Did the Holocaust Memorial Council's exemption also cover purchases, hotels, meals, or car rentals first paid by its employees and later reimbursed?

Plain-English summary

California treated the United States Holocaust Memorial Council as a federal instrumentality, so purchases made and paid for directly by the Council were exempt.

That status did not automatically exempt employee expenses such as hotels, car rentals, and meals. When an employee or other nonexempt person paid the full amount and later sought reimbursement, the entire transaction remained taxable. If the Council paid part of the vendor's charge directly, only its direct share was exempt.

An employee could qualify as a federal purchasing agent only with clear evidence. The letter gave two examples: a rental made under a contract between the rental company and a federal agency, or explicit written federal authorization for a specifically described expense. A government rate or later reimbursement alone was insufficient, and the Council's lack of a purchase-order system made the exception unlikely in ordinary employee transactions.

What this means for you

Federal employees, travel teams, vendors, and tax advisers

Separate who consumes the item from who legally purchases and directly pays for it. Keep the agency contract or specific written authorization when claiming that an employee acted as the government's purchasing agent.

Common questions

Q: Were direct Council purchases exempt?

A: Yes.

Q: Was an employee's purchase exempt after full reimbursement?

A: No. Full employee payment followed by reimbursement remained taxable.

Q: Could an employee ever make an exempt purchase?

A: Only in the narrow circumstances supported by a federal contract or explicit written authorization for the particular expenditure.

Citations and references

• California Revenue and Taxation Code § 6381
• California Sales and Use Tax Regulation 1614(a)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 505.0362
• Original supporting opinion: 505.0362 PDF

Original ruling text

505.0362

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 327-3400
December 5, 1989
REDACTED TEXT

Re: Clarification of tax exempt status
I am writing to further clarify my August 8, 1989 letter to you which verified that retail sales to the United States Holocaust Memorial Council (Council) are not subject to California Sales and Use Tax (Rev. & Tax. Code § 6381) because the Council is a federal instrumentality. It has been pointed out to me that employees of the Council might misinterpret my letter to mean that their reimbursement expenses (e.g., hotels, car rentals, meals) are tax exempt. This is not the case as such sales are considered to be sales to the individual. Only sales made to the Council qualify for exemption. Sales and Use Tax Regulation 1614(a) (enclosed) provides pertinent part that: “Where payment for tangible personal property sold or consumed in this state is made partly by the United States or it instrumentalities and partly by nonexempt persons, the payment is exempt to the extent of the United States’ or its instrumentality’s share provided it is made directly to the vendor by the United States or its instrumentality. If the nonexempt party makes full payment and then seeks reimbursement from the United States or its instrumentality, the entire amount is taxable even though the United States or its instrumentality may reimburse him in full or in part.” We have previously considered the question of whether car rentals to employees of the United States Government traveling on government business are exempt from tax if the employee pays for the rental by cash or personal credit card. Generally, such leases are subject to sales tax even though the government employee may use a GSA lessor and receive a GSA rate. Only where there is clear evidence that an individual is renting as an agent of the United States Government would the rental transactions be exempt from tax. It does not automatically follow from the fact that a government agency reimburses an employee for expenditures, that the employee was acting as a purchasing agent of the federal government. However, the tax exemption would be allowed where, for instance, an automobile is rented pursuant to a contract between the automobile leasing company and a federal government agency or where the employee can provide explicit written authorization from a federal agency to incur a specifically described expenditure. Since the Council does not utilize a purchase order

REDACTED TEXT

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December 5, 1989
505.0362

system, it is unlikely that purchases or rentals by its employees would fall within this narrow class of exceptions. In summary, the sales tax exemption applies only to purchases made and paid for directly by the Council. The only exceptions are those narrowly drawn categories discussed above. Please feel free to contact me or our New York office at 675 Third Avenue, Room 520, 10017-4015, telephone (212) 697-4680, if you have any questions regarding this letter. Sincerely,

Stella Levy
Tax Counsel