Publication 102, Sales to the United States Government

November 2018

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 help at 1-800-400-7115 (TTY: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

GSA SmartPay2 - Effective November 30, 2008, to November 29, 2018

The GSA SmartPay2 contract was awarded to Citibank, JP Morgan Chase, and U.S. Bank effective November 30, 2008, to November 29, 2018. These banks will continue to issue both credit cards and debit cards.

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.

All purchases using a “Fleet” or “Purchase” card are billed directly to the U.S. government and are exempt from sales or use tax.

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” or “Integrated” 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 both “Travel” and “Integrated” cards:

  • If the 6th 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 6th digit is 0, 6, 7, 8, or 9, purchases are billed to the U.S. government and are exempt from sales and use tax.

If a card is used to make a purchase and that card does not cover that type of purchase, generally, purchases are automatically denied.

GSA SmartPay3 - Effective November 30, 2018, through November 29, 2031

The new contract, 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. There may be instances of agencies processing transactions under the GSA SmartPay3 prior to November 30, 2018.

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”.

The unique prefix for each card type is listed below:

Card Type

Purchase
(prefix)

Travel
(prefix)

Fleet
(prefix)

Visa

4614
4716

4614
4615
4486

4486

MasterCard

5565
5568

5565
5568

5563
5568

(WEX) and Voyager

N/A

N/A

6900 WEX
7071 WEX
7088 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 6th 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 6th 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.

Medicare

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.

Federal Contractors

Sales to federal contractors

Businesses working under contract to the federal government are usually not considered agents of the United States. Consequently, your 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. Your sales of materials, fixtures, and supplies to such 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 such an item, 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, and publication 9, Construction and Building Contractors.

Required Documentation

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:

  • Purchase orders.
  • Copy of U.S. government credit card or credit card number.
  • Documents showing direct payment by the U.S. government.
  • 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.

Additional Information

For more information

You may download the items below or order them from our Customer Service Center at 1-800-400-7115 (TTY:711).

Regulations

1521 Construction Contractors

1591 Medicines and Medical Devices

1614 Sales to the United States and Its Instrumentalities

1618 United States Government Supply Contracts

Publications

9 Construction and Building Contractors