Tax Type
Retail Sales and Use Tax
Description
Hotel lodging to federal employees on official business
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
12-19-1990
December 19, 1990
Dear *************
This will reply to your letter dated April 27, 1990, in which you request reconsideration of the Virginia retail sales tax assessments dated 11/6/89 against your client, * * * (the "Taxpayer").
FACTS
The Taxpayer protests the application of Virginia Retail Sales and Use Tax to charges for temporary lodging (less than 90 days) furnished to federal employees on official business, who paid for such lodging and were reimbursed in full by the United States government. To support the contention that tax should not be charged, you allege that the supremacy clause of the U.S. Constitution is violated. You cite United States v. County of Fresno, 429 US 452, 97 S. Ct. 699, 50 L.Ed. 2d, 683 (1977).
DETERMINATION
Cognizant of the fact that states cannot constitutionally impose a direct tax on the United States or its instrumentalities, the exemption now found under Va. Code § 58.1-608(1)(E) for purchases of tangible personal property by the federal government, was one of the original exemptions enacted with the passage of the Virginia Retail Sales and Use Tax (1966 Acts of Assembly, Chapter 151). However, for a sale to be exempt, it is well established that the legal incidence of the tax must fall on the federal government.
The Department's regulation (VR 630-10-45), detailing how the tax applies to rentals of hotel rooms by the federal government and federal employees, sets forth how the legal incidence of the tax is to be distinguished.
This regulation specifically requires that the transaction must be pursuant to an official government purchase order or must be paid for out of public funds in order to be exempt:
If a federal employee is traveling on government business and payment for meals and lodging is made directly by the federal government pursuant to a purchase order (e.g., by direct billing to the government or use of government credit card), no tax will apply. However, if the employee pays for the meals and lodgings with personal funds and will be reimbursed by the government or utilizes a travel advance, no exemption is available even though the employee may be travelling pursuant to official government orders.
VR 630-10-45 requires that the credit of the federal government be bound in the transaction in order for the transaction to be exempt from the tax. This is consistent with the decision in United States v. Forst, 442 F.Supp. 920 (W.D. Va. 1977) aff'd 569 F.2d 811 (4th Cir. 1978) which was affirmed after Fresno.
Even though in the instant case, the federal employees were reimbursed in full by their employer for the charges for lodging, the credit of the federal government was not bound in the transaction between the employer and the Taxpayer. Accordingly, I find no basis to revise the assessments, which are now due and payable.
Sincerely
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner