Did merchandise become exempt when a county or local agency paid with federal grant funds?

Plain-English summary

A county or local governmental agency apparently bought merchandise with money supplied through a federal grant.

California said the sale remained a sale to the local agency rather than the United States or a qualifying federal instrumentality. The federal source of the funds did not make section 6381's federal-purchaser exemption apply.

The letter also explained that California sales tax was legally imposed on the retailer. Even when the purchaser paid a higher amount because of the tax, that amount was part of the price from the purchaser's perspective.

What this means for you

Counties, local agencies, grant administrators, vendors, and tax advisers

Trace who contracts for and receives the merchandise. A federal grant does not replace the local agency as buyer.

Common questions

Q: Did federal grant money make the sale exempt?

A: No.

Q: Who was the purchaser?

A: The county or local agency.

Q: How did the letter characterize the sales tax?

A: As a retailer tax that became part of the purchase price for the buyer.

Citations and references

• California Revenue and Taxation Code § 6381
• Western Lithograph Co. v. State Board of Equalization, 11 Cal. 2d 156

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 505.0660
• Original supporting opinion: 505.0660 PDF

Original ruling text

505.0660

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

July 18, 1951
[Y]
--- ---, -Attention:

Mr. [S]
Re:

S- -- XX XXXXXX

Gentlemen:
We acknowledge your telegram stating you have not received a reply to your letter of February 26 regarding the application of the State sales tax to what we assume to be sales to [Y] of merchandise paid for out of federal funds granted to the county. We have been unable to locate this letter in our files and shall be very glad to have you forward a copy to us and we assure you it will receive prompt attention. From the content of your telegram we are inclined to believe that the situation is such that the sales tax is applicable for the reason that the sales are made to the [Y] and not to an instrumentality of the United States. The mere fact that a state or local governmental agency uses funds supplied by the federal government to make purchases does not render the sales tax inapplicable since under the statute (section 6381 of the Revenue and Taxation Code) exemption is granted with respect to sales to the United States and its instrumentalities and agencies other than corporate instrumentalities or agencies not wholly owned by the United States. The California sales tax is not a tax upon the purchaser even though the purchaser pays more to get the goods on account of the tax. Our courts have uniformly held that the tax is upon the retailer for the privilege of selling tangible personal property and, insofar as the purchaser is concerned, is a part of the price and not a tax. (See Western Lithograph Co. v. State Board of Equalization, 11 Cal. 2d 156.) Very truly yours

E. H. Stetson
Tax Counsel