Was use tax due when the federal government bought civil-defense equipment, furnished it to California or a political subdivision, and received half the cost?

Plain-English summary

The City of San Jose acquired civil-defense equipment through an arrangement investigated under the Federal Civil Defense Act of 1950. The memorandum referred to a particular method described in an attached auditor's report, but that report is not part of the official PDF.

Under the described method, the federal government bought the equipment and furnished it to California or one of its political subdivisions, which contributed half the federal agency's cost.

California concluded that no use tax was due because the federal government was the purchaser. The contribution did not make the arrangement a sale to the state; even if it did, counsel said tax would not apply because the seller was an unincorporated federal agency and the equipment was not surplus property.

What this means for you

Government agencies and tax professionals

Identify who contracted with the vendor and purchased the equipment, rather than focusing only on who funded the cost. This opinion is limited to the federal-purchase method it describes; the missing attached report makes careful fact matching especially important.

Common questions

Q: Who was treated as the purchaser?

A: The federal government.

Q: Did the state or local half-cost contribution create use tax?

A: No, under the described acquisition method.

Q: Does the body decide the result when a state or local government buys directly from a vendor?

A: No. The opinion body addresses the federal-purchase method and does not state that alternative rule.

Citations and references

• Federal Civil Defense Act of 1950

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 530.0280
• Original supporting memorandum: 530.0280 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

530.0280

To:

San Jose – Tax Administrator

From:

Headquarters – Sales Tax Counsel

Date:

November 7, 1955

Subject:

Some time ago you made inquiry concerning a possible use tax liability with respect to civil defense equipment acquired by the City of San Jose. We have subsequently investigated the method of acquiring this equipment and have conferred with Stanley Pierson, State Director of Civil Defense. We have also reviewed the applicable provisions of the Federal Civil Defense Act of 1950. We attach hereto a copy of a report by Auditor J. L. Martin. It is our opinion that when purchases are made as described under paragraph 1 of Mr. Martin’s report, no tax is due. This is a purchase by the Federal Government, which of course is not subject to the use tax, of equipment furnished to the State or to a political subdivision of the State with the State contributing one-half the cost incurred by the Federal agency. This does not amount to a sale to the state; but even if it did, the tax would not apply since the purchase would be from an unincorporated Federal agency, and the property is, of course, not surplus property.

E. H. Stetson