Tax Type
Retail Sales and Use Tax
Description
Selling airline timetables to tax-exempt government agencies in the United States
Topic
Exemptions
Date Issued
10-08-2004
October 8, 2004
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the "Taxpayer"), in which you request a ruling on the documentation necessary to support a sales and use tax exemption on sales to a government agency. I apologize for the delay in responding to your correspondence.
FACTS
The Taxpayer is a content management company specializing in travel and transport. The Taxpayer sells airline timetables to tax-exempt government agencies in the United States. You state that the Taxpayer has encountered difficulty in obtaining a sales tax-exemption certificate from the government agencies that purchase products and services. When a government agency does not furnish a sales tax-exemption certificate, the Taxpayer includes sales tax on the final invoice; however, many government agencies do not pay the sales tax and remit payment minus the sales tax amount.
Currently, the Taxpayer includes a sales order confirmation that the purchaser must sign and return to the Taxpayer before product delivery. The Taxpayer would like to include a statement on the sales order confirmation that states, "I acknowledge that, for tax purposes, the software and data ordered herein will be licensed by the below-referenced government entity." This statement would be added to the sales confirmation form in lieu of the government agency providing a sales tax-exemption certificate. You ask if this statement would be an acceptable form of a sales tax-exemption certificate.
In addition, you ask if a government agency's "E" number or the use of a government issued credit card may be accepted as proof of an agency's tax-exempt status.
RULING
Purchases by government entities
Virginia Code § 58.1-609.1(4) exempts from the sales and use tax, "[t]angible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States."
Title 23 of the Virginia Administrative Code (VAC) 10-210-690 states that in order for a purchase to be exempt from retail sales and use tax under the government exemption, it must be paid out of public funds through an official purchase order or the purchaser must provide a Retail Sales and Use Tax Exemption Certificate. The purchase order must show a direct billing to the agency. The statement the Taxpayer intends to include on the sales order confirmation form cannot be the sole means of proof of tax-exempt status. In addition to the statement included on the sales order confirmation form, an official purchase order or a valid exemption certificate must be included.
Government issued credit card
The purchase order can be paid through direct billing to the agency or via an approved government credit card. Only those credit card purchases for which the credit of the federal government is bound and billings are sent directly to and paid by the government are exempt from the retail sales and use tax. The Department has agreed that federal government credit cards issued under the General Services Administration SmartPay Program may be used to make exempt purchases in accordance with the government exemption outlined in Va. Code § 58.1-609.1(4).
Through the credit card account number, the Department is able to determine the taxable or exempt status of purchases. Therefore, it is no longer necessary for federal government agencies to provide a purchase order or an exemption certificate to vendors when making exempt purchases using these cards. The Department has adopted a policy that addresses the application of the retail sales and use tax to the four types of credit cards issued under the GSA SmartPay Program. The full text of this policy is set forth in Public Document 03-94 (12/12/03).
Fleet and purchase cards are used under the Voyager, Mastercard and VISA platforms. These cards carry the prefixes 8699 (Voyager), 5568 (Mastercard) and 4486 and 4716 (VISA). All purchases made with these cards are billed directly to and paid by the federal government and, therefore, qualify for exemption from Virginia's sales and use tax. Fleet cards are imprinted with the language, "For Official Government Fleet Use Only." Purchase cards are imprinted with the language, "For Official US Government Purchases Only."
Travel cards are issued under the Mastercard and VISA platforms and carry the same prefixes as stated above (Mastercard: 5568, VISA: 4486 and 4716). These cards may be billed directly to the federal government or billed to an individual. The billing of these cards can be identified by the sixth digit in the card's account number. If the sixth digit is "0", "6", "7", "8", or "9", the purchase is billed directly to the federal government and is exempt. Conversely, if the sixth digit is "1", "2", "3", or "4", the purchase is billed to the individual and is taxable. Such purchases are taxable because they violate the "direct" billing mandate set out in the regulation. Travel cards are imprinted with the language, "For Official Government Travel Only."
Integrated or combined cards are issued under the same platforms and use the same prefixes as the travel cards above. The integrated cards provide for fleet, purchase, and travel transactions in a single card: All fleet and purchase transactions made with these cards are billed directly to and paid by the federal government and, thus, qualify for exemption from Virginia's sales and use tax. Travel purchases made with these cards may be billed directly to the federal government or billed to an individual. The billing of travel purchases made using these cards can be identified by the sixth digit in the card's account number. If the sixth digit is "0", "6", "7", "8", or "9", the purchase is billed directly to the federal government and is exempt. Conversely, if the sixth digit is "1 ", "2", "3", or "4", the purchase is billed to the individual and is taxable. Such purchases are taxable because they violate the "direct" billing mandate set out in the regulation. Integrated cards are imprinted with the language, "For Official Government Use Only."
The Department currently relies on the credit card number to determine whether a particular transaction qualifies as an exempt purchase by the federal government. Vendors accepting these credit cards must make a determination of the taxable or exempt status of the transaction based on the card account number. Vendors must retain in their records a copy of the purchase invoice or receipt that includes the federal government credit card account number in order to document an exempt transaction.
The Code of Virginia section and regulation cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department of Taxation's website, located at www.tax.state.va.us. If you have any questions about this ruling, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/51131i
Rulings of the Tax Commissioner