Sales Tax Training

1. Sales Tax Training Sponsored by FSUN August 13, 2013 Tax Management Office

2. Topics for Today • Minnesota Sales Tax Basics • U’s Tax Filing Structure • Sales Tax in Other States • Legislative Update • Exercises • Q&A Tax Management Office

3. Minnesota Sales Tax Basics • Sales of Tangible Personal Property (TPP) • Sales of taxable services • Exempt items • Exempt customers • Destination based tax rate • Tax Management Office

4. U’s Tax Filing Structure • Purchasing versus selling • 50 sales tax ID numbers • Annual centrally filed return • EFS central billing – fewer separate filers • Liquor posting implications – one legal entity • Documentation maintained by departments • Tax Management Office’s role • Tax Management Office

5. Sales Tax in Other States • Sales shipped to customers in other states • Purchases shipped from other states • Purchases while traveling to other states • http://tax.umn.edu/map.html# • Tax.umn.edu • Sales tax • Sales tax status with other states • Look for exclusions in other states • Tax Management Office

6. Sales Tax in Other States Legend: Green = Exemption | Yellow = No Sales Tax | Red = No Exemption • Tax Management Office

7. Legislative Update Changes effective July 1, 2013: • Specified digital products subject to tax • Digital audio works • Digital audiovisual works • Digital books • Other digital products (e-greeting cards, online video and computer games) • Business related repair and maintenance services of electronic and precision equipment • Tax Management Office

8. Legislative Update Effective January 1, 2014: • Sales to cities and counties exempt • Get ST3 before treating exempt Things to watch for – • Online purchases that should be exempt • Marketplace Fairness Act • Tax Management Office

9. Questions to Ask • Is it a sale to • a non-U customer? • a non-U customer in MN? • Is it a sale of • TPP (tangible personal property)? or • taxable services? • Is there an applicable exemption? • Is the customer exempt? ST3 obtained? • What tax rate applies? • Tax Management Office

10. Exercise 1A Sales Tax Training August 13, 2013 Sale of Testing Kits A U department sells testing kits that customers use in testing the effectiveness of sterilization equipment owned by the customer. The kits are ordered on-line and shipped to Minnesota customers by the U department. The customer then follows the test kit instructions to determine whether the sterilization equipment meets required standards. The charge per test kit is $20.00. Each order has a shipping charge of $10.00. The U sells and ships 5 kits to a customer in Minneapolis. 1. What is subject to tax? 2. How would you word the invoice? 3. Would your answers change if you shipped the test kits to a customer in Michigan? • Tax Management Office

11. Exercise 1A Answers The sale of text kits is a sale of tangible personal property subject to Minnesota sales tax. The tax rate imposed is based on the jurisdiction where the customer takes possession of the kits – at shipped to address or where customer picks up the test kits. Charges for delivery or handling are taxable when the item shipped is taxable, even if the charges are separately stated. • Tax Management Office

12. Exercise 1B Sales Tax Training August 13, 2013 Sale of Testing Services A department sells testing services to customers to measure the effectiveness of sterilization equipment owned by the customer. The services are ordered on-line. The department ships testing kits to the customers and the customer follows the test kit instructions to swab samples and send them back to the department. The department then grows cultures and analyses the results to determine whether the sterilization equipment meets required standards. A report with the findings is issued to the customer. The charge for the service is $200.00 per test kit. Each order has a shipping charge of $10.00. 1. What is subject to tax? 2. How would you word the invoice? 3. Would your answers change if you shipped the test kits to a customer in Michigan? • Tax Management Office

13. Exercise 1B Answers Testing services are not taxable in Minnesota. Test kits sold without corresponding testing services would be tangible personal property subject to Minnesota sales tax. When taxable and nontaxable items are “bundled” together and sold for one price, the charge is generally subject to tax. However, if the primary charge is for a nontaxable service, the related sale of tangible personal property is essential to the use of the nontaxable service, and the true object of the transaction is the service, the transaction is not subject to sales tax. Put more simply, if tangible personal property is insignificant to the sale of the nontaxable service, the entire charge is not subject to tax. • Tax Management Office

14. Exercise 2A Sales Tax Training August 13, 2013 Rental of Lab Equipment A department on the Duluth campus rents laboratory equipment to customers on an hourly basis. The customer must pass a training test before independently using the equipment in the department’s lab. The customer is charged $500 per hour for the use of the equipment. 1. Is the hourly charge subject to tax? 2. How would you word the invoice? 3. What if the customer provides a fully completed Certificate of Exemption indicating they are exempt from tax? • Tax Management Office

15. Exercise 2A Answers Charges for the rental of equipment are subject to Minnesota sales tax. The tax rate imposed is based on the jurisdiction where the equipment is located and used by the customer. • Tax Management Office

16. Exercise 2B Sales Tax Training August 13, 2013 Charges for Use of Lab Equipment Operated by U Staff A department has customers that hire the department to perform specialized work using lab equipment operated by U staff. The laboratory equipment is so complex that the customer is not trained in how to operate the equipment. Additionally, the U wants to retain complete control over the equipment. Charges are based on the amount of time the U staff uses the equipment in hourly increments. The charge per hour is $1,000.00. • Is the hourly charge subject to tax? • How would you word the invoice? • Tax Management Office

17. Exercise 2B Answers Charges for the equipment that is operated by the seller are considered sales of nontaxable services. • Tax Management Office

18. Exercise 3A Sales Tax Training August 13, 2013 Sale of Software As a convenience for students and staff, the University IT Department sells prewritten software to U students and staff. The software is used on the purchaser’s computers for class assignments or personal use. Software is ordered on-line and delivered electronically. The charge for software X is $50. 00. Each order has a handling charge of $10.00. For this exercise, the customer is located on the Minneapolis campus. 1. What is subject to tax? 2. How would you word the invoice? 3. Would your answers change if you electronically delivered the software to a customer in Florida? • Tax Management Office

19. Exercise 3A Answers The definition of tangible personal property in Minnesota sales tax laws includes prewritten computer software. The tax rate imposed is based on the jurisdiction where the customer takes possession of the software based on the address of the customer. • Tax Management Office

20. Exercise 3B Sales Tax Training August 13, 2013 Sale of Required Software to Student As a convenience for students, and at the request of a department, the U Bookstore sells a specialized prewritten software package to U students. The specialized software is a required instructional material for all students in the department’s program. Each student receives a communication from the department indicating they are part of the program and they are required to purchase the software. Students may bring the communication to the U Bookstore to purchase the software or may purchase the software through other means if desired. The software costs $150.00. 1. Is the software subject to tax? 2. If the software was delivered electronically to the students would it change the tax treatment? • Tax Management Office

21. Exercise 3B Answers Instructional materials are exempt from tax when they are “prescribed for use in conjunction with a course of study” at a University and are purchased by students regularly enrolled at the institution. Instructional materials means materials required to be used directly in the completion of the course of study, including interactive CDs, tapes and computer software. It does not include general reference works or other items incidental to the instructional process such as pens, pencils, paper, folders or computers. However, there is a separate exemption for certain required computers. • Tax Management Office

22. Contact Informationtax.umn.edu • Tax Management Office • taxhelp@umn.edu • 612-624-1053 • Kelly Farmer • kdf@umn.edu • 612-626-6169 • Heather Broneak • brone007@umn.edu • 612-626-6174 • Tax Management Office