Are purchases Utah state agencies and local governments make with the State Purchasing Card exempt from sales and use tax?

Plain-English summary

Utah's state purchasing division asked the Tax Commission to confirm that the "State Purchasing Card" — a VISA card issued to employees of state agencies and political subdivisions for small-dollar procurement under a statewide contract — qualifies for the governmental sales tax exemption, so it could be formally added to the Commission's exemption forms and bulletins alongside other approved payment methods.

Utah Admin. Rule R865-19S-42(A) exempts sales made to the State of Utah when the purchase is for an essential governmental function. The harder question, addressed in Rule 42(B), is whether a purchase counts as being "made to the state" at all: a sale only qualifies if the purchasing government entity pays for it directly. If an employee pays with personal funds and later gets reimbursed, the sale is treated as made to the employee, not the state, and the exemption doesn't apply.

The purchasing card program cleared that bar. The requester explained that the issuing bank bills the state directly every month, the Division of Purchasing pays the bank directly, and the cost is then redistributed internally to the participating agencies — at no point does an employee pay with their own money and seek reimbursement. Because state funds go straight to the vendor (through the bank), the Commission found these purchases meet Rule 42's requirements and are exempt.

Practically, that means when a vendor mistakenly charges sales tax on a purchasing-card transaction, the state agency or subdivision can apply to the Tax Commission for a refund, subject to documentation. The Commission noted the refund right didn't depend on the card first being listed by name in its bulletins or forms — but said it would update those materials to specifically mention the purchasing card program going forward.

What this means for you

State agencies and political subdivisions using purchasing cards

If a vendor charges you sales tax by mistake on a purchasing-card transaction, you can seek a refund from the Tax Commission with proper documentation — you don't need to wait for the card program to be individually named in Commission bulletins.

Vendors selling to Utah government purchasers

The direct-pay-vs-reimbursement line matters at the register: if the government purchaser is paying directly (including via a card billed straight to the government entity), don't charge sales tax on an otherwise-qualifying essential-government-function purchase. If an individual employee is paying out of pocket for later reimbursement, the exemption doesn't apply and tax should be charged.

Accountants and procurement officers

This is the general-purpose companion to the federal-card version of the same rule (see UT PLR 98-072, which applies the identical direct-pay/reimbursement distinction to U.S. government credit card purchases) — the analysis is the same regardless of whether the government is state or federal: who actually pays the vendor controls the exemption, not who holds the card.

Common questions

Q: Does every government-issued card automatically qualify for the exemption?
A: No — the test is whether the government entity itself pays the vendor directly. A card program where employees pay and later get reimbursed would not qualify, regardless of who issued the card.

Q: We paid sales tax by mistake on a purchasing-card purchase — can we get it back?
A: Yes, you can apply to the Utah Tax Commission for a refund, subject to verification of appropriate documentation.

Q: Does this cover every type of purchase made with the card?
A: The exemption under Rule 42(A) requires the purchase to be for an essential governmental function; this ruling addresses the payment-method question (is it "made to the state"), not whether every possible purchase qualifies as a governmental function.

Q: Can a different card program or a different government entity rely on this ruling?
A: Not automatically — it's an advisory opinion based on the specific mechanics described (direct bank billing to the state, no employee reimbursement). A program structured differently would need its own analysis.

Citations and references

Rules:

• Utah Admin. Rule R865-19S-42(A) (essential governmental function exemption)
• Utah Admin. Rule R865-19S-42(B) (sale is "made to the state," and exempt, only when paid directly by the government entity — not when an employee pays and is reimbursed)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/02-009.htm

Original ruling text

REQUEST LETTER

02-009

NAME

ADDRESS

Dear NAME,

Several weeks ago you had a
conversation with NAME, who manages the state�s procurement card program. You suggested that we write to request an
advisory opinion for the purpose of adding the State Purchasing Card as a
direct payment method of funds for the exemption of state sales tax to current
State Tax Commission documents: TC-721, Tax Bulletin 9-99, Rules &
Regulations R865-19S-42, and any other applicable documents. We request that this apply for state
agencies and local governments using purchasing cards.

The Division and DIVISION has
for several years managed a Purchasing Card Program for State agencies and
political subdivisions under State Contract PD-760. This contract provides VISA cards to employees within a given
agency to help in the procurement of small dollar items with a reduction in the
amount of time and dollars required to complete the procurement process. The cards are never used for per diem. When the cards are used it is direct agency
money that is being spent and there is no personal reimbursement involved. For your information the process is as
follows:

� Cards are used for the procurement of necessary goods at
appropriate vendors.

At the time of sale the employee is responsible for
ensuring that no sales tax is

applied.

� Our issuing bank pays the vendors.

� A
monthly statement is sent to the State from the issuing bank and is paid by the
Division of Purchasing directly to the bank for the sum of all cardholder
transactions.

� This debt is then redistributed to the participant agencies
through FiNet.

On occasion there are times when the purchasing card is
used that is not possible to remove the tax from the original transaction. With the addition of the purchasing card as
a valid form of direct payment it would allow agencies to be rebated on paid
sales tax with proper documentation.

Thank you for your consideration of this advisory opinion
request. If we can provide any
clarification, please contact NAME at PHONE, or myself at PHONE.

Sincerely,

NAME

RESPONSE LETTER

April 18, 2002

NAME

ADDRESS

RE: Advisory Opinion � Utah Governmental Exemption from Sales
and Use Tax

Dear NAME,

You have requested that the Tax Commission issue an
advisory opinion to address whether sales transactions paid for with the �State
Purchasing Card� are exempt from Utah sales and use tax. If such sales are exempt, then the Division
of and DIVISION may apply to Tax Commission for refund when sales or use tax
has been paid on such transactions.
Utah Admin. Rule R865-19S-42(A) (�Rule 42�) provides that: �[s]ales made to the state of Utah . . . are
exempt from tax if the purchase is for use in the exercise of an essential
governmental function.� From your
description of the purchases made with the State Purchasing Card, the purchases
qualify.

At
issue is whether sales transacted on the State Purchasing Card are �made to the
state� and, thus, exempt, or �made to the state employee� and, thus, not
exempt. Section (B) of Rule 42 provides
that:

A sale is considered made to the state . . . if the purchase is paid for directly by the purchasing state or local entity. If an employee of a state or local entity pays for a purchase with his own funds and is reimbursed by the state or local entity, that sale is not made to the state or local entity and does not qualify for the exemption.

You state that any purchase
made on a State Purchasing Card is paid for directly by the State of Utah. In no instance does a state employee pay the
bill with his or her own funds, then receive reimbursement for the
payment. Under the circumstances you
describe, the Commission finds that such purchases meet the requirements of
Rule 42 and are exempt from Utah sales and use tax. Accordingly, you may receive a refund of sales tax paid on
purchases made with a State Purchasing Card, upon application to the Tax
Commission and subject to verification of the appropriate documentation. While a refund is not dependent upon the
State Purchasing Card first being designated by the Tax Commission as a
tax-exempt purchase program in its bulletins, we will now consider amending our
forms and bulletins to specifically include the tax-exempt State Purchasing
Card program.

Should you have any other questions, please contact us.

For
the Commission,

Marc
B. Johnson

Commissioner

MBJ/KC

02-009