Sales Tax Training
Sponsored by FSUN
August 13, 2013
Tax Management Office
Topics for Today
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Minnesota Sales Tax Basics
U’s Tax Filing Structure
Sales Tax in Other States
Legislative Update
Exercises
Q&A
Tax Management Office
Minnesota Sales Tax Basics
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Sales of Tangible Personal Property (TPP)
Sales of taxable services
Exempt items
Exempt customers
Destination based tax rate
Tax Management Office
U’s Tax Filing Structure
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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
Sales Tax in Other States
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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
Sales Tax in Other States
Legend:
Green = Exemption | Yellow = No Sales Tax |
Red = No Exemption
Tax Management Office
Legislative Update
Changes effective July 1, 2013:
• Specified digital products subject to tax
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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
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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
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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
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.
2.
3.
What is subject to tax?
How would you word the invoice?
Would your answers change if you shipped the test kits
to a customer in Michigan?
Tax Management Office
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.
1. The charges for the kits, as well as the shipping charges, are subject to tax.
2. Five Test kits @ $20 per kit
Shipping charge
Subtotal subject to tax
Tax @ 7.775% (Minneapolis rate)
Total Due
$100.00 T
10.00 T
110.00
8.55
$118.55
3. No tax would be charged if the test kits were shipped out of MN.
Tax Management Office
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.
2.
3.
What is subject to tax?
How would you word the invoice?
Would your answers change if you shipped the test kits to a
customer in Michigan?
Tax Management Office
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.
1. None of the charges are subject to tax.
2. Five test services @ $200 per service
Shipping charge
Total Due
3. No change in answers if shipped to Michigan.
Tax Management Office
$1000.00
10.00
$1010.00
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.
2.
3.
Is the hourly charge subject to tax?
How would you word the invoice?
What if the customer provides a fully completed
Certificate of Exemption indicating they are exempt
from tax?
Tax Management Office
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.
1. Yes.
2. Two hours use of equipment X @ $500 per hour
Tax @ 7.875% (Duluth rate)
Total Due
$1000.00 T
78.75
$1078.75
3. No tax should be charged and the exemption certificate should be collected
and maintained by the department or if you are billing through EFS, the
exemption certificate will be maintained by Non-Sponsored A/R.
Tax Management Office
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.
1.
2.
Is the hourly charge subject to tax?
How would you word the invoice?
Tax Management Office
Exercise 2B Answers
Charges for the equipment that is operated by the seller are considered sales
of nontaxable services.
1. No.
2. U staff operating equipment X for 2 hours @ $1000 per hour
Total Due
Tax Management Office
$2,000.00
$2,000.00
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.
2.
3.
What is subject to tax?
How would you word the invoice?
Would your answers change if you electronically
delivered the software to a customer in Florida?
Tax Management Office
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.
1. Charges for the software, as well as the handling charges, are subject to tax.
2. Software X
Handling charge
Subtotal subject to tax
Tax @ 7.775%
Total Due
$50.00 T
10.00 T
60.00
4.67
$64.67
3. No tax would be charged if the prewritten computer software was
electronically delivered out of MN.
Tax Management Office
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.
2.
Is the software subject to tax?
If the software was delivered electronically to the
students would it change the tax treatment?
Tax Management Office
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.
1. The software is not subject to tax for purchasers that are enrolled in the
program that requires the software.
2. Delivering the software electronically would not change the tax treatment.
Tax Management Office
Contact Information
tax.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