What records must a Washington hotel keep to treat a federal employee's government-card lodging as sales-tax exempt?

Plain-English summary

The Washington Department of Revenue denied a hotel's remaining sales-tax refund for federal-employee stays because the hotel could not prove that the federal government—not the individual traveler—was responsible for payment.

Federal employees used government travel cards at the hotel. The records showed the employee name, agency, card expiration date, and card company, but did not identify the agency-card type and did not consistently preserve the sixth digit of the account number. Those missing fields prevented the Department from distinguishing centrally billed government accounts from individually billed employee accounts.

The Department later granted a partial refund for stays where the preserved sixth digit allowed it to verify government payment. The appeal continued for the other stays. Because purchases by federal employees remain taxable when the employee is legally responsible and merely reimbursed, and because the hotel lacked the records required by WAC 458-20-190 and the Department's SmartPay notice, the remaining exemption claim failed.

What this means for you

Hotels and lodging operators

A government-looking card is not enough. Your system should retain the federal agency, employee, card company, expiration date, card business line or type, and any account digit needed to prove that the account is centrally billed.

Point-of-sale and reservation-system teams

Masking rules should preserve the tax-verification fields permitted by the federal SmartPay structure. If the system discards the card type or identifying digit, the hotel may be unable to substantiate an exemption later.

Accountants and refund reviewers

Review exemption support stay by stay. This determination produced a partial refund where the records were adequate, but the taxpayer still bore the burden for every remaining transaction.

Common questions

Q: Are all hotel stays by federal employees exempt from Washington sales tax?

A: No. The exemption applies when the federal government is directly responsible for payment. An individually billed employee account remains taxable even if the employee is reimbursed.

Q: Why did the sixth card digit matter?

A: For specified SmartPay travel-card types, the sixth digit identifies whether the account is centrally or individually billed. The Department could grant some refunds where that digit was preserved and government payment could be verified.

Q: What other information was missing?

A: The hotel did not record the agency-card type, such as purchase, fleet, travel, or integrated card. That information was part of the required documentation.

Q: Does using a brand-wide reservation system excuse missing records?

A: No. The hotel argued that it supplied everything available through the brand's system, but the determination still held the taxpayer responsible for maintaining records sufficient to prove the exemption.

Citations and references

• RCW 82.04.050(2)(f) and RCW 82.08.0254 (lodging retail sales and federal immunity)
• WAC 458-20-190(5) (federal purchases and government credit cards)
• RCW 82.32.070 and WAC 458-20-254 (five-year recordkeeping duty)
• Washington DOR Special Notice, “How to document your United States government credit card purchases”
• United States v. New Mexico, 455 U.S. 720 (1982)
• United States v. County of Fresno, 429 U.S. 452 (1977)
• Washington v. United States, 460 U.S. 536 (1983)

Source

• Landing page: Washington Tax Decisions ZIP files
• Original PDF: 45WTD032.pdf
• Source archive: Volume 45 ZIP (member wtdvol45/45WTD032.pdf)

Original ruling text

Det. No. 23-0118, 45 WTD 032 (March 6, 2026)

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Cite as Det. No. 23-0118, 45 WTD 032 (2026)
BEFORE THE ADMINISTRATIVE REVIEW AND HEARINGS DIVISION
DEPARTMENT OF REVENUE
STATE OF WASHINGTON
In the Matter of the Petition for Refund of
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DETERMINATION
No. 23-0118
Registration No. . . .

RCW 82.08.0254; WAC 458-2-190: RETAIL SALES TAX – SALES OF
LODGING TO A FEDERAL EMPLOYEE. Sales of lodging to federal employees are exempt from retail sales tax when the payment is made with a qualifying credit card whose charges are billed directly to and paid by the federal government. To claim the exemption, the transaction must be documented as required by WAC 45820-190 and the 2012 Special Notice: “How to document your United States government credit card purchase.” Headnotes are provided as a convenience for the reader and are not in any way a part of the decision or in any way to be used in construing or interpreting this Determination. Kelly, T.R.O. – A hotelier disputes the denial of a retail sales tax deduction for sales to the federal government based on failure to follow the 2012 Special Notice. Taxpayer maintained insufficient records to grant the deduction. We deny the petition. 1 ISSUE Did Taxpayer provide sufficient records of federal government hotel stays under WAC 458-20190 (Rule 190) to be exempt from retail sales tax imposed by RCW 82.08.020? FINDINGS OF FACT
. . . (Taxpayer) is a hotelier in . . . Washington operating within the [hotel brand] system. As part of its business, Taxpayer provides short-term lodging for federal employees who use government travel cards for their reservations and payments. Taxpayer uses [hotel brand] software to record these instances. On January 26, 2021, Taxpayer submitted amended returns for January 2020 and April 2020 through November 2020 to the Department of Revenue’s (Department’s) Taxpayer Account Administration division (TAA). Based on these amended returns, Taxpayer requested a refund based on an exemption for federal government stays. 1

Identifying details regarding the taxpayer and the assessment have been redacted pursuant to RCW 82.32.410.

Det. No. 23-0118, 45 WTD 032 (March 6, 2026)

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Taxpayer provided records of stays which consistently showed: the federal employee’s name, the federal government agency’s name, the expiration date of credit card, and the name of credit card company. Taxpayer’s records were missing information. They did not show the type of agency card (e.g., purchase card, fleet card, travel card, integrated card). Taxpayer’s records inconsistently showed the sixth digit of the card. Sometimes the sixth digit was preserved as part of a partially masked credit card number and other times not. The excise tax examiner could not determine if the federal government or individual employee had paid. TAA denied the exemption. Taxpayer timely appealed the denial of the exemption contending that they provided the Department with all records they had access to through the [hotel brand’s] system. TAA’s response to Taxpayer’s petition was handled by a new examiner who did not review the original request. In TAA’s response, the new examiner stated that they might be able to grant exemptions where the sixth digit of the card had been preserved. TAA reviewed the records provided by Taxpayer [and] determined that some of the records were sufficient to support the claimed exemption. TAA granted the exemption on some stays where Taxpayer had preserved the sixth digit of the credit card and TAA could verify payment by the federal government. The Department issued a partial refund in January of 2023. After the Department issued the partial refund, Taxpayer confirmed that they wished to continue their appeal as to the remaining hotel stays. ANALYSIS The Washington tax system is based largely on voluntary compliance. The Revenue Act imposes on taxpayers the responsibility to inform themselves about applicable tax laws, register with the Department, and accurately and timely pay taxes. RCW 82.32A.005 and RCW 82.32A.030. Additionally, the taxpayer has the burden of proof when claiming an exemption or deduction. See RCW 82.32.160; RCW 82.32.180; Budget Rent-A-Car of Washington-Oregon, Inc. v. Dep’t of Revenue, 81 Wn.2d 171, 500 P.2d 764 (1972); Det. No. 00-099, 20 WTD 53 (2000). Washington generally imposes retail sales tax on the rental of hotel rooms. RCW 82.04.050(2)(f). Thus, taxpayers must generally collect retail sales tax on the sale of a hotel room within Washington unless otherwise exempt. Here, there is a relevant exemption. Consistent with the United States Constitution, RCW 82.08.0254 exempts taxation [prohibited] under the “Constitution or laws of the United States.” 2 2

Article VI, Clause 2 of the United States Constitution states: This Constitution, and the Laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the constitution or laws of any state to the contrary notwithstanding.

Det. No. 23-0118, 45 WTD 032 (March 6, 2026)

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Under the Supremacy Clause of the United States Constitution, a state or political subdivision may not levy a tax directly on the United States or on an agency or instrumentality of the United States. See United States v. New Mexico, 455 U.S. 720, 735, 102 S. Ct. 1373, 71 L. Ed. 2d 580 (1982). However, a transaction is not immune from state or local tax under the Supremacy Clause if the legal incidence of the tax does not fall on the federal government or its property, and the tax does not otherwise discriminate against the federal government. United States v. County of Fresno, 429 U.S. 452, 464, 97 S. Ct. 699, 50 L. Ed. 2d 683 (1977). Case law prohibits Washington from asserting retail sales tax on sales made directly to the federal government, but not on sales to federal government employees, agents, or contractors. Washington v. United States, 460 U.S. 536, 103 S. Ct. 1344, 75 L. Ed. 2d 264 (1983). WAC 458-20-190 (Rule 190) further explains that [for a transaction to qualify] for retail sales tax exemption, the federal government must pay for the item. Specifically: Sales to employees or representatives of the United States are subject to tax, even though the United States may reimburse the employee or representative for all or a part of the expense. Purchases by any other person, whether with federal funds or through a reimbursement arrangement, are subject to tax unless specifically exempt by law. Rule 190(5). Payment by a government credit card is a special circumstance establishing specific record keeping requirements and Rule 190(5)(b) specifically addresses that: Various United States government contracted credit cards are used to make payment for purchases of goods and services by or for the United States government. Sole responsibility for payment of these purchases may rest with the United States government or with the employee. The United States government's system of issuing government contracted credit cards is subject to change. For specific information about determining when payment is the direct responsibility of the United States government or the employee, contact the department’s taxpayer services division . . . . Rule 190(5)(b). The Department issued a “Special Notice” on October 25, 2018, entitled “How to document your United States government credit card purchases,” . . . to give guidance on purchases using federal government-issued credit cards. The “Special Notice” explains: By Nov. 30, 2018, the U.S. General Services Administration (GSA) SmartPay® 3 program will provide charge card services to the federal government and its employees for official business. On Nov. 30, 2018, this program replaces the SmartPay® 2 program.

Det. No. 23-0118, 45 WTD 032 (March 6, 2026)

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Your transactions are only exempt from retail sales tax if the federal government pays for them. If you are a federal employee with an Individually Billed Account (IBA), you must pay sales tax on your purchases, even though the federal government may reimburse you. GSA SmartPay® 3 charge cards issued under the program will have specific account number prefixes as seen in the chart below. Citibank and US Bank will issue GSA SmartPay® 3 accounts. The GSA SmartPay® program provides four business lines: Purchase, Travel, Fleet, and Integrated. Your account can be a Centrally Billed Account (CBA) or Individually Billed Account (IBA). You can find a description of account, business lines, and associated numbering schemes below. Centrally Billed Account Transactions are directly billed to and paid by federal government agencies. All CBA transactions are exempt from state sales taxes. Special Notice at 1, (emphasis in original). https://dor.wa.gov/sites/default/files/202202/sn_18_GeneralSmartPay3.pdf (last accessed April 20, 2023). The “Special Notice” explains that while there are five types of cards, only three types are eligible for a tax exemption on hotel stays. Id. at 2-3. The “Travel card” is exempt from state sales tax if the sixth digit from the left is 6, 7, 8, 9 or 0. Id. at 2. The “Tax Advantage Travel card” is exempt if the sixth digit from the left is 5. Id. The “Integrated card” is generally exempt but does not have a distinguishing sixth digit. Id. The “Special Notice” goes on to explain the documentation retention requirements for taxpayers making sales involving these cards. Along with a credit card receipt, Taxpayer must keep: the federal employee’s name, the federal government agency’s name, the type of agency card (e.g., purchase card, fleet card, travel card, integrated card), expiration date of credit card, name of credit card company, and the sixth digit of the card (for Travel or Tax Advantage Travel cards). Id. The law requires taxpayers to preserve suitable records necessary to determine tax liability for a period of five years. RCW 82.32.070. The administrative rule reiterates this requirement. WAC 458-20-254. In this instance, TAA denied the refund request for the retail sales tax exemption for sales to the federal government because Taxpayer did not satisfy the recordkeeping requirements in the Department’s “Special Notice.” Specifically, Taxpayer did not provide records of the type of agency card (e.g., purchase card, fleet card, travel card, integrated card,) and Taxpayer inconsistently recorded the sixth digit of the card. 3

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TAA did revise its position to allow for instances where the sixth digit was recorded and able to verify an exemption.

Det. No. 23-0118, 45 WTD 032 (March 6, 2026)

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We find that TAA correctly determined Taxpayer failed to follow the record keeping requirement. We also find that Taxpayer failed to carry its burden to prove its right to exemption from taxation. As such, we deny Taxpayer's petition. DECISION AND DISPOSITION Taxpayer’s petition is denied. Dated this 31st day of May 2023.