Are hotel charges paid by a federal employee with a centrally billed government credit card exempt from Kansas sales and transient guest tax?

Plain-English summary

A federal unit asked how Kansas taxes hotel accommodations that it pays for with centrally billed Visa credit cards. The Department ruled the charges are exempt — "exempt from Kansas sales tax and Kansas transient guest tax because the credit cards are centrally billed."

The deciding feature: who is billed. Federally sponsored travel cards are "normally issued in the employee's name," but they split into two types. "[S]ome cards are centrally billed while other cards are billed to the individual employee." That distinction controls the tax result.

Centrally billed — exempt. "When a federal employee uses a card that is centrally billed, the federal government receives the bill and pays it. This is considered to be a direct sale to the United States and is exempt from state sales taxes because of the Supremacy Clause." Because the United States is the actual purchaser, a state cannot tax the sale.

Individually billed — taxable. "When card charges are billed to an individual employee who is liable for the charges, the transaction is considered to be a sale to an individual and is taxable just like any other sale to an individual." Critically, this holds "even though the federal government will later reimburse the employee." Later reimbursement does not change who bought the room.

Applied here. The unit's "Visa cards being used are centrally billed," so the hotel charges are exempt. The Department also noted it intended "to issue a notice and new exemption certificate shortly that discusses these new cards."

Bottom line: the federal exemption turns on the billing arrangement. A centrally billed card is a direct purchase by the United States and is exempt from Kansas sales and transient guest tax; an individually billed card is a taxable purchase by the employee, even if the government reimburses them.

What this means for you

Federal agencies and employees traveling on government cards

Charges on a centrally billed federal card are exempt from Kansas sales and transient guest tax as direct purchases by the United States. Charges on a card billed to the individual employee are taxable, even if the agency reimburses the employee — so know which type of card you are using.

Hotels and lodging providers

Exempt lodging charges — including the transient guest tax — only when the payment is on a centrally billed federal card (a direct sale to the United States). Collect tax on charges paid with an individually billed card, regardless of later government reimbursement. Verify the card type and keep documentation.

Distinguishing the two card types

The exemption follows the billing, not the cardholder's name. Look at whether the federal government or the individual employee is liable for and pays the bill.

Common questions

Q: Are hotel charges on a centrally billed federal card taxable in Kansas?
A: No. They are a direct sale to the United States, exempt from Kansas sales tax and Kansas transient guest tax under the Supremacy Clause.

Q: What about a card billed to the individual employee?
A: That is a taxable sale to an individual, even if the federal government later reimburses the employee.

Q: Does the transient guest tax also fall away on a centrally billed card?
A: Yes. The Department ruled the centrally billed charges are exempt from both Kansas sales tax and the Kansas transient guest tax.

Citations and references

• The ruling rests on the U.S. Constitution's Supremacy Clause: a purchase paid directly by the United States (a centrally billed federal card) is a direct sale to the federal government that a state cannot tax, exempting the charges from Kansas sales and transient guest tax. The distinction between centrally billed and individually billed cards is explained as Department policy rather than by citing a numbered K.S.A. subsection; it is described in prose above.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-213

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 1, 1999

XXXX
XXXX
XXXX

RE: Your letter of August 30, 1999

Dear Sergeant XXXX:

Thank you for your letter that we received at the end of August. You ask how the State of Kansas will tax hotel accommodations that the XXXX Band pays for with centrally billed Visa credit cards. Please be advised that these sales are exempt from Kansas sales tax and Kansas transient guest tax because the credit cards are centrally billed.

From the standpoint of state sales taxation, there are two important features that determine taxability of business related travel expenses that federal employees pay for with certain federally sponsored credit cards. These cards are normally issued in the employee’s name. The two distinguishing features are that some cards are centrally billed while other cards are billed to the individual employee. When a federal employee uses a card that is centrally billed, the federal government receives the bill and pays it. This is considered to be a direct sale to the United States and is exempt from state sales taxes because of the Supremacy Clause. When card charges are billed to an individual employee who is liable for the charges, the transaction is considered to be a sale to an individual and is taxable just like any other sale to an individual. This rule applies to even though the federal government will later reimburse the employee for the expenditures.

In the case of the XXXX Band, the Visa cards being used are centrally billed. This is your understanding and is reflected in the fact that the cards are Visa travel cards with account number 4486 1600 XYZX YZXY. Please be advised that we intend to issue a notice and new exemption certificate shortly that discusses these new cards. I will send you copies when they are published. If you have any additional questions, please call me at (785) 296-3081.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 10/11/1999 Date Modified: 10/11/2001

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