When is a purchase made with a federal government credit card exempt from South Carolina sales and use tax?

Plain-English summary

The South Carolina Department of Revenue said the federal exemption turned on who was legally billed and paid the card issuer, not merely on whether a federal employee was conducting official business.

A purchase was exempt when the retailer billed the U.S. government directly, the employee used a centrally billed federal card, or payment came by federal government check. A purchase was taxable when the employee was individually billed, personally responsible for payment, and later reimbursed.

Applying that distinction to the then-current GSA SmartPay 2 program, the ruling treated purchase and fleet cards as exempt because they were centrally billed. Travel-card purchases depended on the account's sixth digit: centrally billed accounts were exempt and individually billed accounts were taxable. Integrated-card treatment likewise depended on the agency-specific numbering and billing arrangement.

What this means for you

Retailers and hotels

Do not treat every transaction involving a federal employee as exempt. Identify whether the account is centrally or individually billed and retain evidence supporting that treatment.

Federal travelers

Official purpose and later reimbursement did not make an individually billed purchase exempt. The employee was the purchaser when personally liable to the card issuer.

Accountants and tax professionals

The ruling did not require a South Carolina exemption form for a qualifying direct federal purchase. Its particular SmartPay 2 card prefixes, designs, and program dates are historical, however, and should not be used as a current card-identification guide without verification.

Common questions

Q: Is a centrally billed federal card purchase exempt?
A: Yes, when the U.S. government is directly billed and pays the issuing bank for an official purchase.

Q: Is an individually billed travel-card purchase exempt if the employee is reimbursed?
A: No. The ruling treated the sale as taxable because the employee was directly billed and personally responsible for payment.

Q: How did the ruling treat purchase and fleet cards?
A: It described both as centrally billed and treated official purchases made with them as exempt.

Q: How did it treat integrated cards?
A: By the account's agency-specific billing method. Centrally billed transactions were exempt; individually billed transactions were taxable.

Q: Did the retailer need a tax-exemption form?
A: The Department said it did not require one for a purchase that actually qualified as a direct sale to the federal government.

Citations and references

• S.C. Code § 12-36-2120(2) (exemption for tangible personal property sold to the federal government)
• S.C. Code § 12-36-2130 (sales and use tax exemptions referenced by the ruling)
• SC Revenue Ruling 88-8 (employee-billed purchases reimbursed by the federal government)
• SC Revenue Advisory Bulletin 02-3 (superseded by this ruling)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR09-1.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214

SC REVENUE RULING #09-1

SUBJECT:

Federal Government Credit Cards
(Sales and Use Tax)

EFFECTIVE DATE: November 30, 2008
SUPERSEDES:

SC Revenue Advisory Bulletin #02-3

REFERENCES:

S. C. Code Ann. Section 12-36-2120(2) (Supp. 2001)
S. C. Code Ann. Section 12-36-2130
SC Revenue Ruling #88-8

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2000)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #05-2

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the public
and to Department personnel. It is an advisory opinion issued to apply
principles of tax law to a set of facts or general category of taxpayers.
It is the Department’s position until superseded or modified by a
change in statute, regulation, court decision, or another Departmental
advisory opinion.

Code Section 12-36-2120(2) exempts from South Carolina sales and use tax “tangible
personal property sold to the federal government.” Accordingly, in a transaction with the U.S.
Government or federal employee conducting official business the applicability of the sales
and use tax depends on whether the U.S. Government or the federal employee is making the
purchase. The Department has concluded the following with respect to the sales and use tax
exemption in Code Section 12-36-2120(2):

1. When the sale is between the retailer and the U.S. Government. If the U.S Government is
   billed directly or a federal employee uses a credit card whereby the U.S. Government is
   billed or the employee pays with a federal government check, the sale is exempt from
   South Carolina sales and use tax. The Department does not require that a tax exempt form
   be provided to the retailer to receive the tax exemption.
2. When the sale is between the retailer and the federal employee. If the federal employee is
   billed directly and reimbursed by the U.S. Government, the sale is subject to South
   Carolina sales and use tax. See SC Revenue Ruling #88-8.

1

The purpose of this advisory opinion is to specifically address the sales and use tax
applicability to purchases made with the GSA SmartPay® credit cards described below.
The General Services Administration (“GSA”), through the GSA SmartPay® program, has
entered into a contract with Citibank, JPMorgan Chase, and US Bank to provide charge card
services to Federal government agencies and organizations for conducting official business.
For most agencies/organizations, the program will be effective November 30, 2008 through
November 29, 2018.
All GSA SmartPay® 2 charge cards can be identified by their unique prefixes and account
numbers, government designed artwork, and wording that indicates that the card is for official
purchases for the U.S. Government. These cards/accounts can be Centrally Billed Accounts,
Individually Billed Accounts, or Integrated Accounts (i.e., centrally billed accounts,
individually billed accounts, or a combination.) Card designs and account numbering
structures can be accessed at www.gsa.gov/gsasmartpay and are also provided in Exhibit B
for reference.
The GSA SmartPay® program consists of three business lines that are billed to either to the
U.S. Government (centrally billed accounts) or federal employee (individually billed
accounts) and are subject to South Carolina sales and use tax as indicated. The four GSA
SmartPay cards provided are:

1. Purchase Charge Card. This card is used for purchasing supplies and services to support
   U.S. Government missions. It is a centrally billed account. 1 Accordingly, official
   purchases made with these cards are exempt from South Carolina sales and use taxes.
2. Fleet Charge Card. This card is used for government vehicle fuel and maintenance
   requirements. It is a centrally billed account. Accordingly, official purchases made with
   these cards are exempt from South Carolina sales and use taxes.
3. Travel Charge Card. This card is used for official government travel and travel related
   expenses. It may be a centrally billed account or an individually billed account 2 ; the 6th
   digit identifies whether the account is centrally or individually billed. If the 6th digit
   indicates the account is centrally billed, official purchases made with these cards are
   exempt from South Carolina sales and use taxes. If the 6th digit indicates the account is
   individually billed, official purchases made with these cards are subject to South Carolina
   sales and use taxes. (See “Billing Method” in Exhibit A for the 6th digit identifier.)
   1

Centrally Billed Accounts (“CBAs”). CBAs are charge card accounts in which all charges are billed
directly to the federal government and paid directly by the federal government to the issuing bank.
These cards are the sole responsibility of the U.S. Government.

2

Individually Billed Accounts (“IBAs”). IBAs are charge card accounts in which charges are paid
directly by the cardholder/federal employee to the issuing bank; the federal employee is then
reimbursed by the government. These cards are the sole responsibility of the employee (i.e., the federal
government is not responsible if the cardholder fails to pay.)

2

4. Integrated Charge Card. This card combines two or more of the above business lines (i.e.,
includes fleet, travel, and/or purchase functionality and offers a single card for all
purchases). The numbering structure to differentiate between centrally and individually
billed accounts will be specific to each agency or organization using the Integrated card.
Currently, the Department of Interior is the only agency that uses the integrated card. In a
letter dated November 19, 2008, the Department of Interior stated that transactions on the
integrated cards begin with account number 558626 and are centrally billed and paid
directly by the federal government. Since the numbering sequence indicates the account is
centrally billed, official purchases made with these cards are exempt from South Carolina
sales and use taxes.
Note: If the numbering sequence specific to each agency or organization indicates the
integrated card account is individually billed, then such official purchases will be subject
to South Carolina sales and use taxes.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Ray N. Stevens
Ray N. Stevens, Director
February 23
, 2009
Columbia, South Carolina

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EXHIBIT A

The following chart summarizes the taxability of sales transactions with the U.S Government
or federal employees using the GSA SmartPay® program, the unique prefixes and account
numbers on each card, and a brief description of the government designed artwork and
wording on the card.

1st four
numbers on
the card

Purchase Card

Fleet Card

Travel Card

MasterCard
5565 or 5568

MasterCard
5565 or 5568

MasterCard
5565 or 5568

Visa
4486, 4614,
or 4716
Voyager
8699

6th digit indicates
billing method (see
below)
Visa
4486 or 4614

Wright
Express
5565
Green with a
road and
U.S. flag

6th digit indicates
billing method (see
below)
Blue with a jet and
U.S. flag

Centrally
billed

Centrally billed if 6th All fleet and purchase type
digit is 0, 6, 7, 8, or 9. transactions are centrally
billed;
Travel type transactions are
Individually billed if
th
centrally billed if the 6th digit
6 digit is 1, 2, 3, or
4.
is 6, 7, 8, or 9, otherwise
individually billed.
Purchase and Fleet
Depends on billing
transactions are exempt;
method above;
Travel transactions centrally
centrally billed are
billed are exempt
exempt; individually
billed are taxable

Visa
4486, 4614,or
4716

Card Design

Billing
Method

Red with
computer
keyboard and
U.S. flag and
“U.S.
Government Tax
Exempt”
Centrally billed

Exempt from
Tax
sales and use tax
Exemption
Applicability

Exempt from
sales and use
tax

4

Integrated Card – Used only
by the Dept. of Interior as of
11/08
MasterCard
5565 or 5568

Beige with an eagle and U.S.
flag

EXHIBIT B
Sample of SmartPay 2 Charge Cards
Fleet Card

Purchase Card

Travel Card

Integrated Card – Used by Dept. of Interior Only

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