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State Tax Legal History

Learn more about the legal history and precedents of state taxes.

The U.S. Constitution

The Supremacy Clause of the U.S. Constitution establishes that the U.S. Constitution and federal laws are “the Supreme Law of the Land.” As such, states cannot impose sales tax on the federal government.

Supreme Court Decisions

Several high court judicial rulings have established this legal precedent, which include but are not limited to the following:

Name Summary
McCulloch v. Maryland, 17 U.S. 316 (1819)States cannot directly levy tax 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 the 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 transactions.

  • 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 is 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:
    • Purchase cards/accounts
    • CBA travel cards/accounts
    • Fleet cards/accounts
    • Integrated cards/accounts
    • Tax Advantage Travel cards/accounts
  • 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/accounts.

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