Sales & Use Tax Guideline

1. Sales & Use Tax Guideline

2. Table of Contents • University’s Tax Status • University’s Roles & Responsibilities • Tangible Personal Property (TPP) • Sales Tax vs. Use Tax • Accounts Payable Process • How to Determine The Taxability on a Purchase

3. University’s Tax Status Federal Income Tax Purposes: • The University is both: 1) an Internal Revenue Code (IRC) Section 115 organization, and 2) an IRC Section 501(c)(3) organization. • Exempt from Federal Income Tax on revenue that is generated directly from activities related to the University’s educational and research missions • Not exempt for revenue generated from unrelated business activities State Income Tax Purposes: • Exempt from State Income Tax Sales & Use Tax Purposes: • Not exempt from Sales and Use Taxes imposed by the State of California or other State Tax authorities

4. University’s Sales & Use Tax Roles & Responsibilities The University as Seller: • Purchases tangible personal property for resale with Resale Certificate which exempts the University from sales tax. • Responsible for collecting sales tax for the privilege of retailing “tangible” personal property in California. • Responsible for forwarding sales tax collected to the State of California Board of Equalization. The University as Purchaser: • Is subject to sales tax charged on invoices by vendors. • Responsible for self accruing use tax liability for consuming, using or storing “tangible” personal property in California or in other states. • Responsible for forwarding the accrued use tax payment to the State of California Board of Equalization or other State Tax Authorities.

5. Definition of Tangible Personal Property (TPP) • Seen • Weighed • Measured • Felt or touched • Perceptible to the senses Examples: Furniture, equipment, books, canned software programs, office supplies

6. Sales Tax vs. Use Tax Sales Tax: • Is charged on invoice by vendor. • Rate is determined by the point of delivery. • Payment is collected and forwarded to the State of California Board of Equalization (BOE) by vendors or retailers. Use Tax: • Is accrued if no sales tax charged on invoice. • Is accrued if sales tax charged on invoice is less than the tax rate of the final destination where the good will be consumed or utilized. • Is accrued for items originally purchased for resale with Resale Certificate. • Rate is determined by the final destination where the good will be consumed or utilized. • Payment is forwarded to the State of California Board of Equalization (BOE) or other State Tax Authorities by the University.

7. Accounts Payable ProcessPeopleSoft AP System • System accrues use tax automatically when sales tax is zero or less than the tax rate of the final destination where the purchase is “consumed” or “utilized”. • If purchase is tax exempt. AP will select “SUT Exempt”

8. Accounts Payable Process - TPP for Self-Consumption or Usage Vendor Invoices – Tangible Personal Property (TPP) for Self- Consumption or Usage: Rule: • Pay sales tax on invoice. • Use tax MUST be accrued if no sales tax charged on invoice. Example: If a purchase is ordered from an out-of-state vendor or from an internet vendor and no sales tax was charged on invoice, the University is responsible for accruing the use tax. • Use tax MUST be accrued if sales tax charged on invoice is less than the tax rate of the final destination where the good will be consumed or utilized. Example: If a purchase is shipped to San Francisco and a vendor charged only 7.50% of (SCL)state, county and local taxes, but the good will be consumed or utilized in San Francisco where the sales & use tax rate is 8.75%, UCSF must accrue the San Francisco district use tax of 1.25% for the difference to make up 8.75%. Note: The above rule must be applied to all California & out-of-state invoices.

9. Accounts Payable Process- TPP for Resale Vendor Invoices – Tangible Personal Property (TPP) for Resale: • Invoices – TPP for Resale • Resale Certificate was issued to vendors. • Exempt from sales & use tax Note:Departments engaged in resale business are not exempt from sales and use tax when purchasing merchandises for self-consumption or usage.

10. Accounts Payable Process- Reimbursement Reimbursement – Tax Does Not Apply: • Registration Fee • Travel & Advances Reimbursement – TPP for Self-Consumption or Usage: • Apply the same sales & use tax rule for TPP for self-consumption or usage. Note: To avoid unnecessary penalty and interest charges by the tax authority, recording sales tax when reimbursing employees is highly recommended.

11. How to Determine the Taxability on a Purchase Questions to ask when determining the taxability on a purchase: • Is the purchase for tangible personal property (TPP)? • If yes, is the purchase of TPP for resale or for self-consumption? • If the purchase of TPP is for resale, was a Resale Certificate issued? • If the purchase of TPP is for self-consumption or usage, is any sales tax charged on the invoice? • If no sales tax charged on the invoice, at what rate should the use tax be accrued? • If sales tax is charged on invoice, is the tax rate equal to the tax rate of the final destination where the good will be consumed or utilized?