Indian reservation when the lease is to an Indian who resides upon the reservation. In the absence of evidence to the contrary, it shall be assumed that the use of the property by the lessee occurs on the reservation if the lessor delivers the property to the lessee on the reservation. Tax applies to the use of leased vehicles registered with the Department of Motor Vehicles to the extent that the vehicles are used off the reservation.

(G) Property Used in Tribal Self-Governance. Sales and use tax does not apply to sales of tangible personal property to and the storage, use, or other consumption of tangible personal property by the tribal government of an Indian tribe that is officially recognized by the United States if:

1. The tribal government's Indian tribe does not have a reservation or the principal place where the tribal government meets to conduct tribal business cannot be its Indian tribe's reservation because the reservation does not have a building in which the tribal government can meet or the reservation lacks one or more essential utility services, such as water, electricity, gas, sewage, or telephone, or mail service from the United States Postal Service;

2. The property is purchased by the tribal government for use in tribal self-governance, including the governance of tribal members, the conduct of inter-governmental relationships, and the acquisition of trust land; and

3. The property is delivered to the tribal government and ownership of the property transfers to the tribal government at the principal place where the tribal government meets to conduct tribal business.

The purchase of tangible personal property is not exempt from use tax under this paragraph if the property is used for purposes other than tribal self-governance more than it is used for tribal self-governance within the first 12 months following delivery.

' The following is a summary of the pertinent regulations which have been issued:

(a) General. Air Force Regulation 34-57, issued under date of February 9, 1968, Army Regulation 210-65, issued under date of May 4, 1966, and Navy General Order No. 15, issued under date of May 5, 1965, authorize the sale and possession of alcoholic beverages at bases and installations subject to certain enumerated restrictions.

(b) Air Force. Air Force Regulation 34-57, Paragraph 5, permits commissioned officers' and noncommissioned officers' open messes, subject to regulations established by commanders of major air commands to sell alcoholic beverages to authorized purchasers at bars and cocktail lounges, and provides that commanders will issue detailed control instructions. Paragraph 8 and 9 require commanders of major air commands to issue regulations relative to package liquor sales and to procurement of alcoholic beverages, respectively.

(c) Army. Army Regulation 210-65, Paragraph 9, provides that major commanders are authorized to permit at installations or activities within their respective commands the dispensing of alcoholic beverages by the drink or bottle. Paragraph 11 of AR 210-65 provides that when authorized by major commanders as prescribed in Paragraph 9, AR 210-65, officers' and noncommissioned officers' open messes may, subject to regulations prescribed by the commanding officer of the installation or activity concerned, dispense alcoholic beverages by the drink, and operate a package store.

(d) Navy. Navy General Order No. 15 provides that commanding officers may permit, subject to detailed alcoholic beverage control instructions, the sale of packaged alcoholic beverages by officers' and noncommissioned officers' clubs and messes and the sale and consumption of alcoholic beverages by the drink in such clubs and messes.

History—Effective July 1, 1941.

Adopted as of January 1, 1945, as a restatement of previous rulings.

Amended and renumbered August 5, 1969, effective September 6, 1969.

Amended June 29, 1978, effective August 6, 1978. Added new subsection (d), Indian Reservations.

Amended March 27, 2002, effective March 6, 2003. In subdivision (d)(3)(A)2., added the phrase "Except as exempted below," deleted the word ", however," and added new unnumbered paragraph.

Amended January 11, 2012, effective February 10, 2012. Added new subdivision (d)(4)(G) Property Used in Tribal Self-Governance.

Amendments filed May 26, 2021, and effective May 26, 2021. The amendments replaced "a Indians" with "an Indian" in the first sentence in, added the text between "‘Reservation’" in the fifth sentence and "includes" in the sixth sentence in, and added the last sentence to the second paragraph in subdivision (d)(2); replaced "Board" with "Department" in subdivision (d)(3)(A)2; replaced the text of subdivision (d)(3)(A)3, which provided that "Indian retailers selling meals, food or beverages at eating and drinking establishments are not required to collect use tax on the sale of meals, food or beverages that are sold for consumption on an Indian reservation"; added "who reside on a reservation" to subdivision (d)(3)(B)1; added ", except as provided in subdivision (d)(3)(B)3" to the end of subdivision (d)(3)(B)2; added subdivisions (d)(3)(B)3, 4, 5, and 6; changed the name of Regulation 1668 from "Resale Certificates" to "Sales for Resale" in subdivision (d)(3)(C); added "and 6352" after "6021" in the regulation’s reference note; and deleted "Items dispensed for 10 ¢ or less, see Regulation 1574. Additional reference: Section 6352, Revenue and Taxation Code." from the end of the regulation’s reference note.

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Regulation 1617. Federal Taxes.

Reference: Sections 6011, 6012, 6245.5 and 6423, Revenue and Taxation Code.

19 U.S.C. Section 1505(a), 19 CFR Section 141.1(b).

(a) Federal Excise Taxes on Retail Sales. Gross receipts subject to sales tax and the sales price subject to use tax do not include the amount of any federal tax imposed upon or with respect to retail sales whether imposed upon the retailer or upon the consumer and regardless of whether the amount of federal tax is stated to the consumer as a separate charge.

Retailers must retain records to show that the amounts deducted as federal tax have been returned to the United States or will be returned to the United States.

(b) Other Federal Excise Taxes.

(1) Except as indicated in subdivisions (b)(2) and (b)(3), gross receipts subject to sales tax and the sales price subject to use tax include the amount of any federal excise tax included in the prices of the property sold, even though the manufacturer or importer is also the retailer thereof, and it is immaterial whether or not the amount of such tax is stated as a separate charge.

(2) Prior to July 1, 1995, gross receipts subject to sales tax and the sales price subject to use tax do not include the amount of the federal excise tax imposed pursuant to Section 4091 of the Internal Revenue Code with respect to diesel fuel or jet fuel for which the purchaser obtains either a direct refund or credit against his or her income tax.

(3) Beginning July 1, 1995, gross receipts subject to sales tax and the sales price subject to use tax do not include the federal excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code with respect to gasoline, diesel, or jet fuel for which the purchaser obtains either a direct refund or credit against his or her income tax.

(c) Import Duties. Import duties are imposed by federal statute (19 U.S.C. Section 1505(a)) on the importer of record. If the importer of record is a consignee and the consignee is the seller, import duties included in the price of the property sold are subject to sales and use tax. If the importer of record is a consignee and the consignee is the buyer, such duties are excludable from the sales price subject to use tax.

(d) Repeal or Reduction of Federal Taxes.

(1) In General—Installment Payments. When an article subject to a federal excise tax prior to the date such tax is repealed or reduced is sold under an agreement calling for payment of the sales price in installments, payments made on or after the repeal or reduction date will be considered as if they were made with respect to an article sold on or after the repeal or reduction date if the vendor establishes that the amount of payments due on or after such date were reduced by an amount equal to the tax reduction.

(2) Retailers' Excise Taxes Collected After Repeal. Amounts collected by a retailer as federal retailers' excise tax after the tax has been repealed, but neither paid by the retailer to the Internal Revenue Service nor refunded to its customers, constitute gross receipts subject to sales tax.

(e) Refunds of Federal Taxes.

(1) Repayment by Manufacturer to Retailer. When a manufacturer receives a refund of federal excise tax and repays the amount of the tax to the retailer pursuant to requirements of federal law, the repayment to the retailer will be regarded for sales and use tax purposes as a reduction of the retailer's cost of goods sold.

(2) Repayment to Consumer. When a manufacturer receives a refund of federal manufacturers' excise tax and repays the amount of the tax to the consumer either directly or through the retailer pursuant to requirements of federal law, the repayment to the consumer will be regarded for sales and use tax purposes as a price adjustment. Taxable gross receipts of the retailer for the period in which the repayment is made to the consumer will be reduced accordingly, and sales tax previously paid by the retailer on the amount will be refunded to the retailer, provided the amount collected from the consumer as sales tax reimbursement is also refunded to him or her.

(3) Refunds on Gasoline, Diesel or Jet Fuel. The refund of the federal excise tax imposed by Section 4081 or 4091 of the Internal Revenue Code with respect to gasoline, diesel, or jet fuel (either by direct refund or as a credit against income tax) is an adjustment to the sales price of the gasoline, diesel, or jet fuel. Accordingly, the retailer who paid the sales tax or the purchaser who paid use tax measured by the sales price of the gasoline, diesel, or jet fuel may file with the board a claim for refund of tax measured by the amount of the federal excise tax so refunded or credited. The claim must be supported by proof of the exempt use of the gasoline, diesel, or jet fuel and of the refund or credit of the federal excise tax to the purchaser.

History—Effective July 1, 1943.

Adopted as of January 1, 1945, as a restatement of previous rulings.

Amended June 22, 1964.

Amended September 12, 1968.

Amended and renumbered August 5, 1969, effective September 6, 1969.

Amended April 30, 1990, effective July 7, 1990. Added paragraph (b)(2) to provide that the sales tax does not apply to certain manufacturer's or importer's federal excise tax imposed under Section 4091, Internal Revenue Code. Renumbered paragraph (c) to (d) and (d) to (e). Added paragraph (c) to explain the application of the sales and use tax to federal import duties that are includable in the measure of tax if the seller is the consignee and not includable if the buyer is the consignee.

Amended June 23, 1993, effective November 13, 1993. Amended paragraphs
(d)(2) and (e)(2) to delete gender-related language. Added new paragraph (e)(3) to explain the procedures for claiming a refund of sales or use tax paid on the federal importer's or producer's excise tax on diesel or jet fuel which federal tax has been refunded by the federal government either directly or as a credit against income tax.

Amended November 20, 1996, effective February 22, 1997. Added subdivision (b)(3). Added a cross-reference to new subdivision (b)(3) to subdivision (b)(1) and a termination date to subdivision (b)(2).

Amended August 1, 2001, effective December 1, 2001. Word "manufacturers" or "importers" changed to "federal" or "other federal" throughout to conform to changed usages. Subdivision (a)—in title, word "RETAILER'S" replaced with "FEDERAL" and words "ON RETAIL SALES" added. Subdivision (b)(1)—word "subdivisions" added prior to "(b)(2)" and comma and word "below" deleted after "(b)(3)". Subdivision (b)(2)—"and" replaced with "or" between "fuel" and "jet"; phrase "certifies … to" replaced with "obtains"; and phrase "for … paid" and last sentence deleted. Subdivision (b)(3)—word "and" between "4081" and "4091" and prior to "jet" replaced with "or"; phrase "certifies … to" replaced with "obtains"; and phrase "for … paid" and last sentence deleted.

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Regulation 1618. United States Government Supply Contracts.

Reference: Sections 6007 and 6381, Revenue and Taxation Code.

Aerospace Corp. v. St. Bd. of Equalization (1990) 218 Cal.App.3d 1300.

(a) Definitions.

(1) "United States Government supply contract" means a contract with the United States to furnish, or to fabricate and furnish, tangible personal property including ships, aircraft, ordnance, or equipment, whereby title to tangible personal property purchased for use in fulfilling the contract passes to the United States pursuant to the title provisions contained in the contract before the contractor uses the property to perform the function or act for which the property was designed or manufactured. The term "U.S. Government supply contract" does not include contracts to construct improvements on or to real property or to the purchase of tangible personal property for use in fulfilling such contracts.

(2) "Direct consumable supplies" means supplies, tools, or equipment consumed in the performance of a contract which are specifically identified to the contract and the actual cost of which is charged as a direct item of cost to the specific contract. Effective June 14, 2007, "Tools" as used in this definition includes "special tooling" that was previously covered by Federal Acquisition Regulation (FAR) 52.245-17.

(3) "Overhead materials" means supplies consumed in the performance of a contract the cost of which is charged to an overhead expense account and then allocated to various contracts based on generally accepted accounting principles and consistent with government cost accounting standards.

(b) Application of Tax.

(1) Sales to U.S. Government supply contractors of tools, equipment, direct consumable supplies and overhead materials are sales for resale if the United States takes title pursuant to a United States government supply contract prior to any use of the property by the contractor to perform the function or act for which the property was designed or manufactured. Accordingly, tax does not apply to such sales even though the property does not become a component part of the tangible personal property furnished, fabricated, or manufactured by the contractor. If the contractor makes any use of the property to perform the function or act for which the property was designed or manufactured prior to the passage of title to the United States, tax applies to the sales to or to the use by the contractor.

(2) Whether title to direct consumable supplies or indirect consumable supplies (i.e., overhead materials) passes to the United States under a United States government supply contract and the time at which title passes will be determined in accordance with the title provisions contained in the contract, if any.

(A) For direct consumable supplies, which are charged direct to the United States government contract, title passes to the United States government pursuant to the title passage clause(s) associated with that specific contract.

(B) For indirect consumable supplies (i.e., overhead materials) which are charged to an expense account which is then allocated to various locations, cost centers or contracts, it will be considered that title passed to the United States government prior to use of the property, and tax will not apply with respect to the purchase or use of the property charged to the expense account, if the item is allocated to a specific United States government supply contract, pursuant to the terms of which title passes to the United States prior to the use of the item. Property will be considered allocated to a specific United States government supply contract when it is allocated pursuant to:

1. Accounting standards promulgated by the Cost Accounting Standards Board (Office of Federal Procurement Policy, Office of Management and Budget), if applicable; otherwise,

2. Generally accepted accounting principles that are equitable, consistently-applied, and appropriate to the particular circumstances.

Direct consumable supplies identified in subdivision (b)(2)(A) and indirect consumable supplies (i.e., overhead materials) which may be allocated in the manner identified in subdivision (b)(2)(B) include, but are not limited to, property used to repair items of capital equipment when a portion of the contractor's use is properly allocable to its government supply contracts, notwithstanding the fact that title to the property being repaired remains with the contractor.

(3) Special Tooling. Effective December 29, 1989 through June 13, 2007, title will generally not pass prior to use by the contractor for special tooling which is subject to the Special Tooling Clauses of Federal Acquisition Regulation (48 CFR) 52.245–17. Title to such special tooling will pass prior to use by the contractor only if the agreement between the contractor and the United States government contains a custom clause providing for title passage prior to use by the contractor. Therefore, sales of special tooling will generally be subject to tax.

History—Effective, as amended, May 22, 1943.

Adopted as of January 1, 1945, as a restatement of previous rulings.

Amended and renumbered November 3, 1971, effective December 3, 1971.

Amended April 25, 1984, effective July 21, 1984. The title to the regulation was changed and the text entirely rewritten.

Amended August 1, 1995, effective November 10, 1995. Added "pursuant to the title provisions contained in the contract" to subdivision (a)(1); added language to subdivision (a)(2) to provide that the term "tools" as used therein did not include "special tooling" as defined. Amended subdivision (b) as follows: deleted subdivisions (1) and (2); added "overhead materials," "pursuant to a United States government supply contract," "to" and "the" to the first paragraph; deleted language from the second paragraph providing for a different tax treatment depending on whether the overhead materials account is allocated to cost centers or separate locations that are either exclusively or partially involved in United States government supply contracts; added language to the second paragraph providing that accelerated passage of title depends on the clauses contained in the contract and also stating when a charge will be considered allocated to a specific United States government supply contract; added third and fourth paragraphs.

Amended June 26, 2012, effective September 6, 2012. Subdivision (a)(2) was amended to provide that the term "tools" as used therein includes "special tooling" as defined. In subdivision (a)(3) added "and consistent with government cost accounting standards." Renumbered paragraphs of subdivision (b) as new subdivisions (b)(1), (b)(2) and (b)(3). In subdivision (b)(2) language was added to clarify that overhead materials are one example of "indirect consumable supplies." Subdivisions (b)(2)(A) and (b)(2)(B) were amended to further clarify sales for resale and passage of title to the United States of direct consumable supplies and indirect consumable supplies. In subdivision (b)(3) inserted "through June 13, 2007" in the first sentence. The amendments were necessary to provide consistency with the Code of Federal Regulations, Federal Acquisition Regulation.

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Regulation 1619. Foreign Missions and Consuls.

Reference: Sections 6272, 6352, and 7053, Revenue and Taxation Code.

Vienna Convention on Diplomatic Relations of April 18, 1961, article 34, 23 U.S.T. 3242 T.I.A.S. No. 7502, Vienna Convention on Consular Relations of April 24, 1963, article 49, 21 U.S.T. 77, T.I.A.S. No. 6820; Taiwan Relations Act (22 U.S.C. §§ 3301-3316); Agreement on Privileges, Exemptions and Immunities between the American Institute in Taiwan and the Taipei Economic and Cultural Representative Office in the United States, signed February 4, 2013; and Designation and Determination under the Foreign Missions Act, March 9, 2014 (79 Fed.Reg. 16090 (March 24, 2014)).

(a) Application of Tax.

(1) Official Purchases In General. Tax does not apply to the sale or use of tangible personal property sold or leased to a foreign mission or representative office to the extent that such mission or representative office has been identified by the U.S. Department of State or the American Institute in Taiwan as exempt from the tax pursuant to treaties or other diplomatic agreements with the United States. A foreign mission or representative office exempt from taxation pursuant to treaties or other diplomatic agreements with the United States will be issued a Mission Tax Exemption Card by the U.S. Department of State, or an Official Tax Exemption Card by the American Institute in Taiwan, for official purchases only and for the sole benefit of the foreign mission or representative office identified on the face of the card. To qualify for exemption, the U.S. Department of State or the American Institute in Taiwan requires that all purchases be paid in the form of payment in the name of the foreign mission or representative office.

(2) Personal Purchases In General. Tax does not apply to the sale or use of tangible personal property sold or leased to foreign consular officers, employees, or members of their families, or to a representative office's employees and members of their families, to the extent that such persons have been identified by the U.S. Department of State or the American Institute in Taiwan as exempt from the tax pursuant to treaties or other diplomatic agreements with the United States. Persons identified as exempt from taxation pursuant to treaties or other diplomatic agreements with the United States will be issued a Personal Tax Exemption Card by the U.S. Department of State or the American Institute in Taiwan which identifies the bearer as exempt from tax and which specifies the extent of the exemption.

(3) Tax applies to sales of tangible personal property to foreign missions or representatives offices, foreign consular officers, employees, or members of their families, or to a representative office's employees and members of their families, who do not hold a Tax Exemption Card issued by the U.S. Department of State or the American Institute in Taiwan except as provided in subparagraph (a)(4) below. Also, tax applies to sales of tangible personal property to persons holding Tax Exemption Cards where their total purchases in a single transaction do not exceed the minimum level of exemption as specified on the Tax Exemption Card. Sales or use tax applies to the sale or use of tangible personal property sold to nationals of the United States even though such persons may perform consular functions for foreign governments.

(4) Vehicles. In addition to the exemption provided in subparagraphs (a)(1) and (a)(2), the sale or lease of vehicles to foreign missions or representative offices, foreign consular officers, employees, or members of their families, or to a representative office's employees and members of their families, will be exempt from the sales and use tax if:

(A) The purchaser provides a valid Tax Exemption Card (Personal, Mission, or Official) or a protocol identification card to the retailer; and

(B) The retailer contacts and obtains directly from the U.S. Department of State, Office of Foreign Missions or the American Institute in Taiwan a letter stating that the vehicle sale or lease to the purchaser is eligible for exemption from tax.

For purposes of this regulation, "vehicle" is as defined in section 6272 of the Revenue and Taxation Code.

(b) Records of Retailers. Invoices or other written evidence of sale must be retained by the retailer to support any transaction claimed as an exempt sale on its sales and use tax returns for sales to foreign consuls. The invoices or other written evidence should show the name of the purchaser, the name of the mission or representative office, the tax exemption number, the expiration date of the Tax Exemption Card, and the minimum level of exemption specified on the Tax Exemption Card. For official purchases as described in subdivision (a)(1), the retailer shall retain evidence that the form of payment was in the name of the foreign mission or representative office. Such payments may include official checks, official credit cards, or electronic funds transfers (automated clearinghouse debits, automated clearinghouse credits, or wire transfers). In addition, to support each transaction claimed as an exempt sale or lease of a vehicle, the retailer must retain a copy of the Tax Exemption Card (Personal, Mission, or Official) or protocol identification card, and the letter from the U.S. Department of State, Office of Foreign Missions or the American Institute in Taiwan stating that the vehicle sale or lease to the purchaser is eligible for exemption from tax.

Note.—For special provisions affecting record retention, see Regulation 1698.

History—Adopted April 7, 1977, effective May 15, 1977.

Amended February 5, 1986, effective March 3, 1986. In subdivision (a), "Application of Tax," amended language to provide that foreign consular officers, employees, or members of their families, to the extent such persons are immune from taxation pursuant to treaties or other diplomatic agreements with the United States, are exempt from sales or use tax to the extent that they have been identified by the U.S. State Department as immune from tax. Added an explanation regarding the Tax Exemption Cards to be issued by the U.S. State Department as proof of exemption. Added language which explains that tax applies to sales of tangible personal property to foreign consular officers, employees, or members of their families who do not hold a Tax Exemption Card issued by U.S. State Department. Also added language to provide that tax applies to sales of tangible personal property to persons holding Tax Exemption Cards where their total purchases in a single transaction does not exceed the minimum level of exemption specified on the Tax Exemption Card. Deleted provisions explaining procedures for obtaining Tax Exemption Cards from State Board of Equalization. Amended language describing the records a retailer is required to maintain to support claimed exempt sales when foreign consular official presents a Tax Exemption Card. Renumbers subdivision (c) to subdivision (b).

Amended February 3, 1988, effective May 12, 1988. In subdivision (a), added provisions to provide that sales to certain persons identified by U.S. Department of State are exempt from tax.

Amended June 27, 1996, effective October 6, 1996. Amended subdivision (a)(2) to clarify that the exemption becomes available on or after the date of assumption of duties and to provide for methods of proof of assumption of duties. Amended entire regulation to provide that exemption applies to leases as well as sales.

Amended October 19, 2004, effective February 5, 2005. Subdivision (a)(2)—new unnumbered paragraph added, effective June 1, 2003, to implement new OFM requirements to establish exemption for sales or leases of vehicles to foreign consular officers, employees, or members of their families. Subdivision (b)—abbreviation "(OFM)" replaces "Office of Foreign Missions, US Department of State"; new unnumbered paragraph added to explain records retailers must maintain to support claimed exempt sales or leases to foreign consular officials or their families or employees.

Amended October 27, 2015, effective April 1, 2016. Renamed the regulation from "Foreign Consuls" to "Foreign Missions and Consuls"; added a new subdivision (a)(1); renumbered the first paragraph in current subdivision (a)(1) as subdivision (a)(2) and added "Personal Purchases" to the title; renumbered the second paragraph of current subdivision (a)(1) as subdivision (a)(3); renumbered current subdivision (a)(2) as subdivision (a)(4). In subdivisions (a)(2) and (a)(3), added "or to a representative office's employees and members of their families" in two places, added "or the American Institute in Taiwan" in three places, added "Personal" in front of "Tax Exemption Card," added the phrase "foreign missions or representatives offices," and renumbered the reference to subdivision (a)(2) as a reference to subdivision (a)(4). In subdivision (a)(4), added "and (a)(2)" after "(a)(1)"; in the first paragraph, deleted obsolete text from the first paragraph after the new reference to "(a)(2)" and deleted "Effective June 1, 2003," from the beginning of the second paragraph to combine the first and second paragraphs. Also in subdivision (a)(4), added "foreign missions or representative offices," and added ", or to a representative office's employees and members of their families". In subdivision (a)(4)(A), replaced "(Personal or Mission)" with "(Personal, Mission, or Official)". In subdivision (a)(4)(B) replaced "OFM" with "U.S. Department of State, Office of Foreign Missions or the American Institute in Taiwan", and deleted "('OFM Eligibility Letter')"; added new last sentence to subdivision (a)(4). In subdivision (b), in the first sentence replaced "deduction" with "transaction," added "as an exempt sale" after "claimed", and added "and use" before "tax"; in the second sentence, added "or other written evidence",and added "or representative office"; added a new third sentence clarifying forms of payment. Also in subdivision (b), deleted obsolete text at the end of the fourth sentence in the first paragraph and deleted the first sentence of the second paragraph to combine the first and second paragraphs. In the last sentence of subdivision (b), replaced "(Personal or Mission)" with "(Personal, Mission, or Official)," replaced "OFM" with "letter from the U.S. Department of State, Office of Foreign Missions or the American Institute of Taiwan stating that the vehicle sale or lease to the purchaser is eligible for exemption from tax" and deleted the phrase "Eligibility Letter to support each transaction claimed as an exempt sale or lease of a vehicle to a foreign consular officer, employee, or member of his or her family". In the reference note, revised the format of the citation to the Vienna Convention on Diplomatic Relations, and added additional references after the citation.