Tax Type
Retail Sales and Use Tax
Description
Federal exemption certificates and use of PIN numbers
Topic
Exemptions
Date Issued
06-28-2002
June 28, 2002
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter of February 20, 2002, regarding the application of the retail sales and use tax to federal government purchases. Specifically, you ask that the department (1) rescind its requirement that the federal government provide vendors with exemption certificates when making exempt purchases using federal government issued credit cards, and (2) confirm that the "4700" PIN number will be recognized as a federal tax exempt number for sales and use tax purposes.
The Government Exemption
Code of Virginia § 58.1-609.1(4) provides an exemption from the retail sales and use tax for "[tjangible personal property for use or consumption by ... the United States." Further, the regulation set out in Title 23 of the Virginia Administrative Code 10-210-690 indicates that federal government purchases are exempt provided payment "is made directly by the federal government pursuant to an official purchase order (e.g., by direct billing to government or use of government credit card). Only credit card purchases for which the credit of the federal government is bound and billings are sent directly to and paid by the government, are exempt from the tax." (Emphasis added.)
Background
Based on these authorities, the department contacted your agency on September 27, 1999, and agreed that the following credit cards issued under the GSA SmartPay Program may be used to make exempt purchases in accordance with the sales and use tax exemption available to the federal government: (1) Voyager, using prefix 8699, (2) Mastercard, using prefix 5568, and (3) VISA, using prefixes 4486 and 4716. All purchases made with these cards are billed directly to and paid by the federal government and thus qualify for exemption from Virginia's sales and use tax.
However, certain travel and integrated cards issued under the Mastercard and VISA logos are billed to the federal government or the individual government employee. The billing of these cards can be identified by the sixth digit in the card's number. If the sixth digit is "0," "6," "7," "8," or "9," the purchase is billed directly to the federal government and is exempt. Conversely, if the sixth digit is "1," "2," "3,"or "4," the purchase is billed to the individual. Such purchases are taxable because they violate the "direct" billing mandate set out in the regulation.
Exemption Certificates
For some time, the department has allowed the use of an official purchase order or an exemption certificate as sufficient documentation for exempt purchases made by the federal government. Now that the taxable or exempt status of the credit cards can be determined by the card account numbers, it is no longer necessary that federal government agencies provide a purchase order or an exemption certificate to vendors when making exempt purchases using these cards.
The department currently relies on the credit card number to determine whether a particular transaction qualifies as an exempt purchase by the federal government. In auditing vendors, the department verifies that an exempt credit card number has been used to pay for an exempt transaction. Vendors, in accepting these credit cards, must make a determination of the taxable or exempt status of the transaction based on the card account number. Vendors must retain in their records a copy of the purchase invoice or receipt that includes the federal government credit card account number in order to document an exempt transaction.
PIN Number
I understand that the "Point of Sale" terminals of some vendors require that a four digit code be used with the credit cards when purchases are made by federal government agencies. It is acceptable to use the "4700" PIN for such purposes. However, regardless of whether or not the "4700" PIN number is used, the department will continue to rely on the credit card account number to determine whether a particular transaction qualifies for exemption. Therefore, vendors should maintain the appropriate documentation for exempt transactions as discussed above (and not merely the "4700" PIN number).
I hope the foregoing has responded to your inquiry. As you have suggested, this information will be placed on the department's website at www.tax.state.va.us.
If you have additional questions, please contact ***** in the Office of Policy and Administration, Appeals and Rulings, via e-mail at *****@tax.state.va.us or at *****.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
AR/39133J
Rulings of the Tax Commissioner