Sales & Use Tax Guideline
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
2
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
3
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.
4
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
5
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.
6
Accounts Payable Process
PeopleSoft 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”
7
Accounts Payable Process
- TPP for Self-Consumption or Usage
Vendor Invoices – Tangible Personal Property (TPP)
for Self- Consumption or Usage:
Rule:
1)
2)
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.
3)
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.
8
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.
9
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 selfconsumption or usage.
Note: To avoid unnecessary penalty and interest charges by the
tax authority, recording sales tax when reimbursing employees is
highly recommended.
10
How to Determine the Taxability on a
Purchase
Questions to ask when determining the taxability on a purchase:
1)
2)
3)
4)
5)
6)
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?
11