Tax Type
Retail Sales and Use Tax
Description
Government transactions; Lodging costs paid by credit card
Topic
Taxability of Persons and Transactions
Date Issued
05-26-1993
May 26, 1993
Re: Virginia Code §58.1-1821 Appeal
Dear**************
This will reply to your letter in which you request correction of the sales tax assessment made pursuant to a sales and use tax audit by the Department of Taxation for the period February 1987 through December 1989.
FACTS
During the period under audit, *********** (the "Taxpayer") exempted various federal government and military employees' payment of lodging costs using a Diners Club credit card from state sales tax. The department disallowed the exemptions and the Taxpayer was assessed with a deficiency.
The Diners Club cards used to make the purchases bore the name of the government or military employee and may or may not have had the abbreviation of their employers' name imprinted on the front of the card immediately under the employees' name. Under GSA Contract No*************federal and military employees are primarily liable for payment of the charges and are to restrict the use of their cards to official government business travel purchases.
The Taxpayer contends that a prudent person might reasonably assume that a purchase by a government or military employee using a Diners Club card with the government agency name noted thereon and who provides identification issued by such agency qualifies for the government exemption under Virginia Regulation 630-10-45(A). The Taxpayer requests that the exemptions be allowed and the assessment be abated.
RULING
A purchase made by an employee of the Federal government is exempt from sales tax if the purchase is pursuant to a required official purchase order to be paid to the vendor out of public funds. VR 630-10-45(A). The regulation provides several examples which illustrate the different situations in which the payment of lodging costs qualify for the governmental exemption and those situation where such transactions are subject to sales tax.
If a federal government employee traveling on governmental business pays for lodging with a credit card which is directly billed to and paid by the government agency which employs such individual, the transaction qualifies for the governmental exemption. Direct billing to and payment by the government, rather then a transfer of funds through the employee, satisfies the public fund requirement.
If, however, the employee is primarily liable for the payment of the charges incurred with the credit card, directly receives the credit card statement from the credit card company, and either pays the required amount out of his own funds and is then reimbursed by the government or pays the billed amount with funds advances by the government, the transaction is subject to sales tax. Payment by the employee and subsequent reimbursement or advancement by the government does not meet the public funds requirement notwithstanding the fact that the employee is reimbursed for the expense or pays the expense with advanced funds. Similarly, if the employee arranges to have the government issue the reimbursement check directly payable to the credit card company, the transaction would not meet the public fund requirement. The credit card must be in the government agency's name, the government must be primarily liable for payment of the expense, and the monthly statement must be directly sent to such agency by the credit card company.
The terms of GSA contract*********specify that the cardholder (employee) is directly responsible for the charges incurred on the Diners Club card. Presumably, the employees were reimbursed for the lodging expense. Due to the employee's primary responsible for the payment of the charges incurred with the Diners Club card and the subsequent payment of the same by the employees, the employees' use of the Diners Club card did not qualify for the governmental exemption.
The mere fact that the Diners Club card may have had the employer agency name on the card or that the agency will reimburse the employee for the expenses incurred does not result in the transactions qualifying for the governmental exemption. The Taxpayer was, therefore, required to collect sales tax on the transaction.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/5198O
Rulings of the Tax Commissioner