Could a federal contractor treat employee travel fuel and meals as Aerospace overhead resales when employees paid personally or used a company credit card?

Plain-English summary

Employees initially paid for company travel fuel and meals with their own money and received reimbursement after travel. The memorandum said reimbursement did not turn those transactions into purchases by the government contractor.

Because the employee—not the contractor—bought the property, there was no contractor-owned property whose title could accelerate to the United States under Aerospace.

The result changed when employees used corporate credit cards. Then the contractor was the purchaser. If those expenses were properly allocable as indirect costs to government contracts with the required FAR 52.232-16(d) title clause, the memorandum treated them as qualifying federal resale costs.

Common questions

Did reimbursing an employee make the contractor the purchaser?

No.

Did using a company credit card change that?

Yes. The company then made the purchase.

Did every company-card expense qualify?

No. It also had to be properly allocable to a qualifying government contract.

Did the memo cover ordinary commuting?

No. It presumed company-sponsored travel expenses.

Citations and references

• Aerospace Corp. v. State Board of Equalization, 218 Cal.App.3d 1300 (1990) — qualifying indirect-cost purchases under federal title clauses
• FAR 52.232-16(d) — title-passage clause assumed by the memorandum
• FAR 31.201-2 and FAR 31.203(d) — equitable, consistently applied indirect-cost allocation standards

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/565-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/565-1230.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

565.1230
Date:

July 15, 1992

I am writing this to answer your memorandum to me of April 21, 1992. You indicated that [name] 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,
[CPA] 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 States, 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