SALT Report 3077 – The Washington Department of Revenue issued a ruling regarding an assessment of sales tax against a motel operator for its sales to employees of the Federal Government. In this particular case, the Audit Division issued an assessment of retail sales tax on the Taxpayer’s sales of lodging and related services because the charges were paid for using a Smart Pay 2 “Purchase Card.” The auditor stated that these cards are to be used only for general purchases, and not for lodging purposes.
The Taxpayer filed an appeal of the assessment arguing that as long as the sale was made to the Federal Government and the purchase was paid for by the Federal Government it should not matter whether the charge was paid with a credit card specifically designated for lodging purchases.
Upon review of the case, the Department stated that generally, rentals of hotel rooms are subject to sales tax. However, under the Supremacy Clause of the United States Constitution, the Department is prohibited from imposing sales tax on sales made directly to the Federal Government, but not on sales made to Federal Government employees, agents, or contractors.
To clarify this rule, the Department issued a “Special Notice” to provide additional guidance regarding purchases made with government issued credit cards. The Notice explained that under WAC 458-20-190, sales made directly to the Federal Government qualify for a retail sales tax exemption. However, the notice explained that only “certain travel charges” would qualify for the exemption.
To qualify, the charge must be paid for with a credit card that is billed directly to the U.S. Government. For example, centrally billed accounts qualify for the exemption from retail sales tax. However, accounts billed to, and paid by, an individual who is making a purchase that will be reimbursed by the Federal Government, does not qualify for the exemption from retail sales tax.
Based on the above, the Department determined that whether the sale of lodging to a government employee is subject to sales tax depends not on the type of credit card used, but on whether the government is billed directly for the charges. Further, the fact that a government employee purchases lodging using a card that is not intended for that purpose is a matter that must be resolved by the government.
Therefore, the Department ruled that if the Taxpayer could establish that these sales were made to an employee using a centrally billed account that is paid by the Federal Government, it would be allowed a credit.
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