Are purchases made by federal employees using government-issued charge cards (like GSA SmartPay/IMPAC or a Department of Interior MasterCard) exempt from Texas sales and use tax?

Plain-English summary

This record combines two letters: a short November 6, 1998 confirmation letter, and the full text of the earlier April 2, 1998 letter it references and extends.

The April 1998 letter established the Comptroller's standard for exempting federal-employee credit card purchases from Texas sales and use tax. Purchases by U.S. Department of the Interior employees using government-issued credit cards (originally I.M.P.A.C. Visa cards) are exempt from Texas state and local sales/use tax when three conditions are met: (1) the card states on its face something like "UNITED STATES OF AMERICA I.M.P.A.C. — FOR OFFICIAL USE ONLY — U.S. GOVT TAX EXEMPT"; (2) the cardholder is authorized to use the card only for official government purposes; and (3) the purchase is paid for directly by the U.S. Government. As long as those conditions hold, Texas retailers may exempt the purchase, and the federal tax ID number printed on the card doesn't affect a retailer's ability to accept it or the government's exempt status.

That same April 1998 letter separately addressed two related tax areas for the same agency's employees:

• State hotel occupancy tax: employees traveling on official business can claim exemption regardless of how they pay the hotel, by presenting a completed Hotel Occupancy Tax Exemption Certificate at check-in. City/county hotel occupancy tax exemption likely also applies, but the letter advises confirming with the local taxing authority.
• Motor fuel tax: the federal government can buy fuel tax-free using an oil company credit card (the tax is removed through the oil company's billing process) or a bank card, as long as the card is issued to the specific federal agency, the fuel is used exclusively for official government business, and the government pays directly. Retailers aren't obligated to make these tax-free fuel sales even when the conditions are met; if tax is charged anyway, the federal government can file directly with the Comptroller for a refund.

The November 1998 follow-up letter simply confirms that all of the above guidance from the April 1998 letter carries over automatically when the agency switches to a new charge card format (here, a Department of the Interior MasterCard) — the standard applies to "any charge card your agency uses," not just the original card type.

What this means for you

Retailers, hotels, and fuel sellers dealing with federal government customers

Check the physical card for official-use/tax-exempt language, confirm the purchase is for official government business, and confirm the government (not the individual employee) is paying directly — if all three hold, you may treat the sale as exempt from Texas sales/use tax, regardless of which specific card brand or program (IMPAC, MasterCard, GSA SmartPay, etc.) the agency currently uses. For hotels, a completed Hotel Occupancy Tax Exemption Certificate at check-in covers state hotel tax regardless of payment method.

Federal agencies and their traveling/purchasing employees

This letter's three-part test (official-use card marking, official-purpose authorization, direct government payment) is the durable standard the Comptroller applies across card format changes — useful to cite when a retailer is unfamiliar with a newly issued card type.

Accountants and tax professionals

Note the fuel-tax nuance: retailers are never obligated to sell fuel tax-free to the federal government even when conditions are met, so a refund-claim path exists as a backstop when tax gets charged despite qualifying.

Common questions

Q: Are all federal government credit card purchases automatically tax-exempt in Texas?
A: Not automatically — per this letter, three conditions must be met: official-use/tax-exempt language on the card, authorization limited to official purposes, and direct payment by the government.

Q: Does switching to a new card type (e.g., IMPAC to MasterCard) change the exemption?
A: No, per this letter — the same standard applies to any charge card format the agency uses, as confirmed in the November 1998 follow-up.

Q: Are hotels required to exempt federal employees from hotel occupancy tax?
A: For state hotel occupancy tax, yes, upon presentation of a completed Hotel Occupancy Tax Exemption Certificate at check-in, regardless of payment method; city/county hotel tax should be confirmed with the local authority.

Q: Must fuel retailers sell tax-free to the federal government?
A: No — per this letter, a retailer may do so under the stated conditions but isn't obligated to; if tax is charged, the government can seek a direct refund from the Comptroller.

Citations and references

No specific Tax Code section or Comptroller rule number is cited in this letter; the Comptroller applied its general federal-government sales/use, hotel occupancy, and motor fuel tax exemption policies to these facts.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9811987L

Original ruling text

November 6, 1998

Director
Office of Acquisition and Property Management
United States Department of the Interior
Office of the Secretary
Washington, D.C. 20240

Dear **:

Thank you for your recent letter concerning purchases of taxable items made by
department employees using the Department of the Interior **
MasterCard.

You explained that you are changing from the charge cards you previously wrote
us about to the MasterCard and would like to confirm that the position outlined
in our April 2, 1998 response will apply to the new card.

The guidelines provided in the April 2, 1998 letter apply to purchases made
under any charge card your agency uses.

You may contact Eddie Washington in our Tax Policy Division if you have any
questions or need more information. You may call Eddie toll-fee at
1-800-531-5441, extension 3-4683, or email him at
, or write to him at Tax Policy Division,
Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas 78711-3825.

Sincerely,

JOHN SHARP
Comptroller of Public Accounts

cc: Eddie Washington

April 2, 1998

Director, Office of Acquisition
and Property Management
United States Department of the Interior
Office of the Secretary
Washington, DC 20240

Dear **:

Thank you for your letter concerning the purchase of taxable items made by U.
S. Interior Department employees using government bank cards. Mr. Sharp asked
me to respond to your letter.

We have previously allowed purchases made by federal employees using Government
Visa credit cards (International Merchant Purchase Authorization Card -
I.M.P.A.C.) to be exempt from Texas state and local sales and use taxes if:

the credit cards state on their face "UNITED STATES OF AMERICA I.M.P.A.C. -
FOR OFFICIAL USE ONLY - U.S. GOVT TAX EXEMPT";

the cardholders are authorized to make purchases only for official government
purposes; and

the purchases are paid for directly by the U.S. Government.

As long as the purchase, travel, and fleet bank cards issued to U. S. Interior
Department employees follow the above requirements (with the exception of the
IMPAC reference), Texas retailers may exempt purchases made with these credit
cards. The federal tax number on the credit card will not affect Texas
retailers' ability to accept the credit card or the exempt status of the U. S.
Government.

Concerning hotel occupancy tax, employees of the U. S. Interior Department
traveling on official business may claim an exemption for the state hotel
occupancy tax, regardless of the method of payment to the hotel. To claim the
state hotel tax exemption, a completed Hotel Occupancy Tax Exemption
Certificate (enclosed) must be presented to the hotel at the time of
registration. Federal government employees are probably exempt for city and
county hotel occupancy taxes also, but you should contact the local taxing
authority to be certain.

Regarding motor fuel taxes, the federal government is presently entitled to an
exemption from the tax for fuel purchased by use of oil company credit cards.
The built-in tax is removed from the sales price through the billing procedure
of the oil company. We would also allow the federal government to make
tax-free purchases of fuel by use of a bank card provided the card was issued
to the specific federal agency, the fuel was used exclusively for official
government business, and the purchases are paid for directly by the U.S.
Government.

While a retailer may make a tax free sale of motor fuel to the federal
government under the conditions stated, it is by no means obligated to do so.
In situations where the federal government is charged tax on purchases of motor
fuels, it is entitled to file for a refund of the tax directly with this
office.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results.

I hope this explanation helps. Should you have further questions, please feel
free to contact David Somerville (sales tax) or Kirk Davenport (hotel or fuels
tax) in our Tax Policy Division at 1-800-531-5441, extensions 5-0030 and
3-3849, respectively.

If I can be of any further assistance, please let me know.

Sincerely,

Karey W. Barton
Manager, Tax Policy Division

cc: David Somerville
Kirk Davenport