Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2011
Sales And Use Tax Law
CHAPTER 4. EXEMPTIONS
Article 2. Exemptions from Sales Tax
(a) The United States, its unincorporated agencies and instrumentalities;
(b) Any incorporated agency or instrumentality of the United States wholly owned by the United States or by a corporation wholly owned by the United States;
(c) The American National Red Cross, its chapters and branches.
History.—Stats. 1943, p. 2456, operative July 1, 1943, reworded (a) and added (b) and (c). Stats. 1965, p. 5451, operative August 1, 1965, added the last sentence. Stats. 1986, Ch. 308, effective January 1, 1987, deleted reference to rentals payable under a lease as excluded from the exemption.
Contracts for the Improvement of Real Property.—Property sold to and purchased by United States contractors for use in constructing improvements to real property in this state is not exempt from tax under this section. Such property is consumed by the contractor rather than resold to the United States and sales of such property to and purchases by the contractor are thus subject to tax under Section 6384 of the Revenue and Taxation Code. Chula Vista Electric Co. v. State Board of Equalization (1975) 53 Cal.App.3d 445.
Incidence of the Sales Tax for Federal Purposes is on the Purchaser.—Tax cannot be applied to rentals payable under a lease of tangible personal property to the United States, since the incidence of the tax falls upon the United States and it would violate the constitutional immunity of the United States from state taxation. United States v. State Board of Equalization (1976) 536 F.2d 294.
Special Test Equipment Purchased for Resale by U.S. Government Contractors.—Tax does not apply to special test equipment manufactured or purchased by defense contractors and used in the performance of their obligations under defense contracts with the federal government. Legal title and the right to control such equipment passed to the federal government as soon as the equipment was ready for use, the special test equipment was not purchased by the taxpayers at retail but purchased for resale in the regular course of business to the federal government, and any use or storage of the equipment thereafter was that of the federal government in which title immediately vested. Lockheed Aircraft Corp. v. State Board of Equalization; Aerojet General Corp. v. State Board of Equalization (1978) 81 Cal.App.3d 257.
Transmission Lines are Improvements to Real Property.—Transmission lines and supporting installations are properly classified as improvements to real property. Taxpayers, as users of the materials consumed in the performance of the contract to improve real property, were required to pay the use tax. Fischbach & Moore, Inc. v. State Board of Equalization (1981) 117 Cal.App.3d 627.
Leases to U.S. Contractors.—Use tax imposed on leases to private contractors designated as agents of United States was constitutional. Legal incidence of the tax fell on contractors, not United States. United States v. California State Board of Equalization (1982) 683 F.2d 316.
Overhead materials in contracts.—The Board improperly relied on Regulation 1618 in assessing sales and use taxes against aerospace company on supplies and materials the company obtained to perform a research and development contract with the federal government. The court rejected the Board's interpretation of Regulation 1618, which ignored terms of the contract and required proof of allocation of overhead materials to a specific contract in order for title to such materials to vest in the federal government. Aerospace Corporation v. State Board of Equalization (1990) 218 Cal.App.3d 1300.
Tax on leases to United States unconstitutional.—California sales tax scheme manifests a legislative intent that the lessee pay the sales tax. It places the legal incidence of the tax on the United States and violates the United States' immunity from state taxation. United States v. State Board of Equalization (1981) 650 F.2d 1127, aff'd (1982) 456 U.S. 901.