Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 565.1380


565.1380 Overhead Materials—United States Supply Contracts. Taxpayer, a government supply contractor, is one of several subsidiaries of Corporation X with which it shares facilities in California. Corporation X acts as a holding company and provides some services to the taxpayer and its other subsidiaries. The taxpayer's purchasing department buys all overhead materials. Some items purchased are purchased directly by the taxpayer for itself or one of the other entities, but most items purchased on a recurring basis, like pencils, paper, printer supplier, etc., are placed into any one of several overhead accounts that may be shared among the companies occupying the facility. Allocations from these accounts are based on the square footage occupied by all those companies or on a head count. The taxpayer then assigns to its contracts the costs allocated to it.

The United States had audited the taxpayer and concluded that its method of allocating costs to government contracts was permissible under applicable FAR provisions. Accordingly, when the taxpayer uses the method of allocating costs of supply items approved by the United States for its contracts, the taxpayer may purchase such items for resale to the United States provided its contract passes title to such items to the United States prior to any use. 11/30/96.