Tax Type
Retail Sales and Use Tax
Description
Government transactions; Meals and lodging; Exemption from sales and use taxes
Topic
Taxability of Persons and Transactions
Date Issued
03-28-1997
March 28, 1997
Re: Ruling Request: Retail Sales and Use Tax
Dear*********************
This will reply to your letter in which you request reconsideration of the department's prior ruling (P.D. 96-162) on the application of the sales tax to room rental charges made by your client, ************* (the Taxpayer).
FACTS
The Taxpayer is a federally chartered credit union exempt from the sales and use tax under federal law, 12 U.S.C.A. § 1768. The department's prior ruling addressed the application of the tax to lodging accommodations for credit union volunteers and employees traveling on behalf of the Taxpayer. The department ruled that the Taxpayer is exempt from the sales tax on the purchase of meals and lodging when payment is made directly by the Taxpayer pursuant to an official purchase order, government credit card, or government check. The department further ruled that if the Taxpayer's employee pays for the lodging with personal funds and will be reimbursed by the Taxpayer, or utilizes a travel advance, the exemption will not apply.
The Taxpayer takes exception to the department's ruling and believes that the purchase of meals and lodging should qualify for the government exemption regardless of whether payment is made directly by the credit union, by an employee who will be reimbursed by the credit union, or with advanced funds. The Taxpayer further contends that Title 23 of the Virginia Administration Code (VAC) 10-210-690, which governs taxation of sales to governments, places no conditions or contingencies upon the exemption provided to federal credit unions.
RULING
Code of Virginia § 58.1-609.1(4) provides an exemption from the sales tax for purchases of tangible personal property for use or consumption by the federal government and state and local governments of Virginia. Title 23 VAC 10-210-690 provides further guidance on the exemption and states, in part, that "sales to the United States...are exempt from the tax if the purchases are pursuant to required official purchase orders to be paid out of public funds. Sales made without the required purchase orders and not paid for out of public funds are taxable." This same section goes on to provide that "purchases of meals, lodging, and other accommodations, by the federal government or its employees traveling on government business are exempt from the tax provided payment for the meals, lodging, or other accommodations is made directly by the federal government pursuant to an official purchase order (e.g., by direct billing to government or use of government credit card)."
The Taxpayer provided the department with a copy of an exemption letter regarding the tax status of purchases by federal credit unions and their employees. The letter specifically states that:
-
- “... federal credit unions are exempt from all taxes imposed by the United States or by any State, Territorial, or local taxing authority except for local real or personal property tax. This exemption includes municipal taxes such as hotel taxes and night occupancy taxes where the legal incidence of the tax falls on the federal credit union (FCU). Furthermore, a federal credit union is entitled to the tax exemption regardless of whether the federal credit union pays (including FCU reimbursable payment by federal credit union officials and employees engaging in official credit union business) by cash, check, credit card, debit card, charge card or any other method of acceptable payment."
I cannot agree with this statement entirely. Under 12 U.S.C.A. § 1768, federally chartered credit unions are exempt from sales and use taxes on their purchases. The department, however, cannot agree with your analysis that the statute exempts purchases by a credit union employee.
The department traditionally and consistently has held that purchases of tangible personal property by the United States (in this case the federal credit union) are exempt from the tax only if the purchases are Pursuant to required official purchase orders to be paid out of public funds. Further, purchases made on behalf of a government agency are exempt from the tax only if the purchaser is actually the agent for the government agency and the purchase is made with public funds. In order for the agent to be entitled to claim the benefit of the governmental exemption, purchase agreements with sellers must bind the credit of the government. See P.D. 93-21 (2/5/93) and P.D. 93-20 (2/5/93), copies enclosed.
Sales to federal employees for their own consumption or for use in carrying out official government business, are taxable. When an employee pays for tangible personal property or taxable services with personal funds, the legal incidence of the Virginia sales and use tax is upon the individual purchaser. This is true even if the employee will be reimbursed by the government. See the enclosed copy of P.D. 90-32 (3/08/90).
This position is also consistent with the ruling In United States v. Forst, 442 F. Supp. (W.D. Va. 1977), aff'd, 569 F.2d 811 (4th Cir. 1978), in which the federal court found that the legal incidence of the Virginia sales and use tax was upon a federal contractor despite the fact that the contractor never had legal title to the items purchased and that it was reimbursed by the government for the cost of the purchases. The court found that the credit of the United States was no t bound by the contractor's purchase agreements with its vendors so as to make the transactions sales to the government.
Likewise, purchases of meals, lodging and other accommodations by federal employees traveling on government business are exempt from the tax only when payment is made directly by the federal government pursuant to an official purchase order (e.g., by direct billing to the government or through the use of a government credit card). On the other hand, if an employee pays for thle meals and lodging with personal funds, a personal credit card, or utilizes a travel advance, no exemption is available even though the employee may be traveling pursuant to official government orders or the credit card used has the governmental agency's name embossed thereon. Further, no exemption is available if an employee pays for meals and lodging with a credit card provided by the government, the bill for which is sent directly to the employee, and will be reimbursed by the government. See the enclosed P.D.'s 94-220 (7/14/94), 91-28 (3/11/91), and 90-225 (12/19/90) which further address the department's established policy regarding the application of the tax to the purchase of meals and lodging by the federal government and to federal employees traveling on government business.
Based on the department's longstanding policy regarding this issue, l cannot agree with the Taxpayer's interpretation of 23 VAC 10-210-690. Accordingly, the department finds no basis to reverse its prior ruling on this matter and the ruling in P.D.96-162 is upheld. If you should have any questions regarding this matter, please contact *******of the department’s Office of Tax Policy at ********* .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11522T
Rulings of the Tax Commissioner