Could a federal contractor treat employee travel purchases made with company credit cards as exempt indirect costs under the Aerospace decision?

Plain-English summary

A federal contractor changed how employees paid for gas and meals on company-sponsored travel. Previously, employees paid with their own money and the contractor reimbursed them. The contractor then issued corporate credit cards.

Under the memorandum's reading of the Aerospace decision, reimbursing an employee did not turn the employee's purchase into the contractor's purchase. There was therefore no contractor-owned property whose title could pass early to the United States.

Using a company credit card changed the purchaser. The contractor itself acquired the property, so title could pass to the United States. If the resulting expenses were indirect costs properly allocated to government contracts under the cited federal standards—and those contracts contained the required title-passage clauses—the purchases qualified as exempt indirect costs.

What this means for you

Federal contractors, traveling employees, accounting teams, and tax advisers

Payment mechanics matter. A company card can make the contractor the purchaser, but exemption still depends on the contract's title-passage language and consistent, proper allocation of the indirect cost.

Common questions

Q: Did reimbursing an employee make the contractor the purchaser?

A: No. The memorandum said reimbursement did not transform the employee's purchase into the company's purchase.

Q: Did a corporate credit card change the analysis?

A: Yes. It made the company the actual purchaser, allowing title to be accelerated.

Q: Were all company-card travel purchases automatically exempt?

A: No. The costs also had to be properly allocated to qualifying government contracts under the cited standards.

Citations and references

• Federal Acquisition Regulation 52.232-16(d)
• Federal Acquisition Regulation 31.201-2
• Federal Acquisition Regulation 31.203(d)
• The memorandum relied on the Aerospace decision but did not give a reporter citation.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 505.0115
• Original supporting opinion: 505.0115 PDF

Original ruling text

State of California

Board of Equalization
Legal Division

Memorandum
To

:

Mike Hilbert
Aerospace Coordinator
Audit Review & Refunds Section

From :

John L. Waid
Tax Counsel

Subject:

Contractor's Employees' Purchases of Gas and Meals

505.0115
Date:

July 15, 1992

I am writing this to answer your memorandum to me of April 21, 1992. You indicated that Van Nuys District Auditor Martha Brothers had requested a legal opinion regarding L---'s recent issuance of corporate credit cards to its employees for the above expenses. Apparently P--- W--- had advised L--- that if the employees purchased these items with their own money then L--- could not treat these costs as overhead expenses exempt under the Aerospace decision. Presumably these items concern expenses for company-sponsored travel for which L--- reimburses the employees upon completion of the travel rather than the employees' ordinary commute expenses. As you know, under the Aerospace decision, a government contractor may treat indirect costs - i.e., overhead expenses - properly allocable to its government contracts as purchases for resale to the United State which are exempt from sales tax if the government contract involved contains the title-passage clauses set forth in FAR 52.232-16(d). "In ascertaining what constitutes a cost, any generally accepted method of determining or estimating costs that is equitable and is consistently applied may be used..." (FAR 31.201-2.) "The contractor's method of allocating indirect costs shall be in accordance with standards promulgated by the CAS Board, if applicable to the contract; otherwise the method shall be in accordance with generally accepted accounting principles which are consistently applied." (FAR 31.203(d).) Under the former practice, the employee made the purchases. The fact that L--reimbursed him for the expenses did not transmute the expense into L---'s own expense. There was thus no purchase by the government contractor of property title to which could be accelerated to the United States. When the employee uses a company credit card, the company is actually purchasing the property and title can be accelerated. We thus conclude that if expenses engendered by employees by their use of the company credit card are properly allocable to the company's government contracts under the above standards, such expenses are exempt indirect costs under the Aerospace decision.

JLW:es