Directive Directive 18-1: Taxation of Purchases and Room Rentals by Government Employees
Table of Contents
This Directive sets forth the rules with respect to the taxation of room rentals and purchases of meals and other tangible personal property made by employees of the United States government. It also explains updates to the payment program used by the United States government with respect to such rentals and purchases. As of November 30, 2018, the United States government, through the General Services Administration (“GSA”) SmartPay Program will authorize purchases by federal employees using four different types of charge cards: Purchase, Fleet, Travel, and Integrated. This Directive revokes and replaces DOR Directive 03 – 7.
II. General Rule
Under the General Laws, sales of tangible personal property, including meals, made directly to the United States or its agencies are exempt from Massachusetts sales and use taxes. G.L. c. 64H, § 6(d), c. 64I, § 7(b). In addition, the U.S. Supreme Court has held that sales to individuals, including room rentals are exempt if the credit of the United States government is “bound” on the sale or rental. See e.g. Alabama v. King & Boozer 314 U.S. 1, (1941). The credit of the government is not bound unless payment is made directly by the United States; for example, with a government check, or a government bankcard that is billed directly to the government.
When payment is not being made directly by the United States government, a federal employee or an agent of the United States government who makes a purchase subject to sales or use tax must pay the tax, even if the employee or agent will later be reimbursed by the government. When an employee or agent of the United States government rents a room subject to the room occupancy excise, the room rental may be exempt from the excise even if the United States is not paying for the room rental directly. See section IV. a. of this Directive.
III. Tax Treatment of Purchases with United States Government Bankcards
The GSA utilizes a payment program for administering United States government purchases made by federal employees with bankcards or other credit cards (GSA cards). This program, called the GSA SmartPay Payments Program (GSA SmartPay), allows each federal agency to issue GSA cards to employees who are authorized to make government purchases on the credit of the United States. Federal employees may use the GSA cards for United States government purchases of goods, within an authorized spending limit, and for authorized travel and lodging, meals, entertainment or for personal purchases. Purchases using cards associated with Centrally Billed Accounts (CBA) are paid directly by the United States government and are exempt from taxation. Purchases using cards associated with Individually Billed Accounts (IBA) are paid by the cardholder and are generally subject to tax, even though the cardholder may be reimbursed later by the United States government. As of November 30, 2018, GSA SmartPay will authorize purchases by federal employees using four different types of charge cards: Purchase, Fleet, Travel, and Integrated. The program will be in effect until at least November 2022, and may be extended in three year increments until 2031.
b. Taxability of Purchases Made with GSA Cards
The following GSA cards are associated with Centrally Billed Accounts, and therefore a vendor or operator that accepts these cards is not responsible for collecting or remitting tax in connection with purchases made using these cards, as such purchases are generally exempt:
- GSA Purchase cards which state “U.S. Government Tax Exempt” and “Purchase” on the front of the card.
- GSA Fleet Cards which state “Fleet” on the front of the card.
- GSA Travel Cards which state “Travel” on the front of the card, if the first four digits on the card are 4614, 4615, 4486, 5565 or 5568, and the sixth digit from the left is 0, 5, 6, 7, 8, or 9.
- GSA Tax Advantage Travel cards which state “U.S. Government CBA Tax Exempt” and “Tax Advantage” on the front of the card, if the sixth digit is 5.
- GSA Integrated cards which state “U.S. Government Tax Exempt” and “Integrated” on the front of the card.
c. Procedures for Seeking Exemption
When seeking an exemption, an authorized federal employee or agent must present the appropriate GSA card with additional personal identification at the time of purchase. If the credit card system authorizes the sale, the vendor should charge no tax, but will otherwise treat the purchase as an ordinary credit card transaction. The words "United States Government Tax Exempt" should be imprinted on the vendor's copy of the sales receipt, which the vendor must retain for purposes of audit and verification. See 830 CMR 62C.25.1. No other substantiation is required for the Massachusetts sales tax exemption to apply to a United States government purchase. Vendors and operators may continue to accept Forms ST-2 or ST-5 (or other appropriate government authorization) for United States government purchases by federal employees or agents, but those forms are not required with an appropriate GSA card.
Example 1. An employee of the United States government travels to Massachusetts to attend a workshop at the direction of her employer. She purchases lunch between the morning and afternoon sessions of the workshop using a GSA Travel bankcard. The first four digits of the card are 4614 and the sixth digit is 8. The United States government is billed directly for the meal, and the meal is tax exempt.
Example 2. Same facts, except that the sixth digit of the card is 4. This bill is paid by the employee and the employee is reimbursed by the federal agency. Since the United States government is not being billed directly for the meal, the meal is subject to tax.
Example 3. An employee of the federal government holds a workshop for other government employees and arranges the rental of three cars for the employees during their stay in Massachusetts. The employee pays for the package with a GSA Travel card the first four digits of which are 5568, and the sixth digit is 0. As the sixth digit is 0, this transaction is billed directly to the federal government and the transaction is tax exempt.
Example 4. Corporation is a nonprofit public corporation created by act of Congress that is treated as an agency of the federal government for tax purposes. Corporation is given a general exemption from state excises and federal income taxes under federal statute, although it is subject to property taxes. Corporation is a participant in the SmartPay program. All of its GSA cards begin with the digits 4486 and have “0” as the sixth digit. All purchases made with these cards are billed to the Corporation. Because the Corporation is treated as an agency of the federal government with respect to purchases, and because the credit of the Corporation is bound by the purchase, all purchases made with the GSA card on behalf of the Corporation are exempt.
IV. Exemption from the Room Occupancy Excise
a. General Rule for Government Employees and Agents
A transfer of occupancy is exempt from the room occupancy excise under G.L. c. 64G if a federal employee or agent, acting within the scope of his or her official duties as an employee or agent of an agency or military branch of the federal government, stays in a hotel, motel or other place of public accommodation. The exemption from the room occupancy excise is available whether the federal government pays directly for the room, or the employee pays for the room and is later reimbursed. For the purposes of determining whether the exemption applies, the Department will accept the documentation set out in section V.a., below.
Example: An employee of a federal agency attends a conference in Massachusetts in her capacity as an employee and purchases lodging and meals using a GSA card that states “Travel” on the front of the card and begins with 5565 and the sixth digit is 4. This bill is paid by the employee and the employee is reimbursed by the federal government. Because the employee is attending the conference in her capacity as an employee, the room occupancy is exempt. Because the federal agency is not being billed directly, her purchases of meals are subject to tax.
b. Special Rule for Military Employees
Section 12 of chapter 64G provides a specific exemption for the transfer of occupancy of rooms to military employees. To claim the exemption the occupant must be: (1) an employee of the United States military; and, (2) traveling on official United States military orders that include the date of such occupancy.
An “employee of the United States military" is an employee, as defined in Section 3401(c) of the Internal Revenue Code, as amended and in effect for the applicable period, who is employed by any branch of the United States Armed Forces, or their respective reserve components, as enumerated in 10 U.S.C. § 10101 (a)(1)-(7). The term "Armed Forces" means the United States Army, Navy, Marine Corps, Air Force, and Coast Guard. See 10 U.S.C. § 101(a)(4). For purposes of this Directive, employees of the National Guard, and its reserve components, as defined in 10 U.S.C. § 101(c) are also eligible for this exemption. The term "traveling on official United States military orders" means traveling under the express written authority of and pursuant to the specific written orders of a duly authorized representative of one of the United States Armed Forces or National Guard.
V. Substantiation Requirements for Room Occupancy Excise Exemptions
a. Substantiation Required for Federal Employees or Agents
To substantiate a claim for exemption under G.L. c. 64G where the federal employee or agent occupying the room is paying the bill in cash or with a non-GSA approved credit card, the employee or agent must provide the operator with:
- some form of evidence indicating that the occupant is an employee or agent of the federal government; and,
- proof that the occupant is traveling at the direction of the federal government during the period of occupancy.
Evidence that the occupant is an employee or agent of the federal government may include an official identification card issued by the appropriate branch of government. Evidence that the occupant is traveling at the direction of the federal government may include an affidavit, letter or other attestation on official stationery, signed by an authorized government official of the appropriate governmental office, agency or branch of the military, indicating that the employee is traveling at the direction of the government during the period of occupancy. "Other attestation" may include email, so long as the email meets the following requirements:
- It must be sent from the government agency email system of the employee;
- It must be from the employee’s supervisor or other authorized official;
- It must contain the signature of the supervisor or authorized official (name, title, organization, address, contact numbers and email address); and
- It must list the dates that the employee is traveling under orders.
The operator must retain copies of the substantiating documents.
b. Substantiation Required for Military Employees Traveling on Official United States Military Orders
To substantiate a claim for exemption under G.L. c. 64G, § 12, the occupant must provide the operator with proof of identification as a military employee, such as an official identification card issued by the Armed Forces or the National Guard, and either of the following:
- a copy of the actual military orders, or
- an affidavit, letter, email (see section V.a.) or other attestation on official stationery, signed by an authorized official of the Armed Forces or National Guard, indicating that the occupant is traveling under United States military orders during the period of occupancy.
The operator must retain copies of the substantiating documents.
/s/Christopher C. Harding
Christopher C. Harding
Commissioner of Revenue
December 19, 2018