Federal Government

The federal government, its agencies, and instrumentalities are exempt from tax.

Sales must be billed to, and paid for directly by, the federal government to be exempt from sales tax. The federal government is not required to apply for exempt status to make exempt purchases.  

The buyer must provide proof of direct billing and payment or Form ST3, Certificate of Exemption.

Examples of federal agencies and instrumentalities include:

• American Red Cross
• Central Intelligence Agency
• Federal credit unions
• Federal Reserve banks
• Federal Trade Commission
• Social Security Administration

A full list of federal agencies and instrumentalities is available on the Federal Register.

The following organizations do not qualify for the federal government exemption and their purchases are taxable:

• Federally chartered banks and savings and loans  
• State chartered credit unions, banks, and savings and loans

For more information, see Revenue Notice 96-06, Exempt Entities.

Note: Purchases by federal employees are taxable even when reimbursed by the federal government. 

Proof of Exemption

If you do not charge tax on a sale to the federal government, its agencies, and instrumentalities, you must keep proof it is not taxable.  

Examples include:

• A completed purchase order, work order, or similar document, that clearly identifies the purchaser.
• A completed Form ST3, Certificate of Exemption.
• Proof of direct payment by the federal government such as a check, payment voucher, or credit card number (see Credit Card Payments).
  • Keep a copy of the sales invoice, receipt, or online transaction log that includes payment information.
• A copy of the exemption card.

Credit Card Payments

If the federal government makes a purchase using a credit card, and does not provide other proof of direct billing or payment, determine the taxability of the transaction based on the card and purchase type. For more information, see GSA Smart Pay – Recognizing Card Types. 

If the credit card purchase type is not listed on the GSA Smart Pay webpage as an exempt purchase, you must charge sales tax. Purchases made by a federal government employee are taxable.

Foreign Diplomatic and Consular Personnel

Some sales to foreign diplomats and consular personnel are not taxable. It depends on what type of exemption card is used, what is being purchased, and whether it is for the mission or an individual.

For more information see U.S. Department of State – Sales Tax Exemption.

Prepared Food, Drinks, and Lodging

Prepared food, drinks, and lodging are not taxable when billed directly to and paid for by the federal government and its agencies. However, prepared food, drinks and lodging billed to a federal employee are taxable even if reimbursed by the federal government.

Construction Contracts

When the federal government or its agencies directly purchase building, construction, or reconstruction materials are not taxable.  

When a contractor or subcontractor purchases building materials for use on a federal government project, they are taxable unless they are purchased with a valid purchasing agent agreement.  

For more information, See Contracts with Exempt Organizations.

Legal References and Resources

Minnesota Statutes

• 168.012, subd. 1, Vehicles exempt from tax or license fees
• 297A.61, subd. 3, Definitions: Sales and purchase
• 297A.665, Presumption of tax; Burden of proof
• 297A.70, subd. 2, Sales to government

Revenue Notice  

• 96-06, Exempt Entities
• 17-10, Construction Contracts with Exempt Entities

Publications

• Contractors and Other Property Installers
• Financial Institutions
• Eating Establishments
• Hotels and Other Lodging Establishments
• Prepared Food