Disaster Relief Payments
- Are purchases made using disaster relief payments subject to Wisconsin sales and use tax?
The Federal Emergency Management Agency (FEMA) and the American Red Cross (ARC) have been providing relief to disaster victims by distributing funds to those in need. Funds are being distributed using various methods including:
(1) making electronic transfers directly into a disaster victim's bank account;
(2) issuing U.S. Treasury checks to a disaster victim;
(3) issuing FEMA debit cards to a disaster victim;
(4) providing the disaster victim with an ARC Disbursing Order (ARCDO); and
(5) providing the disaster victim with a Client Assistance Card (CAC).
The Wisconsin sales and use tax treatment of purchases made using each of these payment methods is described below.
Purchases made by disaster victims with funds from FEMA that have been electronically transferred into an individual's bank account or received by the individual in the form of a U.S. Treasury check are subject to Wisconsin sales or use tax in the same manner as any other purchase made by that individual.
For example, Individual A is a victim of Hurricane Katrina and receives funds from FEMA through an electronic funds transfer directly into Individual A's bank account. Individual A uses these funds to purchase gasoline for his automobile and a meal at a restaurant. Individual A's purchase of the gasoline for his automobile is not subject to Wisconsin sales tax since gasoline for automobiles is generally not subject to Wisconsin sales tax. Individual A's purchase of the meal is subject to Wisconsin sales tax. The fact that these purchases are made with funds that were provided to Individual A by FEMA does not affect the taxability of the transactions.
In addition to providing funds to disaster victims using electronic funds transfer and U.S. Treasury checks, FEMA also had a pilot program in which they provided approximately 8,500 debit cards to some of the victims. The debit cards were set up in the victim's name and “pre-loaded” with $2,000 in spending authority. Purchases made by persons using the FEMA-provided debit cards that have been set up in the victim's name are subject to Wisconsin sales or use tax in the same manner as any other purchase made by that individual.
An ARCDO is a voucher that the American Red Cross (ARC) provides to a disaster victim for a specific vendor and is good up to a specified dollar amount. Although ARCDOs are mainly issued for lodging for the victims, they are also issued for items such as groceries and clothing. A vendor that accepts an ARCDO submits a copy of the invoice or receipt showing what was purchased by the victim, along with a copy of the ARCDO, to the ARC. (Note: If the purchase was for less than $25 or was for groceries, a copy of the invoice or receipt is not required to be sent along with the ARCDO.) The ARC then sends a check to the vendor to pay for the purchase.
Purchases made using ARCDOs, as described above, are not subject to Wisconsin sales or use tax since these purchases are made by the ARC. The vendor should keep a copy of the ARCDO and receipt and indicate the ARC's Certificate of Exempt Status (CES) number on the receipt to prove that the sale qualifies for exemption from Wisconsin sales and use tax. The CES number for the ARC is contained in the merchant instructions for the ARCDO.
American Red Cross Client Assistance Cards (CACs) are prepaid credit cards which the ARC issues to some victims. Generally, CACs can be used anywhere that a MasterCard is accepted and may be used to purchase any items other than alcohol, tobacco and firearms.
When a CAC account is set up by the ARC for a victim, the financial institution through which the CAC has been issued will remove the specified amount of funds from the ARC's bank account and transfer the funds to the CAC account. The victim will then select a personal identification number (PIN) for the account and have approximately 15 days to spend the balance on the card. The ARC reserves the right to deactivate or suspend the card at any time if misuse is suspected. In addition, any funds left on the card after a specified period of time are returned to the ARC's bank account.
Purchases made using CACs are not subject to Wisconsin sales or use tax, provided the invoice for the purchase is made out in the name of the ARC and the purchaser pays for the purchase using the CAC. The retailer should keep a copy of the CAC and receipt and indicate the ARC's Certificate of Exempt Status number on the receipt to prove that the sale qualifies for exemption from Wisconsin sales and use tax.
FOR MORE INFORMATION PLEASE CONTACT:
WISCONSIN DEPARTMENT OF REVENUE
Customer Service Bureau
PO Box 8949
Madison, WI 53708-8949
Phone: (608) 266-2776
Fax: (608) 267-1030
Page last updated December 23, 2013