Were purchases by San Francisco's Economic Opportunity Council exempt because invoices said nonprofit, government, or federal grant?

Plain-English summary

Invoices for purchases by San Francisco's Economic Opportunity Council asserted several reasons for exemption: nonprofit status, government status, and use of a federal grant.

California rejected each reason. The council was not a United States instrumentality or a corporation wholly owned by the United States. A state or local agency did not become federally exempt merely because federal grant funds paid all or part of the purchase price.

Nonprofit status also supplied no exemption because the Sales and Use Tax Law contained no general nonprofit exemption of the kind claimed.

What this means for you

Grant-funded nonprofits, local agencies, vendors, and tax advisers

Do not accept a bare invoice notation as proof. Confirm a specific statutory exemption or the buyer's qualifying federal status; funding source and nonprofit status alone are insufficient.

Common questions

Q: Did a federal grant make the purchase exempt?

A: No.

Q: Did nonprofit status create exemption?

A: No.

Q: Was the council a federal instrumentality?

A: No, under the memorandum's analysis.

Citations and references

• California Revenue and Taxation Code § 6381
• California Attorney General Opinion MS4717, as described in the memorandum

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 505.0620
• Original supporting opinion: 505.0620 PDF

Original ruling text

State of California

Board of Equalization

505.0620
Memorandum
To:

San Francisco - Auditing (LC:REP)

From:

Tax Counsel (EHS) - Headquarters

Date:

December 29, 1966

Subject:

The invoices enclosed with your memorandum of December 23, 1966, indicate that the sales tax has been objected to on grounds not resulting in sales tax exemption. For example, one invoice simply notes "Non Profit," another says "No Sales Tax--Government," another invoice notes "Federal Grant." Sales to a governmental agency are taxable unless the sale is to the United States or an instrumentality of the United States. Sales to other governmental agencies are taxable even though the purchase price is paid from funds supplied by federal grants. The Economic Opportunity Council of San Francisco is not an instrumentality of the United States, nor a corporation wholly owned by the United State within the meaning of § 6381, which exempts sales to United States Government instrumentalities. The fact that federal funds may be used is immaterial. We enclose a copy of a letter we wrote under date of June 17, 1966, to Mr REDACTED TEXT, Chief, Migrant Programs, Office of Economic Opportunity. In this letter we said: "The fact that federal grants are used to purchase the property does not result in sales tax exemption. This problem has been considered at some length, and there is enclosed a copy of Opinion of Attorney General MS4717 which reviews the problem, reaches the conclusion that the sales tax is applicable, and cites an opinion of the Comptroller General of the United States authorizing the inclusion in federal grants of the amount of sales tax applicable to sales to state agencies making the purchases with federal funds." made inquiry.

This letter appears equally applicable to the transactions concerning which you have

The only other claimed ground of exemption, i.e., that the purchaser is nonprofit is, of course, no basis for sales tax exemption, there being no such exemption provided for in the Sales and Use Tax Law. EHS:fb