Is the contractor entitled to tax exemption based on the cell phones becoming the property of the government? The contractor pays for the cell phones and will get reimbursed by the government for the price of the cell phones.
Government contractors generally do not get an exemption from sales taxes for indirect sales to the Government. Typically, the Federal Government obtains the exemption only when it purchases supplies (cell phones in this case) directly from a supplier. However, there may be exceptions depending on state law. FAR 29.303
covers this specific issue. In any case, you will need to conduct additional research of the cognizant state's tax laws.