SALT Report 2794 – The Washington Department of Revenue issued a tax advisory regarding the application of sales tax to purchases made by the Federal Government. In most cases, federal law prohibits any state from imposing retail sales tax on sales made to the United States government.
However, Washington is not prohibited from imposing retail sales tax on sales made to a person or entity that either pays or will be reimbursed with federal funds. Because of this, the Department has issued this tax advisory to clarify the tax collection and reporting requirements when buyers use funds provided by the United States government to pay for a purchase.
Because each federal program operates differently, the Department is currently reviewing each one to determine how tax may apply to certain purchases. Therefore, this advisory only discusses the federal programs that have been reviewed by the Department.
Funds Provided Under the Federal Medicare Act
Under “Part B” of the federal Medicare Act, beneficiaries are entitled to federal reimbursement for the cost of certain medical products. However, the beneficiary also has the option of having the federal government directly pay the seller on its behalf. If the seller receives payment directly from the federal government, it is not considered a tax-exempt sale to the federal government. This is because the federal government is paying these amounts on behalf of the beneficiary and consequently the sale is subject to retail sales tax.
Funds Provided by the American Red Cross or FEMA
These sales may or may not be subject to sales tax, depending on whether or not the Red Cross or FEMA, as tax-exempt instrumentalities of the federal government, are making the purchase. For example, sales are subject to retail sales tax if the recipient pays for the purchase using:
- Funds directly deposited by the Red Cross or FEMA into the recipient’s personal bank account, or
- A debit or client assistance card received from the Red Cross or FEMA
Funds Provided by the Department of Veterans Affairs for Automotive Adaptive Equipment
Generally, purchases of automotive adaptive equipment are taxable even when paid for directly by the Department of Veterans Affairs because the veteran is the actual buyer and is responsible for paying sales tax to the seller.
However, Washington recently enacted an exemption for sales of physician prescribed add-on automotive adaptive equipment, and the installation or repair services for the equipment. Qualified equipment includes, wheelchair lifts, wheelchair restraints, ramps, power door openers, and hand controls that are necessary to assist someone entering or exiting a vehicle or to safely operate a vehicle.
This exemption only applies to purchases when the Department of Veterans Affairs, or any other federal agency will reimburse the eligible purchaser in whole, or in part.
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