Were sales to a California National Guard unit exempt when federal money funded the unit account and federal rules restricted its use?

Plain-English summary

A California National Guard unit paid from a unit fund supplied by the national government. Federal rules limited how the money could be spent.

California nevertheless treated the Guard as part of state government because its commanding officer was appointed by the Governor. Once the United States transferred the money to California, the purchase was a state purchase rather than a federal purchase.

The federal source of the funds and federal control over permitted disbursements did not change the result. The vendor's sale to the unit was taxable.

What this means for you

National Guard units, government vendors, and tax advisers

Identify which sovereign owns the purchasing account and which government entity buys the property. Federal origin and restrictions on funds do not automatically make the United States the purchaser.

Common questions

Q: Did the funds originate with the United States?

A: Yes.

Q: Were they still federal funds at purchase?

A: California said they had become state funds after transfer.

Q: Was the sale exempt?

A: No.

Citations and references

• The letter cited no numbered statute, regulation, or case.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 505.0720
• Original supporting opinion: 505.0720 PDF

Original ruling text

505.0720

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

March 4, 1955

Gentlemen:
You inquire concerning the application of sales tax to your sales to a California National Guard unit when the sale is paid out of the unit fund. The money to the National Guard is obtained from the national Government and may be spent only for purposes specified by the Federal Government. The California National Guard is a part of the government of this State and its commanding officer is appointed by the Governor. Accordingly, a sale to a California National Guard unit is a sale to this State rather than to the United States. Although the money from the unit fund once belonged to the United States, it has been transferred to this State, and the sale is therefore taxable. The control exercised by the federal Government over disbursements from the fund is immaterial. For your information, we are also writing to REDACTED TEXT, Comptroller of the California National Guard, who recently asked us the same questions. As requested, we send you three extra copies of our letter. Very truly yours,

Bill Holden
Assistant Counsel
cc: San Francisco – Auditing