Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 565.1400


565.1400 Passage of Title. The passage of title to property to the United States is not contingent upon the government reimbursing the contractor for the purchase price of the property. Typically Department of Defense (DOD) contracts provide with respect to indirect cost items, that title to all overhead material shall pass to and vest in the United States upon the first to happen of the following events:

(1) issuance of the material for use in performing the contract;

(2) commencement of processing the material for use; or

(3) the government reimbursing the contractor for the material.

In many instances, the United States acquires title to the "government-furnished" property prior to reimbursing the contractor for its cost. The Federal Acquisition Regulations (FAR) require that the clauses setting forth the above principles be inserted into the contract. Under the Aerospace decision (Aerospace Corp. v. State Bd. of Equalization (1990) 218 Cal.App.3d 1300, 1313 [267 Cal.Rptr. 685]), these clauses control the passage of title. 4/10/91.