Was a police officer's reimbursement to a Texas city for a third badge and carrier subject to sales tax?

Plain-English summary

A Texas city purchased three police badges and three badge-and-identification-card carriers for each officer. The city paid for two sets, while each officer reimbursed the city for the third.

The Comptroller said the city could purchase all three sets tax free. But the officer's reimbursement was a sale by the city to an individual, so sales tax was due on the amount reimbursed. The fact that the badge and carrier had little use outside police work did not change the result.

What this means for you

Government entities

An entity's exempt purchase can be followed by a taxable transaction when property is transferred to an employee for reimbursement. Analyze the reimbursement separately from the government's original purchase.

Public employees and payroll administrators

Calling the payment a reimbursement did not prevent sales tax here. The Comptroller treated the third badge-and-carrier set as sold to the officer.

Common questions

Could the city buy all three sets tax free? Yes.

Was the officer's reimbursement taxable? Yes.

Did the badges' police-only use make the reimbursement exempt? No.

Citations and references

The letter cited no specific statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9202L1163D03

Original ruling text

February 25, 1992

Dear ***:

Thank you for your letter of January 29, 1992, regarding purchases
of police badges and carriers by the City of *** that are
partially reimbursed by police officers.

As I understand, the city initially purchases three badges and
three carriers for each police officer. The carrier holds the
badge and an identification card. The city is responsible for
payment of two badges and carriers. The officer reimburses the
city for the cost of the third badge and carrier. You question
whether tax is due on the reimbursement the city receives from
the officer.

Although the badge and carrier have little use other than police
business, tax is due on the price the officer reimburses to the
city. The city may purchase all three badges and carriers tax
free. However, the reimbursement by the police officer is a sale
by the city to an individual and tax is due on this transaction.

This opinion is based on the facts presented. If there are any
additional or different facts, the opinion may change.

If you have any questions or need additional information, you may
call toll free 1-800-252-5555 or the regular Austin number is
512-463-4600. You may also write to Tax Administration Division.

Sincerely,

Lindey Osborne
Tax Administration Division