Bulletin Number
VTB 05-9
Tax Type
Retail Sales and Use Tax
Description
IMPORTANT INFORMATION REGARDING HURRICANE KATRINA DISASTER RELIEF: FEMA AND AMERICAN RED CROSS DEBIT CARDS
Topic
Exemptions
Date Issued
09-16-2005
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- TAX BULLETIN 05-9
Virginia Department of Taxation
September 16, 2005
- TAX BULLETIN 05-9
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IMPORTANT INFORMATION REGARDING HURRICANE KATRINA DISASTER RELIEF: FEMA AND AMERICAN RED CROSS DEBIT CARDS
This bulletin addresses the Virginia retail sales and use tax treatment of purchases made under financial assistance programs administered by the Federal Emergency Management Administration (FEMA) and the American Red Cross to assist victims of Hurricane Katrina. Tax Commissioner Kenneth W. Thorson announces that taxable items purchased with FEMA and Red Cross debit cards and vouchers are exempt from Virginia’s retail sales and use tax, subject to the limitations set forth in this bulletin.
FEMA launched a limited debit card pilot program to address the emergency food, transportation and clothing needs of Hurricane Katrina victims. Under its program, FEMA provided some victims relocated to three cities in Texas with emergency debit cards that can be used at any location where bankcards are accepted, or at any automated teller machine (ATM). FEMA has provided additional assistance in the form of both checks and direct deposits made to victims’ personal bank accounts. The American Red Cross has a similar program in which assistance is provided in the form of both vouchers and “client assistance cards.” These debit cards and vouchers not only provide money to Hurricane Katrina victims, they also provide a means by which victims can be relieved from paying the Virginia sales tax on purchases made using these methods of payment.
Virginia law provides an exemption from sales tax for tangible personal property used or consumed by the federal government. FEMA, a division of the Department of Homeland Security, is an agency of the federal government. Similarly, the American Red Cross, a corporation chartered by the United States Congress, has been held by the United States Supreme Court and the Virginia Department of Taxation to be an instrumentality of the federal government. Purchases made with the debit or client assistance cards or vouchers provided by either organization will not be subject to state and local sales taxation under this exemption.
To qualify for Virginia’s governmental exemption, the sale or transaction must be paid for directly out of public funds, i.e., billed directly to the federal government. This means that victims will qualify for the exemption only when they use their FEMA or Red Cross debit cards or vouchers while purchasing goods. It is not sufficient that the transaction is indirectly financed using government funds. For example, victims who make cash withdrawals using their FEMA or Red Cross debit cards and subsequently purchase goods with this cash are not entitled to an exemption from the sales tax. The same is true for victims who make purchases using funds drawn from a personal bank account funded entirely, or in part, by government contributions.
Retailers claiming such sales to be exempt must create and maintain records supporting the fact that the items were purchased using FEMA or Red Cross debit cards or vouchers in order to ensure that the exemption is provided only when the requirements set forth above are met.
As a reminder, Virginia law also allows a sales tax exemption for inventory that is donated by a business to any organization qualifying as a nonprofit organization under IRC 501(c)(3). Businesses that donate inventory items, such as bottled water, food, clothing, or building supplies may do so without incurring a sales tax liability provided they are donated to a nonprofit organization. The exemption does not apply for donations made directly to individual victims of Hurricane Katrina.
If you have any additional questions concerning the tax implications of Hurricane Katrina disaster relief efforts, please contact the Department’s Office of Customer Services at (804) 367-8037. Information is also available on TAX’s website at: http://www.tax.virginia.gov.
Tax Bulletins