This really takes the cake. The State of California pays its suppliers in fake money, then expects them to turn around and pay sales tax in real money:
Small businesses that received $682 million in IOUs from the state say California expects them to pay taxes on the worthless scraps of paper, but refuses to accept its own IOUs to pay debts or taxes. . .
Lead plaintiff Nancy Baird filled her contract with California to provide embroidered polo shirts to a youth camp run by the National Guard, but never was paid the $27,000 she was owed. She says California “paid” her with an IOU that two banks refused to accept – yet she had to pay California sales tax on the so-called “sale” of the uniforms.
I think Baird has a strong case. She hasn’t been paid yet, so no sales tax is due. California’s position seems to be that she should pay the state for privilege of supplying it.