Were Hurricane Katrina purchases made with FEMA or Red Cross assistance exempt from South Carolina sales tax?

Plain-English summary

South Carolina Revenue Ruling #05-15 addressed purchases by Hurricane Katrina victims using emergency assistance from FEMA or the American Red Cross.

Purchases made with the specific FEMA or Red Cross debit cards described in the ruling were exempt from South Carolina sales and use tax. The Department treated those transactions as sales to FEMA or the Red Cross and therefore as exempt sales to the federal government.

The result changed when aid became the victim's own payment funds. Purchases were not exempt when the victim received a check, received an electronic transfer into a personal bank account, withdrew cash from an assistance card, or used personal money. Retailers accepting an eligible card were instructed to keep records documenting the exempt sale.

This guidance was tied to the Katrina program. The ruling noted that FEMA had already discontinued issuing the described cards, although previously issued cards still qualified.

What this means for you

Retailers reviewing 2005 Katrina transactions

The payment method controlled. A qualifying program debit card represented a purchase by FEMA or the Red Cross; cash, a personal check, or money deposited into the customer's account represented a purchase by the individual.

Disaster-relief recipients

Receiving government or charitable assistance did not by itself exempt every purchase. Under the ruling, the exemption depended on the relief agency remaining the purchaser through the specified card transaction.

Tax professionals

The ruling is useful as a historical example of how the Department distinguished a direct government purchase from financial assistance paid to an individual. Its program details should not be transferred to another disaster without official authority.

Common questions

Q: Were all purchases by Katrina victims tax-free?
A: No. Only purchases using the specified FEMA or Red Cross debit cards were treated as exempt under the ruling.

Q: What if FEMA deposited money into the victim's bank account?
A: Purchases made from that personal account were not treated as federal-government purchases and were not exempt under this ruling.

Q: What if the card was used to withdraw cash first?
A: Purchases made with the withdrawn cash were not exempt.

Q: What records did retailers need?
A: The ruling instructed retailers to maintain proper records of sales made with the FEMA or Red Cross debit cards to document the exemption.

Citations and references

• S.C. Code Ann. § 12-36-2120(2) — exemption for tangible personal property sold to the federal government
• Department of Employment v. United States, 385 U.S. 355 (1966) — cited by the ruling for the Red Cross's federal-instrumentality status

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR05-15.pdf

Original ruling text

State of South Carolina
Department of Revenue
301 Gervais Street, P.O. Box 125, Columbia, South Carolina 29214
Department Website: www.sctax.org

SC REVENUE RULING #05-15

SUBJECT: FEMA and Red Cross Financial Assistance — Hurricane Katrina
(Sales and Use Tax)

EFFECTIVE DATE: Applies to all periods open under the statute.

SUPERSEDES: All previous advisory opinions and any oral directives in conflict
herewith.

REFERENCES: S. C. Code Ann. Section 12-36-2120(2) (2000)

AUTHORITY: S. C. Code Ann. Section 12-4-320 (2000)

S. C. Code Ann. Section 1-23-10(4) (Supp. 2004)
SC Revenue Procedure #03-1

SCOPE: The purpose of a Revenue Ruling is to provide guidance to the public
and to Department personnel. It is a written statement issued to apply
principles of tax law to a specific set of facts or a general category of
taxpayers. A Revenue Ruling does not have the force or effect of law,
and is not binding on the public. It is, however, the Department’s
position and is binding on agency personnel until superseded or
modified by a change in statute, regulation, court decision, or advisory
opinion.

Introduction:

The United States Department of Homeland Security's Federal Emergency Management Agency
(“FEMA”) has activated an expedited assistance program for victims of Hurricane Katrina. More
than 230,000 eligible households are receiving payments to help pay for their emergency needs
of food, shelter, clothing, personal necessities and medical needs.

FEMA has sent out award payments to displaced individuals in many of the 50 states, and the
District of Columbia, where victims of Hurricane Katrina have evacuated.

Once individuals register with FEMA for assistance, funds will be made available either through
the use of electronic transfer to put funds directly in individuals' bank accounts, debit cards in
some locations, or by check.

With respect to the FEMA debit cards, the United States Treasury is depositing funds with
JPMorgan Chase Bank who, in turn, will be making the disbursement to retailers and others who
accepts the cards. All cards will carry the same bank identification number which is 511393. The

cards will require the use of a personal identification number (“PIN”) to make a purchase. The
cards may also be used to obtain cash through various ATM networks. The cards will be
MasterCard branded and will carry one of two designs. Most will carry American flag art work;
however, some initial cards will be blue with a Chase bank logo. (See the attached copies of the
front and back of each FEMA debit card.) Retailers will be able to use the single bank
identification number to program extra discounts for purchases using the cards, block purchases
of alcohol, tobacco, and firearms, and to also address tax issues.

The American Red Cross (“Red Cross”) is putting in place a mechanism for providing financial
assistance for the victims of Katrina, many of whom are now in locations across the nation. As
part of this effort, the Red Cross may also distribute debit cards (“Red Cross Client Assistance
Cards”) to victims of Hurricane Katrina. These cards are issued and funded by the Red Cross.

When the debit cards are used to purchase food, shelter, clothing, personal necessities and
medical needs, the money is paid from a bank account of FEMA or the Red Cross, depending on
which debit card is used.

At this time, victims of Hurricane Katrina are being relocated throughout the country, including
South Carolina, and these victims will receive assistance as described above through FEMA and
the Red Cross.

Law and Conclusion:

Code Section 12-36-2120(2) exempts from the South Carolina sales and use tax “tangible
personal property sold to the federal government.”

FEMA is a part of the United States Department of Homeland Security and is therefore an
agency of the federal government. The Red Cross is an instrumentality of the United States
government. Department of Employment et.al. v. United States, 385 US 355 (1966).

Therefore, sales to, or purchases by, FEMA or the Red Cross are exempt from the South
Carolina sales and use tax.

The Department, upon review of the above transactions, has determined that sales in which
purchases are made with the above described FEMA debit cards or Red Cross debit cards are
sales to either FEMA or the Red Cross and exempt from the South Carolina sales and use tax as
sales to the federal government. This position is similar to one taken by the Department with
respect to disbursement vouchers issued by the Red Cross in 1989 as a result of Hurricane Hugo.
See SC Information Letter #89-34.

However, sales in which purchases are made by storm victims using funds which are received
from FEMA or the Red Cross by check to the individual or by electronic transfer directly into the
victim’s bank account are not sales to, or purchases by, the federal government and are therefore
not exempt from the South Carolina sales and use tax. In addition, if a storm victim uses his own
funds or if a storm victim uses a debit card to obtain cash from an ATM (if permissible under
FEMA or Red Cross guidelines), then purchases made with such personal funds or cash are not
exempt from the South Carolina sales and use tax.

Retailer should maintain proper records of all sales in which a FEMA or Red Cross debit card is
used in order to document such tax exempt sales to FEMA or the Red Cross.

Note: FEMA recently discontinued the issuance of the above described debit cards.
However, sales in which purchases are made with the FEMA debit cards that were
previously issued to victims of Hurricane Katrina are still exempt from the South Carolina
sales and use tax.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank III, Director

October 17 _, 2005
Columbia, SC 29201

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