Navigate Up
Sign In
Last Updated: 6/1/2017

Purchases Made by Local Units of Government

Purchases made by local governments (city, county, or town) are generally not taxable. Purchases must be billed to and paid for by the local government. Purchases made by government officials and employees are taxable, even if reimbursed. 

Nontaxable Purchases

Purchases to provide the following goods and services are not taxable:

  • Administration of housing programs
  • Ambulance and public safety services
  • Cemeteries
  • Chore and homemaking services for elderly or disabled residents
  • Correctional services
  • Hospitals and nursing homes
  • Housing facilities
  • Ice arenas
  • Licensing services (deputy registrar)
  • Local festivals and fairs
  • Public use/Municipal airports
  • Public transit
  • Road and street maintenance and lighting
  • Sewer and water services
  • Wastewater treatment service

To purchase items to provide these services exempt from tax, you must give the seller a completed Form ST3, Certificate of Exemption, at the time of purchase.

Examples of exempt inputs include:

  • Cleaning and maintenance of buildings
  • Lawn care and tree removal services
  • Construction equipment that is not licensed for road use
  • Most firefighting, police, and emergency equipment, (see Fact Sheet 135, Fire Fighting, Police, and Emergency Equipment)
  • Office supplies, computers, software, printers, furniture
  • Other vehicles that are not licensed for road use, such as aircraft, snowmobiles, and watercraft
  • Road-building materials and the delivery of aggregate materials
  • Utilities, chemicals, and fuels

Taxable Purchases

Purchases to provide the following goods and services are taxable and do not qualify for the local government exemption:

  • Cafes
  • Campgrounds
  • Gas and electric utilities (the Capital Equipment Exemption may apply, see Miscellaneous Exemptions)
  • Golf courses
  • Laundromats
  • Liquor stores
  • Marinas
  • Landfills (machinery and equipment used directly for mixed municipal solid waste management service at the landfill may be exempt)
  • Solid waste hauling
  • Solid waste recycling (certain equipment used at a resource recovery facility may be exempt)

Purchases of the following goods and services also remain taxable:

  • Construction materials for buildings or facilities which are not principally used by the local government
  • Construction materials and supplies purchased by a contractor or subcontractor under a lump-sum contract (see Construction Contracts below)
  • Lodging
  • Prepared food, candy, soft drinks, and alcoholic beverages (see exceptions under Other Government Exemptions)
  • Inputs to taxable services/activities as listed above
  • Leases of motor vehicles
  • Motor vehicles (see exceptions under Other Government Exemptions)
  • Employee purchases (even if reimbursed by the local government)
  • Purchases subject to other taxes, such as the solid waste management tax or petroleum tax

Multiple-use purchases

Some purchases may be used to provide both qualifying and non-qualifying goods and services.

In these cases, the local government entity may allocate the purchase total and pay use tax on the taxable portion. You must use a reasonable method of allocation and keep business records that clearly identify how you determined the tax.


A city purchases office supplies for all of its agencies. Some of the supplies are used to provide services that qualify for the exemption, such as housing or public safety; some are used to provide services that do not qualify for the exemption, such as a city-owned liquor store or golf course.

The city may allocate what portion of the purchase is used for non-qualifying services. That portion is taxable and the city owes use tax on that amount.

Construction Contracts

Local governments are generally exempt from sales tax on purchases of construction materials for their own use. However, this exemption does not apply to materials purchased by a contractor under a lump-sum contract that includes both labor and materials.

Contractors must pay sales or use tax on the cost of all materials, supplies, and equipment to complete the construction contract unless they are authorized to act as the local government’s purchasing agent. A valid purchasing agent agreement is a written contract that must clearly show all of the following:

  • That the local government authorized the contractor as the purchasing agent.
  • That the local government took title to all materials and supplies at the point of delivery.
  • That the local government is responsible for the risk of loss for all materials and supplies.
  • That the local government, not the purchasing agent, is responsible for all defective materials and supplies, including those incorporated into real property.

Note: These requirements apply to both the primary contractor and subcontractors who supply both materials and labor.

For more information, see:

< Sales of Goods and Services   Other Government Exemptions >
Return​​​​ to contents page for this guide