When do federal employees get exemptions from state accommodations tax?

Originally published May 2017

Lodging taxes follow most travelers wherever they go in the United States. However, some states exempt federal employees from paying state taxes on accommodations. If you’re renting a short-term rental (STR) out to a federal employee, how do you know if a guest should get an exemption from state lodging tax?

Federal employees must meet certain conditions to qualify for an exemption. First, they’ll need to have government identification and be on official government-related business travel. Different states have varying requirements for proof of this, and in some states, federal employees may also have to fill out official forms to get the exemption.

Federal employees also need to pay for their accommodations with a government travel credit card. There are three different categories of federal government travel credit cards:

• Individually Billed Account (IBA) travel cards, which are managed by each traveler individually and are not considered direct government payment.
• Centrally Billed Account (CBA) cards, which are managed by one person in an organization for several travelers. These are considered direct payments from the government.
• GSA SmartPay Tax Advantage Travel accounts, which combine an IBA and a CBA, providing a means to obtain tax exemption automatically at the point of sale for rental cars and lodging charges. Other travel-related purchases, such as meals and incidentals, are billed to the IBA portion of the account.

Accommodations for official government travel paid for by CBA cards are exempt from state taxes in the vast majority of states, with a few exceptions: 

• Arizona: CBA payments are exempt from state use tax but may not be exempt from transaction privilege tax.
• Hawaii: CBA payments may be exempt from general excise tax.
• New Mexico: CBA may be exempt from gross receipts tax.

Federal employees are less likely to qualify for an exemption when they use an IBA card to pay. Accommodations paid for with IBA cards are only exempt from state taxes in the following states: Delaware, Florida, Louisiana, New York, Oregon, Pennsylvania, Texas, and Wisconsin.

IBA lodging purchases are NOT exempt from state taxes in the following states: Alabama, Arizona, Arkansas, Colorado, Connecticut, District of Columbia, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming.

A few states have unique rules for IBA payments for lodging:

• Kansas: IBA payments are exempt from state sales tax but not from transient guest tax.
• Massachusetts: IBA payments may be exempt from occupancy excise tax.
  

Two states—Alaska and California—have no statewide taxes that apply to accommodations.

These rules only apply to statewide taxes. Individual municipalities in any of these states may also levy taxes on accommodations, and their rules for federal employee exemptions may be different than the state’s. It’s important to check with your local tax jurisdiction and understand the rules for exemption from local accommodation taxes.

Avalara MyLodgeTax can help automate and simplify tax compliance for short-term rental hosts. If you have tax questions related to vacation rental properties, drop us a line and we’ll get back to you with answers.