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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. University’s Tax Status .

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table of contents
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
university s tax status
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
university s sales use tax roles responsibilities
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.
definition of tangible personal property tpp
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

sales tax vs use tax
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.
accounts payable process peoplesoft ap system
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”
accounts payable process tpp for self consumption or usage
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.

accounts payable process tpp for resale
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.

accounts payable process reimbursement
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.

how to determine the taxability on a purchase
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?