Thursday, February 18, 2010

Is the Government Exempt from Sales Tax?


But, it depends on the state.

In most states, sales to federal, state and local governments are exempt from tax. But there are often restrictions, such as:

1. the purchase must be made directly by the agency, on the agency's PO, received by the agency and paid by the agency, or
2. the purchase must be used by the agency in a way that is within its normal scope of activity.

Variations on item 1 are pretty common; item 2 are less so.

But in some states, sales to state and local governments are taxable! And in one state, sales to the federal government are taxable.

Here are the states where sales to state and local governments are taxable

Arizona (In addition, sales to the federal government are also taxable at 50% of the basis)





North Carolina (the state is exempt, but local jurisdictions pay tax and get an annual refund)

South Carolina


Remember, there are variations. Every state listed will have some exceptions that allow certain agencies to buy tax-free. And many states that aren't on the list will impose sales tax on certain oddball state agencies. Plus, remember what I've always said about information presented as tables and lists.

The point here is to wake you up to the fact that sales to government agencies are not automatically exempt. Most vendors in most states don't realize this. If I'm in Texas, and I'm selling to someone at the capitol in Arkansas, it will be a shock to me when I find out I should have charged them Arkansas tax.

"Hey, they're the state! What are you talking about? That's silly."

I'm trying to avoid your saying that.

And if you live in one of the states I've listed above, and they're still having a budget crisis, you have to ask what they're doing with all that money?

The Sales Tax Guy

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions.

Here's information on our upcoming seminars and webinars. Don't forget, we just announced our February to April schedule!

Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.

1 comment:

Form BOE Auditor said...

California does NOT tax the U.S. Government, but they do tax local governments (i.e. City of Antioch) and in most cases they will provide you with a direct pay permit that'll serve as an exemption certificate.