Could a federal employee use a centrally billed government credit card instead of an exemption certificate for a Louisiana tax-exempt purchase?

Plain-English summary

A centrally billed federal government credit card could replace a Louisiana sales-tax exemption certificate because the United States—not the employee—was the purchaser. Purchases billed to and paid directly by the federal government were exempt under federal constitutional immunity.

Transactions billed to the employee were generally taxable, even when the federal government later reimbursed the employee.

Why billing responsibility controlled

The ruling relied on the Supremacy Clause and McCulloch v. Maryland for the rule that a state cannot impose tax directly on the United States or a federal instrumentality.

The decisive fact was who was legally billed and paid the card charge:

• Centrally billed charges went directly to the federal government and were not subject to sales tax.
• Individually billed charges went to the employee, who paid and sought reimbursement, and were generally taxable.

Because the card type and account sequence identified centrally billed accounts, the card itself could substantiate the exempt direct federal purchase without a separate exemption certificate.

Historical SmartPay card categories

The ruling described four card lines under the then-current GSA SmartPay program:

• Purchase cards and fleet cards were always centrally billed.
• Travel cards could be centrally or individually billed.
• Integrated cards combined purchase, fleet, and travel functions; purchase and fleet charges were centrally billed, while travel billing depended on the account.

For the historical travel cards and travel function of integrated cards, a sixth account digit of 0, 6, 7, 8, or 9 meant centrally billed. A sixth digit of 1, 2, 3, or 4 meant individually billed. The ruling limited that digit test to travel charges.

These designs and number rules describe the program in 2007 and should not be treated as current identifiers without verification.

Merchant verification and records

Even for a centrally billed card, the vendor had to verify that an authorized federal employee used it. The ruling required identification establishing the person's identity and federal employment, such as a government photo ID.

The merchant had to note the employee's identification number and agency on its copy of the sales receipt and retain that receipt. A retailer that failed to follow the verification rules could be held liable for the disputed sales or use tax.

What this means for you

Retailers

Confirm direct federal billing, authorized use, and current documentation requirements. A government logo alone did not establish the tax result.

Federal employees

An official-purpose card can still produce a taxable purchase if the account is individually billed to you.

Government travel and procurement teams

Explain the difference between centrally and individually billed accounts to travelers and vendors and keep current SmartPay guidance available.

Common questions

Q: Were purchase and fleet cards exempt under the ruling?

A: Yes, because they were centrally billed to the government.

Q: Were all federal travel-card charges exempt?

A: No. Individually billed travel charges were generally taxable.

Q: Was a separate exemption certificate required for a centrally billed card?

A: No, under the ruling's procedures.

Q: Did the merchant have to check employee identification?

A: Yes, and record the identification number and agency on the retained sales receipt.

Citations and references

• U.S. Const. art. VI, section 2 — Supremacy Clause
• McCulloch v. Maryland, 17 U.S. 316 (1819) — state tax directly on a federal instrumentality barred
• LAC 61:III.101.C — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 07-008

Original ruling text

Revenue Ruling No. 07-008
October 15, 2007
Sales Tax
Federal Credit Card Purchases
The purpose of this Revenue Ruling is to determine the taxability of certain purchases made by
employees of the federal government using a federal credit card.
Facts
Federal credit cards are issued by a variety of banks under a contract with the United States
General Services Administration (GSA). The federal government issues credit cards to its
employees for purchases of a wide range of goods and services, including office supplies, fuel,
transportation, accommodations and food. These credit cards are part of the GSA’s SmartPay
program and are commonly referred to as SmartPay Cards. The current GSA SmartPay plan has
been in effect since November 30, 1998, has been renewed annually since 2003, and is expected
to remain in effect until 2008. SmartPay Cards have unique prefixes and account numbers,
government-designed artwork, and wording that denote the card is for use by the United States of
America. There are four basic lines of federal credit cards: purchase, fleet, travel and integrated.
Purchase and fleet cards are always billed directly to the government (centrally billed) and
purchases made with them are not subject to sales tax. These cards can only be used for
purchases from specific types of merchants, such as office supply stores and gas stations.
Purchase cards are blue with a red stripe across the top and contain the imprinted phrase, “For
Official Government Purchases Only.” The cards also say “US Government Tax Exempt.” Fleet
cards are blue with a faint graphic of the flag across the top and cars faintly represented in the
middle of the card. The card says “For Official Government Fleet Use Only.”
Travel cards can be used at hotels, restaurants and similar travel-related venues. The cards are
beige in color and feature a design of the U.S Capitol and a large jet. They contain the imprinted
phrase, “For Official Government Travel Only.” Travel cards may be centrally billed or
individually billed. Individually billed charges are billed to and paid by the federal employee,
and then reimbursed by the federal government. Purchases using individually billed cards are
usually taxable. Centrally billed charges are billed directly to and paid directly by the federal
government and are not subject to sales tax. The sixth digit of the account number denotes
whether the travel card is centrally or individually billed. Travel cards with a sixth digit of 0, 6,
7, 8 and 9 are centrally billed. Travel cards with a sixth digit of 1, 2, 3 and 4 are individually
billed.
Integrated or combined cards include fleet, travel, and/or purchase functionality and offer the
federal government a single card for all its purchases. Integrated cards feature a blue sky with
clouds, the U.S. Capitol, and a flag. There is a small picture of a jet in flight in the middle. It says
“For Official Government Use Only.”
All fleet and purchase type transactions on integrated cards are centrally billed. Travel charges
may be centrally billed or individually billed. For travel charges only, the sixth digit of the
account number denotes whether the travel card is centrally or individually billed. The sixth digit
does not impact fleet or purchase charges in any way; fleet and purchase type transactions are
always centrally billed.

Revenue Ruling No. 07-008
Page 2 of 3

The sixth digit of the account number determines the billing method for travel cards and travel
related activity of integrated cards. The billing method can be determined as follows:
Prefix (1st four digits)
4486, 4716 & 5568
4486, 4716 & 5568

Sixth Digit
0, 6, 7, 8 & 9
1, 2, 3 & 4

Credit Card Type
Visa & MasterCard
Visa & MasterCard

Billing type
Centrally Billed
Individually Billed

Issue
Can federal government employees purchase goods and services exempt from sales tax without
providing a tax exemption certificate if the purchase is made with a centrally billed government
credit card?
Analysis
Historically, merchants have been required to obtain an exemption certificate from customers to
substantiate tax-exempt sales. However, states are prohibited from taxing the federal government
by the Supremacy Clause of the United States Constitution, U.S. Const. Art. VI, § 2, which
declares that the United States Constitution and laws are the supreme law of the land. In
McCulloch v. Maryland (1819) 17 US 316, the United States Supreme Court ruled that a state tax
imposed directly on a federal instrumentality violated the Supremacy Clause. Therefore,
purchases made by and billed directly to the United Sates Government cannot be taxed,
regardless of the lack of an exemption certificate.
Since government credit cards that are paid directly by the federal government can be identified
by their type and account numbering sequence, the centrally billed federal credit card can be
used to verify the exempt status of a purchase. Charges paid with individually billed government
credit cards will generally represent taxable transactions.
Conclusion
The United States Government is exempt from the payment of Louisiana sales or use tax under
the Supremacy Clause of the United States Constitution. Therefore, merchants will be allowed to
accept a federal credit card that is billed directly to the federal government in lieu of a sales tax
exemption certificate. Credit cards billed directly to the federal government can be identified by
the type of SmartPay Card issued and the account numbering sequence as previously stated.
Federal credit card transactions that are billed to the government employee are generally not
exempt from the sales tax.
In order to verify that an authorized person is using the SmartPay card, a vendor must require
identification establishing the person’s identity and status as a U.S. Government employee, such
as an employee photo identification card. The vendor must note the government employee’s
identification number and agency on the merchant copy of the sales receipt and retain the receipt
for its records. Retailers failing to follow the verification guidelines set forth for authorized GSA
SmartPay card users may be held liable for sales and use taxes on purchases in question.

Revenue Ruling No. 07-008
Page 3 of 3

For more information regarding this topic, taxpayers should contact the Taxpayer Services
Division at (225) 219-7356.
Cynthia Bridges
Secretary
By:

Mark Dwyer, CPA
Revenue Tax Research Analyst
Policy Services Division

A Revenue Ruling is written to provide guidance to the public and to Department of Revenue employees. It is
issued under LAC 61:III.101.C to apply principles of law to a specific set of facts. A Revenue Ruling does not
have the force and effect of law and is not binding on the public. It is a statement of the Department's
position and is binding on the department until superseded or modified by a subsequent change in statute,
regulation, declaratory ruling, or court decision.