What You Need to Know About State Taxes

GSA SmartPay® Smart Bulletin No. 020

UPDATE:

Effective Date

From issuance until superseded.

Business Line(s) Affected

Purchase, Travel, Fleet, and Integrated

Introduction

In accordance with established legal precedence, states do not have the authority to assess state sales tax to the federal government or instrumentalities of the federal government under the Supremacy Clause of the Constitution of the United States. However, there are instances where state sales tax can be assessed on federal government transactions based on the liability of payment. For more information, please visit the “State Taxes” page on the GSA SmartPay website.

Summary

It is important for federal government employees, hotels, rental car companies, and merchants to understand state sales tax exemption requirements for each state and to know when it is appropriate to assess state sales tax on federal government transactions. This will help the federal government preserve operating budgets for performing mission-critical activities. For merchants, this will help ensure the accuracy of records, promote effective processes, and improve customer service to millions of federal government charge card/account users.

Recognizing GSA SmartPay Charge Cards

Federal government charge cards/accounts can be identified by the following four-digit prexes of the card/account’s Bank Identification Number (BIN):

• 4486
• 4614
• 4615
• 4715 **
• 4716
• 5563 *
• 5565
• 5568
• 6900 *
• 7071 *
• 7088 *

*GSA SmartPay cards/accounts use this 4-digit prex; however, please note that this 4-digit prex may not be reserved for GSA SmartPay business only. Other non-GSA SmartPay customers may have cards/accounts with this 4-digit prex as well. For additional information on GSA SmartPay prexes, please contact the GSA Center for Charge Card Management directly at gsa_smartpay@gsa.gov.

**This 4-digit prex is only used by the United States Postal Service (USPS) Uniform Allowance Program (UAP) through the GSA SmartPay program.

Different Types of Federal Government Charge Cards/Accounts

Centrally Billed Accounts (CBA) The federal government is billed directly for the purchase of goods and services using a GSA SmartPay CBA charge card/account and, therefore,is responsible and liable for making payment. In accordance with legal precedent, as the federal government is directly liable for payment, CBAs are exempt from direct state sales tax in all 50 states and U.S. territories. CBAs include the following:

• GSA SmartPay Purchase Card/Account
• GSA SmartPay Travel CBA Card/Account
• GSA SmartPay Fleet Card/Account
• GSA SmartPay Integrated Card/Account

Individually Billed Accounts (IBA) Card/account holders, and not the federal government, are directly billed for the purchase of goods and services using a GSA SmartPay IBAcharge card/account. All GSA SmartPay IBA Travel card/account purchases and some GSA SmartPay Tax Advantage Travel card/account purchases are individually billed. States are not required to honor state sales tax exemption for IBAs. However, many states choose to offer state sales tax exemption as a courtesy to the federal government. Please note that for agencies using split disbursement for IBAs, the card/account holder is still responsible for the payment, and as such, transactions may still be subject to state sales tax.

Please note that the GSA SmartPay Tax Advantage Travel card/account may function as either an IBA or CBA, depending on the type of purchase. Rental car and lodging purchases are typically diverted to the CBA portion of the card/account, while other travel-related purchases like meals and incidentals are typically diverted to the IBA portion of the card/account.

Gross Receipts Sales Tax

There are a few states that do not directly assess state sales tax to consumers at the point of sale but instead assess a gross receipts tax directly on merchants. The merchant can choose to pass along this tax to consumers. If a merchant chooses to pass along a gross receipts tax on a CBA transaction, it is not considered a state sales tax, and therefore, it is allowable. Please note that a merchant in these states is not required to pass along the amount of the gross receipts tax to the card/account holder. For more information, please visit the “State Taxes” page on the GSA SmartPay website.

Action

Card/Account Holder Best Practices:

• Please visit the “State Taxes” page on the GSA SmartPay website prior to official government travel or before making a purchase to determine state sales tax exemption status and to determine if a form is required for tax exemption.
• Contact the merchant to verify state sale tax exemption status, as applicable. Should the merchants not honor state sales tax exemption in states that have state sales tax exemption, please identify an alternate merchant that will honor the exemption.
• In accordance with the Travel Transportation and Reform Act of 1998, please use an official government travel card/account when on official government travel. Some states are not required to honor state sales tax exemption when a non-federal government charge/credit card is used as a form of payment.
• When required by state law, policy, or regulation, please present federal government identification, purchase orders, or travel orders to merchants.
• When in doubt, please follow your agency’s state tax policy.
• Maintain a copy of all travel card/account receipts that are over $75 for 6 years and 3 months or in accordance with agency policy.
• Monitor accounts regularly for improperly applied state sales tax

Resources

Please visit the GSA SmartPay website to view state tax exemption information, FAQs, and relevant publications.