What does the U.S. Constitution Say?

The Supremacy Clause of the U.S. Constitution, establishes that the U.S. Constitution and federal laws to be “the Supreme Law of the Land.”

US Supreme Court Decisions

Legal precedent has been established by several high court judicial rulings, which include but are not limited to the following:

McCulloch v. Maryland, 17 U.S. 316 (1819)  States cannot directly levy tax directly on the federal government.

Alabama v. King & Boozer, 314 U.S. 1 (1941) - Taxes assessed to entities doing business with the federal government is not the same as directly assessing taxes to federal government.

U.S. v. New Mexico, 455 U.S. 720 (1982) - Immunity from taxes cannot be conferred to entities that are doing business with or on behalf of the federal government.

Payment Liability

Rulings were based on liability for payment; if the federal government is directly responsible for payment, states cannot assess a sales or use tax.  Federal employees who are traveling on business or who are making work related purchases may or may not be subject to state taxes. States may be able to determine whether to apply taxes to federal government transaction.

  • Centrally billed accounts (CBA):  Accounts are issued at the agency, bureau, division, or fleet level, rather than to individuals (even if an individual’s name on the card).  The federal government is billed directly for the purchase of goods and services and should not be assessed sales or use tax.  These include:

    o  Purchase cards
    o  CBA Travel cards
    o  Fleet cards
    o  Integrated cards
    o  Travel Tax Advantage cards

  • Individually billed accounts (IBA):  Accounts are issued to authorized federal government employees.  Transactions may include travel expenses, which are paid by the employee directly and are later reimbursed by the federal government.  This applies to IBA Travel cards.

For consideration:

  • Merchants are the collection point for state sales tax collection.  
  • States establish tax laws and regulations through legislation.
  • The vendors are expected to collect tax in accordance with established state tax laws and regulations.  
  • Laws may change without notice. 
  • Merchants may choose to err on the side of caution and assess taxes for exempt transactions.