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Yes, payment settlement entities are required to report the transactions of governmental units, whether state or federal. The term "participating payee" includes any governmental unit, as specified in the retrieved information. This requirement is outlined in the IRS FAQ and other IRS documents, which state that payment settlement entities must include governmental units in their reporting obligations under IRC § 6050W.
Sources:
§ 6050W. Returns relating to payments made in settlement of payment card and third party network transactions
Publication 1220 (9/2023)
FS-2024-3
PMTA 2014-014
FS-2023-6
IRM Part 21. Customer Account Services. Chapter 7. Business Tax Returns and Non-Master File Accounts. Section 4. Income Taxes/Information Returns