Publication 102, Sales to the United States Government

September 2019

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

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 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 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:

Unique Prefix for each card type

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 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.

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.

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, also known as the 9-1-1 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 publication 39A, Emergency Telephone Users (911) Surcharge and Prepaid 911 Surcharge.

Environmental Fee

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 Guides, Lead Acid Battery Fees page.

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.

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, 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.

Additional Information

For more information

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

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

Tax and Fee Guide

Lead-Acid Battery Fees