Sales and Use Tax

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Sales and Use Tax
Erica Fernandez
UC Merced Tax Manager
1
Sales vs. Use Tax
• Sales tax
– Imposed on every retailer (seller/merchant) for the
privilege of making retail sales of tangible personal
property (TPP) in California
• Use tax
– Imposed on the purchaser for the storage, use or
consumption of TPP in California
2
Tangible Personal Property
• TPP is personal property which can be
– Seen, weighed, measured, felt, touched etc.
• Non-TPP property includes
– Real property (land)
– Intangible property (e.g. goodwill)
– Property rights (e.g. licensing of trademarks or software if
no TPP is transferred)
3
Tax Compliance as a Purchaser
• Determine and pay the proper amount of sales
and/or use tax due
• Essentials for good tax decisions
– What is UC Merced’s sales and use tax obligation?
– What is the item being purchased and for what
use?
– What are the available exemptions?
– What is the taxable sales price?
4
Sales & Use Tax Obligation
CA Vendors vs. Out-of-State Vendor
• Two classifications of sellers:
▫ CA retailers (generally SALES tax)
 Sellers of TPP with business locations in California
▫ Out-of-state retailers (generally USE tax)
 Sellers physically located outside California
 May be registered to collect CA tax based on nexus with CA
(physical presence through employees, warehouse, etc.)
 If out-of-state vendor charges tax, confirm CA seller’s permit
number
5
Sales and Use Tax Obligation
California vs. Out-of-State Vendor (cont)
• The purchase of TPP from a retailer (not registered to collect
CA taxes) for use in CA is subject to use tax
• Identifying use tax transactions:
• Vendor has non-CA address
• Invoice is for tangible property
• Charge for shipping indicating something was shipped
• Note – purchases from other states or their instrumentalities,
including state universities are not subject to sales and use
tax.
6
Common Scenarios
• Example #1: UCM and Vendor are in the same State
– What tax is applicable?
– Who has the obligation to report?
• Example #2: UC Merced and Vendor are in different States
– What is applicable?
– Who has the obligations to report?
• Example #3: Property shipped to a different state (e.g. New
Mexico)
– Is California tax applicable?
– If yes, what tax and who has the obligation?
– Is New Mexico tax applicable?
7
Property Being Purchased
• Keys to accurate tax decisions include:
– What is the item being purchased?
– How will the item be used (e.g. will it be resold?)
– Does the purchase include services (e.g. repair or
installation)?
8
Taxable Gross Receipts (Sales Price)
• General rule – sales price (gross receipts) is subject to tax
unless an exemption applies.
• “Gross Receipts” exclude:
– Cash discounts, amounts charged for returned merchandise (Note that
the value of a trade-in does not reduce the sales price)
– Price for labor and services for installing property
– Separately stated charges for transportation (retailer to customer)
– Some taxes (federal retailer or consumer tax, local sales and use tax)
– Intangible property under a technology transfer agreement.
9
Exemptions
• Common exemptions include
–
–
–
–
–
–
–
–
–
–
Property shipped outside of California
Purchase for resale
Services and labor unrelated to the sale of TPP
Freight / Shipping
Software delivered electronically
Original works of art
Occasional sales
Newspapers and periodicals
Printed sales messages
Prescription medicines
10
Common Exemptions – Property
Shipped Outside of California
• Property purchase for use outside of California is not subject
to California use tax
• Keys to indentifying property for use outside California
– “Shippers to” location on invoice is outside of California
– Information on purchase order
• A copy of the shipping documents or other support should be
retained to document out-of-state shipment.
11
Common Exemptions – Purchase for
Resale
• Property purchased for resale is excluded from the definition
of retail sale and is therefore exempt.
• A resale certificate should be issued to the vendor. This
transfers the liability for the collection and remittance of sales
tax from the vendor to UC Merced.
• Resale certificates are issued by Tax Services, please email
[email protected]
12
Common Exemption – Services / Labor
• Services where no TPP is transferred, or where the transfer of
TPP is incidental, are exempt.
– Professional services such as accounting, medical, legal
etc.
• Labor unrelated to the sale of TPP is exempt
– Repairs
– Installations
• Labor related to the sale of TPP is taxable
– Fabrication – creating TPP
– Assembly – changes for assembling new products
13
Common Exemptions – Shipping / Freight
• Shipping / freight charges are exempt if:
▫ Separately stated on the invoice
▫ Delivery is by common carrier
• Note that handling charges are taxable (unless the transaction
is exempt)
• If shipping and handling charges are combined, the combined
charge is taxable. However, if the vendor has not assessed tax,
and UCM needs to accrue it:
▫ 80% of the combined charge can be allocated to shipping and 20% to
handling
▫ Use tax should be accrued on the 20% allocated to handling
14
Common Exemption - Software
• Canned (off-the-shelf) software is exempt if it is delivered
electronically and no tangible property is shipped
– Shipping / handling charges on the invoice indicate that
TPP (such as DVD) was shipped)
• Custom software (developed specifically for the user)
– More than 50% custom – exempt
– Less than 50% custom – partially exempt
15
Common Exemption – newspapers and
Periodicals
• Newspapers and periodicals are exempt if the publication are:
– Regularly issued at stated intervals – more than 3 time but
less than 60 times per year and are
– Distributed without charge
• An exemption certificate should be issued to the vendor – see
Tax Services
16
Common Exemptions – Occasional
Sales
• A sale by (and purchase from) a person who is not
engaged in business and not required to hold a
California seller’s permit is exempt if the seller makes
less than 3 sales of TPP in a 12-month period
• An affidavit signed by the seller and approved by Tax
Services is required.
17
Common Exemptions – Printed Sales Messages
• Printed sales messages are exempt if the printed material:
– Advertises a good or service
– Is delivered directly to the user by the vendor or mailing
house, by common carrier or mail, at no cost to the user
• Examples are Medical Center pamphlets regarding medical
services or UNEX postcards regarding course announcements.
• An exemption certificate should be issued to the vendor –
contact Tax Services
18
Common Exemptions – Original Works of Arts
• An original work of art purchased for display in a museum or
public place
– Must be TPP which is created as a unique object
– Includes visual arts, crafts and mixed media
– Must be purchased for display in a museum or other place
which is open to the public without charge for at least 20
hours per week, and for at least 35 weeks of the calendar
year.
• Example – original artwork purchased by the Fowler Museum
for display
19
Maintenance Contracts
• Hardware – parts / materials / services etc.
– Mandatory contract (required to purchase as a condition of sale of the
property) is taxable
– Optional (not required to purchase as a condition of sale of the
property
• Exempt
• Change must be separately stated
• Canned software – updates / upgrades / fixes etc.
– Mandatory – exempt only if both original software and maintenance is
delivered electronically
– Optional
• 50% exempt if with TPP
• 100% exempt if no TPP
20
Medicine
• Exempt “medicine” means any substance or preparation
intended for use by external or internal application to the
human body
– Must be used for the diagnosis, cure, mitigation, treatment
or prevention of disease
– Commonly recognized as intended for that use
– Must be prescribed or
– Furnished by a health care facility
21
Medicine (cont.)
• Medical laboratory items - taxable
▫ Animals for research
▫ Liquids
• Exempt medicine
▫
▫
▫
▫
Prescription medicine
Implants
Medical gases (used for patient treatment)
Gases
• Vitamins (supplements)
▫ Generally taxable unless furnished under qualifying criteria
22
Measure C District Tax – UCM Purchases
• Generally vendors are required to collect district taxes only in
districts where they do business
• If TPP is purchased from a California vendor who is not
required to collect City of Merced district tax (0.50%), the
vendor charges the 8.25% state-wide rate.
– Accrue the 0.50% difference (8.75% minus 8.25%)
• If TPP is purchased at a lower district rate (e.g. in Atwater
where the rate is 8.25%) for use in Fresno
– Accrue the 0.725% difference (8.975 minus 8.25%)
23
Miscellaneous Fees and Charges
• Fully taxable, partially taxable or exempt depending on the
taxability of the items(s) purchased
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–
–
–
–
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Dry ice
Hazardous material charge
Heat surcharge
Ice surcharge
Fuel surcharge
Packaging and handling
• Not taxable
– E-Waste recycling fee
– Insurance
– UPS and Fed Ex delivery charges
24
Where to Go for Help
• Websites:
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–
–
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http://[email protected]/ - UCM Tax Portal
http://www.tax.ucla.edu – UCLA Tax Portal
http://map.ais.ucla.edu/go/100447 - Sales and Use Tax at UCLA
http://www.boe.ca.gov – State Board of Equalization
• UC Sales & Use Tax Manual
• UC AMC T-182-73
• Emails and Telephone Numbers Tax Contacts:
– Jennifer Chhoeung for Accounts Payable
• [email protected] 310-794-0317
– All other transactions:
• Erica Fernandez– [email protected] 209-228-4075
25
Sales & Use Tax Case Studies
26
Case Study 1
The Math Department received the following invoice from Computer
Corporation in Kansas:
Notebook computer
$ 996
Consulting services
200
Shipping and Handling
20
CA sales tax
0
Total
$ 1,216
1.
2.
3.
4.
What is the total non-taxable amount (before shipping and handling)?
Does an exemption apply? If so, which one?
What amounts should be entered on the P-card screen and where?
What is the tax due on this invoice?
27
Solution to Case Study 1
1. The total non-taxable amount before shipping and handling
is $200 (for consulting services)
2. The exemption for services where no TPP is provided applies
3. Entries on P-Card screen:
▫
Enter $20 in the box labeled “Enter shipping / handling charge
if it is combined”
▫
Enter $200 in the box labeled “Enter Total Non-Taxable
Amount”
▫
Select the code for exempt services from the drop-down list in
the box labeled “Exempt Reason”
28
Solution to Case Study 1 (cont.)
4. The tax due is calculated as follows:
Notebook computer
$ 996
Consulting services
0
Shipping and Handling (20%)
4
Total subject to tax
$1,000
Tax rate
8.25%
Total tax
$ 82.50
29
Case Study 2
The Events Office purchased canned (off-the-shelf) software from a
vendor in Texas to track the number of film permits issued annually. The
software was delivered via CD and installed on the Department’s server.
The purchase includes mandatory maintenance (i.e. upgrades, updates
and fixes) to be delivered electronically over the period of the contract.
The following invoice was received:
Software
800
Maintenance (1/1/11 – 12/31/11) 200
Shipping
10
CA sales tax
0
Total
$ 1,010
1.
2.
3.
4.
What is the total non-taxable amount (before shipping and handling)?
Does an exemption apply? If so, which one?
What is the tax due on this invoice?
How would your answers to questions 1-3 change if the software was
delivered electronically?
30
Solution to Case Study 2
1. The total non-taxable amount (before shipping and handling)
is $0
2. No exemption applies to the software since it was delivered
via media (CD). Although the maintenance is delivered
electronically, no exemption applies because the original
software is taxable (mandatory maintenance is considered to
be a part of the sale of the original software. If the software
is taxable, the mandatory maintenance is taxable)
3. The taxable amount is $1,000 ($800 + $200) and the tax due
is $82.50 ($1,000 X 8.25%)
4. If both the software and the mandatory maintenance are
delivered electronically, both are exempt. The total nontaxable amount (before shipping and handling) would be
$1,000. No tax would be due.
31
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