Sales

1
University of California

• Sales Use Tax Workshop
• Presented by
• Alan D. Floria, Partner
• PricewaterhouseCoopers, LLP
• [phone]
• James F. Regan, Director
• PricewaterhouseCoopers, LLP
• [phone]

2
Introduction
Section One

• Generally, the seller or retailer remits (pays)
  sales and use taxes directly to the State Board
  of Equalization, the agency that administers the
  Sales and Use Tax Law.
• Not being attentive to the taxable status of
  sales and purchases may result in an audit
  liability or an overpayment of sales and use
  taxes.

3
Course Objectives
Section Two

• Provide general knowledge of California sales and
  use tax rules. These rules are for California
  only and should not be applied to other states.
• Provide general knowledge of how the sales and
  use tax rules apply to the University as both a
  purchaser and seller.

4
Course Overview
Section Two
Section 6 University as a Seller University
Departments Bookstore, food services, medical
center, student health services, library
services, registrar, etc.
Universitys Supplier
The University
Section 5 University as a Purchaser j
University Departments Accounts payable,
purchasing, procurement, medical center,
cafeteria, etc.
Universitys Customer
Indicates the flow of tangible personal property
5
Sales vs. Use Tax Overview
Section Three
6
Sales Tax
Section Three

• Imposed on retailers for the privilege of making
  retail sales of tangible personal property in
  California.
• Tax applies to the gross receipts from the sale
  of tangible personal property.
• Services - generally not subject to sales tax,
  unless services related to the sale of tangible
  personal property (true object test).
• Sales tax applies to intrastate transactions
  (within California).

7
Use Tax
Section Three

• California imposes use tax on every person who
  stores, uses, or consumes in the state tangible
  personal property purchased from an out-of-state
  retailer.
• Use tax applies to the cost of the tangible
  personal property.
• Generally, use tax applies to taxable
  transactions that are not subject to sales tax.

8
Sales and Use Tax Rate
Section Three
The combined Sales and Use Tax Rate includes the
following components

• State
• County
• Local (City)
• Combined Statewide Sales and Use Tax Rate

5.75 .25 1.00 7.00
District Transaction and Use Tax
(Generally, the applicable district tax rate is
based on taxes imposed in the district where the
property is first used)
0.0 to 1.25
7.00 to 8.25
Total Combined Sales and Use Tax Rate
The combined statewide tax rate (7.00)
applies to all sales or purchases in California.
9
Definitions
Section Four
10
Definitions
Section Four

• A Sale or Purchase, not otherwise exempt, must
  include the following elements to be subject to
  sales or use tax

• Sales Tax
• Sale
• Tangible Personal Property
• At Retail
• For consideration
• By a Retailer
• In California

• Use Tax
• Purchase
• Tangible Personal Property
• At Retail
• For consideration
• From a Retailer
• Used in California

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Definitions
Section Four
The transfer of title or possession (sale or
purchase) of tangible personal property at retail
in California for consideration.

• Transfer of title or possession includes any
• Transfer
• Exchange
• Barter
• Certain leases or rentals

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Definitions
Section Four
The transfer of title or possession of tangible
personal property at retail in California in
exchange for consideration.

• Tangible personal property can be
• Seen
• Weighed
• Measured
• Felt or touched
• Detected by the use of any of the senses
• Retail sale is a
• Sale for any purpose other than resale in the
  regular course of business

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Definitions
Section Four
The transfer of title or possession of tangible
personal property at retail in California for
consideration.

• Consideration includes
• Cash
• Other property
• Liabilities assumed

14
Definitions
Section Four
A retailer is defined as every seller who makes
any retail sale. A seller includes every person
engaged in the business of selling tangible
personal property.

• A person (and indirectly a retailer) includes the
  following
• Individuals
• Many forms of business organizations
• Trusts, estates
• Social organizations
• Any part of the California State government (all
  other states are excluded)
• Any group acting as a unit
• The United States government is a person, but
  is exempt from sales and use taxes
• Foreign consuls and diplomatic personnel may be
  exempt from sales and use taxes if specifically
  provided under a treaty or diplomatic agreement.

15
University as a Purchaser
Section Five
16
Using a Resale Certificate
Section Five

• Property purchased by the University for resale
  is exempt from sales and use tax.
• Purchases must be properly documented.
• The University should provide a resale
  certificate to support the exemption.
• Elements of a valid resale certificate
• Name and address of purchaser
• Sellers permit number of purchaser.
• Description of the property to be purchased
• Certificate must contain words that state the
  property will be resold or for resale
• Date of the document
• Signature of the purchaser or purchasers agent
• Good Faith

17
Using a Purchase Order
Section Five

• If purchase orders are used in place of resale
  certificates, the same elements of a valid resale
  certificate must be on the purchase order as
  proof of resale.
• The University may write see purchase order on
  the resale certificate in the space provided for
  description of the property being purchased.
• The purchase order should clearly indicate which
  items are for resale. (The State Board of
  Equalization assumes that items not marked for
  resale are subject to tax.)

18
California Retailer vs. Out-of-State Retailer
Section Five

• What is a California Retailer?
• What is an Out-of-State Retailer?
• California vs. Out-of-State - Why does it matter?
• Purchases from California retailers are subject
  to SALES tax. As such, as long as the University
  has not issued a valid resale/exemption
  certificate to the retailers, California holds
  the retailers liable for the tax.
• Purchases from out of state retailers are subject
  to USE tax. For these transactions, the
  University is ultimately liable for the tax.

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Section Five
District Taxes

• In general, the rate of district tax is
  determined based on the district where retailers
  place of business is located or where the
  property is first delivered.
• As a purchaser, the University is responsible for
  the payment of district taxes as follows
• Pay district tax based on the rate for the
  district where the property is first delivered.
  Keep the following in mind when the billed rate
  is different from the rate in the destination
  district
• If the destination rate is higher, the tax should
  be recomputed using the rate in the district of
  delivery and posted to the sales/use tax accrual
  account. The invoiced amount should be paid
  without the additional billed district taxes.

District taxes

• Additional district use taxes that are approved
  by voters to support local public services
  (typically transit services).
• Rates vary by district.

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Section Five
District Taxes
If the destination rate is lower, tax should be
recomputed using the rate in the district of
delivery and posted to the sales/use tax accrual
account. The invoice amount should be paid
without the additional billed district tax. If
invoice amount does not include additional billed
district tax, the additional taxes for the
destination district should be accrued and paid
to the State Board of Equalization on the sales
and use tax return.
District taxes CONT
21
Inventory Withdrawal
Section Five
Resale inventory withdrawals are subject to use
tax when
Withdrawn inventory is used by the campus or is
given away
1.

• If tax has already been paid on withdrawn items,
  no additional tax is due.
• If tax has not been paid on withdrawn items, use
  tax must be accrued and paid by the campus based
  on the cost of the items to the University.

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Taxability by Product Description
Section Five

• The University may purchase taxable products
  listed on the next slide by issuing resale
  certificates.
• Use tax will be imposed on the University if the
  product is used before resale.

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Product Purchases
Section Five
TAXABLE
EXEMPT
Advertising Services Agricultural Machinery and
Equipment Agricultural Supplies Animal-Laboratory
Research (Non-food animal) Appliances Appliances
- Mandatory Warranties Art Supplies Art
Work Audio Visual Service Automotive Repairs and
Services Aviation Parts and Services Bar Coding
Supplies Labels and Nameplates Batteries Biochem
ical and Biological Products Blueprints Books
and Educational Materials Calligraphy and
Design Cargo Containers (Intermodal)
Accommodations (Hotel) Accounting
Services Advertising Services Air Filter for
Resale Animal Feed for Food Animal Non-Food
Animals for Resale Animal Feed - Medicated for
Food Animals Non-Food Animals for Resale Animal
Livestock Animal Life - Laboratory Research Food
Animal (live animals) Appliances - Optional
Warranties Art Supplies Purchased by the Book
Store for resale Automotive Repairs and
Services Aviation Parts and Services Bags,
Backpacks Similar Products Purchased for the
Bookstore for resale Bar Coding Supplies Labels
and Nameplates
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Product Purchases
Section Five
TAXABLE
EXEMPT
Computer Repair Services Not Under
Warranty Computer Repair Services Under Warranty
- Mandatory Computer Software
Peripherals Computer Services Computer
Systems Construction Contracts Copy
Machines Copy Supplies Data Processing
Services Financial Leasing Furniture
Refurbishing - Materials Parts Furniture
Refurbishing - Fabrication Labor Shipping/Freight
Services Graphic Designs (Finished art
only) Interior/Office Design - Tangible Personal
Property
Batteries - Bookstore Inventory Blueprinting
Services Building Grounds Services Calligraphy
and Design Cargo Containers (Intermodal) Compute
r Program Developers/Consultants Computer Repair
Services Not Under Warranty Computer Repair
Services Under Warranty - Optional Computer
Services Computer Software Peripherals Compute
r Systems Bookstore Inventory Consultant
Services Construction Contracts Copy Supplies
for resale Data Collection and Research
Services Data Processing Services Dentist -
Medicines Administered by a Dentist
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Product Purchases
Section Five
TAXABLE
EXEMPT
Discounts - Not Trade In Engineering
Architectural Services - In General Financial
Leasing Furniture Refurbishing - Repairing
Application Labor Installation Charges Instruction
al Services Interior/Office Design - Bona Fide
Professional Service Machine Shop Services
Equipment Mailing Labels Mailing
Services Mailing List Restricted to One Time
Use Nurseries - Plant Trees Packaging
Materials - for Resale Plumbing
Services Preliminary Art Printed Material -
Brochures
Labor - Fabrication and Assembly Machine Shop
Services Equipment Mailing List Mailing
Labels Material Handling Equipment Modular
Office Building Nurseries - Plant
Trees Photographic Services Plumbing
Services Printed Material - Brochures Printed
Material - Copies Printed Material - Charges for
Graphic Art Publishing - Production
Functions Rental/Leases Repairs Restocking
Fees Shipping/Freight Charges
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Product Purchases
Section Five
TAXABLE
EXEMPT
Publishing Publishing - Fees Paid to Designers
Art Directors Publishing - Production
Functions Rentals/Leases Repairs Restocking
Fees Shipping/Freight Charges Software
Maintenance Contract - Mandatory Software
Maintenance Contract - Optional
Subscriptions Transcription Services Video
Production Services Warranties - Optional Word
Processing Services
Software Maintenance Contract -
Mandatory Software Maintenance Contract -
Optional Subscriptions Trade - In Allowance on
Tangible Personal Property Vehicle Warranties -
Mandatory Window Coverings Word Processing
Services
Indicates purchase is listed in both taxable
and exempt columns.
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The University of CaliforniaSales/Use Tax
Decision Chart for Purchases
On computer hardware - exempt. (if optional) On
computer software - generally taxable.
Tangible personal property (TPP)?
NO
Maintenance agreement?
YES
Construction contractor is responsible for tax if
lump sum or time and material.
Construction contract?
YES
Labor is taxable if for new assembly or
fabrication of TPP. Exempt if repair,
installation, or consulting unrelated to the
purchase of TPP.
Labor or consulting?
YES
YES
YES
For resale?
Issue a resale certificate or resale P.O. to your
vendor.
NO
Accrue sales tax and report on sales and use
return in the period of purchase.
YES
Purchased from a California seller for the
Universitys use with delivery and title
transferring in California?
Has a resale certificate been issued to the
seller?
YES
Do not issue a resale certificate or accrue use
tax. Seller is responsible for collection and
payment of state tax.
NO
NO
Purchased from out-of-state vendor?
YES
YES
Has seller charged California tax?
Was the correct California tax rate charged?
Remit tax with payment to the vendor.Retain
invoice as a receipt for tax paid.
YES
NO
Remit tax billed with payment to the
vendor.Accrue difference and report use tax on
return in the period of purchase (calendar
quarter).
NO
Do not remit the tax billed on the invoice and
accrue use tax and report on sales and use tax
return
YES
Has seller charged another states tax?
NO
Items to exclude from the measure of tax 1.
Common carrier freight charges to the
University. 2. Repair and installation labor. 3.
Services not related to the purchase of TPP.
Items to include from the measure of tax 1.
Handling charges. 2. Freight-in to sellers
location.
Note TPP Tangible personal property.
Accrue and pay use tax on SBE return in the
period of purchase.
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Specific Purchases
Section Five

• Labor Charges
• Installation Exempt
• Repair Exempt
• Fabrication Taxable
• Assembly Taxable
• Maintenance Contracts
• Mandatory Taxable
• Optional Exempt, if separately stated

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Canned Software
Section Five

• Taxable
• Purchases of canned software including charges
  for license fees, site licensing and other end
  user fees
• Mandatory maintenance contracts including
  consulting services purchased with canned
  software
• Optional maintenance contracts -Upgrades of
  canned software on disk
• Exempt
• Purchases of canned software transferred by
  remote telecommunications to the purchasers
  computer.
• Purchases of canned software transferred by
  vendor via load and leave provided that the
  seller does not transfer any tangible personal
  property (storage media) to the purchaser.
• Optional maintenance contracts - unbundled
  telephone support.

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Custom Software
Section Five

• Custom Software
• Software created and tailored specifically for a
  particular customer application.
• Includes modification of canned software at a
  charge of 50 or more of its purchase price
• Exempt
• Purchase of custom software
• Optional maintenance contract
• Mandatory maintenance contract
• Separately stated modification charge

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Specific Purchases
Section Five
Printed Sales Messages

• The University may avoid sales or use tax on its
  purchase of catalogs, letter, circulars,
  brochures and pamphlets provided that the printed
  sales messages meet all of the following
  requirements
• Printed for the primary purpose of advertising.
• Printed to the special order of the University.
• Mailed or delivered by the seller, the sellers
  agent, or a mailing house acting as the agent for
  the University, through the United States Postal
  Service or by common carrier.
• Received by any other person, other than the
  University, at no cost to that person.

32
University as a Seller
Section Six
33
Sale for Resale / Resale Certificates
Section Six

• A Sale for Resale is a sale to a purchaser who
  intends to resell the property in the regular
  course of their business.
• Note A sale for resale only requires a purchaser
  to intend to resell the acquired property at the
  time of the purchase. The sale for resale is
  supported and the purchasers intent is
  documented when a valid resale certificate is
  taken from the purchaser.
• Valid Resale Certificate
• Six Regulatory Elements
• Good faith
• Valid Unless Revoked

34
University as a Seller - Selected Department
Activities
Section Six
35
Bookstore
Section Six

• Catalogs/Class Schedules
• Catalogs are exempt
• The University is considered the consumer of the
  catalogs
• Class Schedules
• Mailed or delivered Exempt
• Bought at bookstore Taxable
• Consignment
• Bookstore responsible for tax
• Interstate Commerce
• When shipped out of state Exempt
• Coupons and Cash Discounts
• Manufacturers Coupons
• Full retail price is subject to tax
• University issued coupons
• Discounted price is subject to tax

36
Bookstore
Section Six

• Gown Rentals
• Purchased by University ex-tax Rental receipts
  subject to tax
• Purchased by University tax-paid No sales tax
  due on rental payments

37
Food Services
Section Six

• General Rule
• Student Meals
• Student meals Exempt (except non food products,
  such as carbonated and alcoholic beverages, etc.)
• Non-student meals Taxable
• Cafeteria Sales (excludes student meals)
• Sales of both cold hot foods consumed on the
  premises Taxable
• Sales of hot food to go Taxable
• Sales of cold food to go Exempt
• Admission
• Sales of food sold and consumed at events where
  there is an admission charge are taxable.
• Exceptions (not all inclusive)
• Coffee sales on a to-go basis Exempt
• Free meals (for example, meals given to student
  workers, medical residences, other employees)
  Exempt, however University is consumer of
  carbonated/alcoholic beverages and any supplies.

38
Food Services
Section Six

• Vending Machines
• University Operated
• To students Exempt (except nonfood products such
  as carbonated beverages, etc.)
• To non-students Taxable
• Independently Owned
• Owner responsible for sales tax
• Budget Cards
• If the charge is to recover the cost of the
  cards Taxable
• If food purchased is exempt Exempt

39
Food Services
Section Six

• Catering
• Campus Departments Exempt
• Employee meals (if the employees are charged for
  the meals) Taxable
• Sales to non-University groups Taxable
• Inter -department recharges for non-university
  events
• Inter department charges for tangible personal
  property may be subject to sales tax, if the
  department sponsoring the event receives
  consideration from the participants of the event.
  
• For example, the Association of Higher
  Mathematics holds an event at UCLA, and UCLAs
  Math Department sponsors the event and
  facilitates the conference area and meals.
  UCLAs cafeteria performs the catering and makes
  an inter-department charge to the Math
  Department. To the extent that the participants
  pay UCLA any amount to attend the event, such
  recharges from the Cafeteria to the Math
  Department may be subject to sales tax. Transfer
  of other property such as, handouts, giveaways,
  etc., may also be subject to sales tax.

40
Medical Centers and Student Health
Section Six

• Medical centers are generally regarded as the
  consumers of property used in rendering their
  services.
• Medical centers are retailers or consumers based
  on the following
• Patient billing
• Administration
• Passage of title and possession

41
Medical Centers and Student Health
Section Six
Sales by Medical Centers

• Taxable
• Cafeteria sales (excludes patient meals)
• Sales of guest trays
• Sales of medical and pharmacy supplies sold over
  the counter (excludes prescription medicines)
• Separate charges for the sale of dressings,
  appliances and supplies (not defined as
  medicines) with the intent that the patient
  remove the property from the premises of the
  medical service facility.
• Gift shop
• Exempt
• Lump sum charges for patients
• Itemized patient charges
• daily patient services
• meals (including hot prepared food)
• medicines subject to exemption
• sales to U.S. Government

42
Medical Centers and Student Health
Section Six
Purchases by Medical Centers

• Taxable
• Equipment used by the Medical Centers
• Reusable items - dinnerware, silverware, and
  cooking utensils
• Stationery and housekeeping supplies
• X-ray film and related supplies
• Chemicals and supplies used in laboratory
• Central supply items - the specific use of
  property determines its tax status

43
Medical Centers and Student Health
Section Six
Purchases by Medical Centers

• Exempt
• Medicines
• Prescription medicines
• Over the counter medicines for consumption at
  medical centers may be subject to tax
• Diagnostic substances or preparations intended
  for use by external or internal application to
  the human body
• Disposable items that become components of meals
  or food products furnished or served to patients
  - straws, napkins, plastic utensils, etc.
• Meals and food products including carbonated
  beverages, beer and wine served to patients as
  components of meals

44
Technology Licensing
Section Six

• Research and Development Contracts
• Qualified contracts Exempt if
• the research is to discover information that is
  technological in nature and
• the contract requires the delivery of the report
  or tangible personal property which is incidental
  to the true object of the contract
• Prototypes
• If provided as part of the qualified contract
  Exempt
• Custom Items
• Because they are produced or intended for a
  functional use and not for information or testing
  use Taxable

45
Library Services and Photocopying
Section Six

• Copies
• Self Service
• If over 15 a copy Taxable
• 15 or less Exempt, however the University must
  pay tax on the property used to provide those
  services
• Copy Services
• Non-University departments Taxable
• Research Services
• University library research Exempt
• Copies of research sold Taxable
• Research for University departments Exempt

46
Library Services and Photocopying
Section Six

• Training Exempt
• Manuals, Supplies, etc. if separately stated
  Taxable
• Library to Library Transactions
• Loans of books or other property to other
  University of California campuses Exempt
• Sales of copies of articles to other
  universities
• Other University campuses Exempt
• Other universities in California Taxable
• Interlibrary book loans Exempt
• The University does not owe California use tax on
  interlibrary loan fees charged by out-of-state
  institutions that are non-state universities

47
Equipment Sales and Leases
Section Six

• Sale of Equipment
• Retail Taxable
• Resale Exempt, provided the sale is supported by
  a valid resale certificate (timely and complete)
• Interstate Commerce Sales Exempt if such
  transactions are supported by bills of lading.
• Cash Discounts Exempt
• Leases
• Rental Receipts
• If equipment was purchased without the payment of
  sales/use tax Taxable
• Tax on Cost
• Election to pay on cost otherwise, the rental
  payment is taxable
• If election to pay sales or use tax on cost is
  exercised, rental receipts are exempt.
  Otherwise, rental payments are taxable.

48
Reprographics
Section Six

• Sales of Photos
• Within University departments Exempt
• To non-University purchaser Taxable
• Printed Matter
• Within University departments Exempt
• To non-University purchaser Taxable
• Artwork
• Within University departments Exempt
• Preliminary Art Exempt
• Finished Art Taxable

49
Audio Visual - Film Processing
Section Six

• Charges for developing prints (including slides)
  Taxable
• When slides are produced for the Universitys own
  use, the University is deemed the consumer of all
  materials that are used and incorporated into the
  final product
• Retail sales of film by the University Taxable
• Film processing charges Taxable
• Includes printing, enlarging, and duplicating
  photos
• Separately stated charges for negative
  development of customer-furnished film Exempt
• Negative development does not include development
  by the reverse process method.

50
Office of the Registrar
Section Six

• California Education Code provides that students
  have the right to access all of their records.
• Providing students with an original copy of a
  transcript is not a sale transaction, but an
  act required by law.
• The taxability of photocopies of transcripts
  depends on the fee for the photocopy
• If the fee exceeds the cost of making the copy,
  the fee is taxable

51
Federal Transactions
Section Six

• Generally, sales to the following are exempt
• The U.S. or its unincorporated agencies and
  instrumentalities
• Incorporated agency or instrumentality of the
  U.S. wholly owned by either the U.S., or by a
  corporation wholly owned by the U.S.
• The American National Red Cross, its chapters and
  branches
• Incorporated federal instrumentalities not wholly
  owned by the U.S., unless federal law permits
  taxing the instrumentality
• Documentation necessary to support non-taxable
  sales to the U.S. Government
• Copies of U.S. Government purchase orders
• Copies of U.S. Government drafts or checks to
  prove that payment was made by the U.S. agency or
  instrumentality

52
Research Grants
Section Six

• United States Government Grants
• The University may receive money and/or
  government property for use in fulfilling the
  grants purpose and objective however, the
  University does not assume the place of the
  government providing the funds. Therefore, any
  property purchased by the University is taxable
• The disposition of the University property would
  be subject to tax. However, the disposition of
  government property will not be subject to tax.
• Non-U.S. Government Instrumentality
  Grants/Contracts
• The University is deemed the consumer of property
  consumed on contracts with the State of
  California, and sales tax must be paid to
  suppliers or use tax accrued and paid to the
  State.
• Other states or instrumentalities or foreign
  governments and instrumentalities are not
  considered persons therefore, property provided
  to the University by such entities is not subject
  to sales or use tax.

53
Concessionaires
Section Six

• The University is liable for the payment of tax
  on all retail sales made at its place of business
  by operators of concessions.
• Concessionaire sales may be reported in one of
  two ways
• Concessionaires report and pay sales tax directly
  to the State
• The University reports the concessions sales on
  its sales tax return
• Documentation should be retained to support the
  concessionaires sellers permit or sales revenue
  depending on the method of reporting
• The University is responsible for filing a return
  for its own off-site concession sales.
• If no return is filed by the University with
  respect to other concessionaires, the
  concessionaires are responsible for reporting and
  paying the tax.

54
Concessionaires
Section Six

• Local and Transit Taxes
• Local and transit taxes are imposed for the
  privilege of selling tangible personal property
  at retail within a taxing jurisdiction
• Generally, local and transit taxes are allocated
  to the place of business of the retailer or place
  of sale in the case of special events

55
Fleet Services
Section Six
TAXABLE
EXEMPT

• Sales of vehicles by the University in a capacity
  as a registered dealer (unless sold for resale or
  in interstate commerce)
• License fees in excess of DMV fees
• Charges made for documentary fees required by DMV
• Brokers fees or commissions paid to brokers for
  services related to finding customers
• Financial and insurance charges not separately
  stated from the selling price on sales records
• Smog certificate fees in excess of the
  certificate fees imposed by Department of
  Consumer Affairs

• Resales to dealers (obtain a valid resale
  certificate)
• Resales to non-dealers
• Obtain a valid resale certificate stating the
  specific vehicle is purchased for resale
• The person issuing the resale certificate must be
  the same as on the Report of Sale and application
  for registration to be exempt
• Interstate Commerce Transactions
• Title must be transferred to a purchaser outside
  the State
• If property returns to California within 90 days
  of the initial purchase, the presumption is it
  was purchased for use in California
• May be rebutted if the vehicle is used outside
  the state 50 or more of the first 6 months after
  it is first brought back into California.

56
Donated Property
Section Six

• Qualified Organization
• Any organization described in Section
  170(b)(1)(A) of the Internal Revenue Code,
  including organizations operated for educational,
  scientific, or literary purposes.
• Tangible personal property donated to a qualified
  organization Exempt
• As of January 1, 1989 vehicles withdrawn from
  resale inventory for donation to qualified
  organization located in California are exempt
  from use tax.
• Property purchased specifically for donation to a
  qualified organization remains taxable.
• The subsequent sale of property donated to the
  University is subject to sales or use tax.

57
Shipping Charges
Section Six

• Transportation charges by common carrier are
  generally exempt from sales and use tax.
• In general, delivery charges are taxable when
  they are provided by the facilities (trucks) of
  the retailer.
• Handling charges are taxable. For sales and use
  tax purposes, a handling charge is any charge by
  the retailer in excess of the actual freight
  charges.
• If shipping and handling charges are billed
  lump-sum, only the actual freight charges are
  exempt from tax.

58
Occasional Sales
Section Six
Occasional Sales

• Occasional sales are exempt from both sales and
  use tax. Therefore, if the University acquires
  property in an exempt occasional sale, no use tax
  is due on that purchase.
• Requirements
• Product not sold in the regular course of
  business, and
• Less than three sales of tangible personal
  property during any 12 month period

59
Occasional Sales
Section Six
Occasional Sales

• Occasional sales may include
• Sale of fixed assets by a medical center (if
  requirements are met)
• Stock in trade inventory sold with business
• Reorganizations
• Statutory mergers
• Contributions to a new corporation or partnership
  for the first issuance of stock or partnership
  interest

60
Review of Sales and Use Tax Returns
Section Seven
61
Review of Sales and Use Tax Returns
Section Seven
Sales and Use Tax Returns

• As a seller, the University is required to
• Collect and remit sales and use taxes
• File sales/use tax returns
• that reflect total sales (accrual basis) of
  tangible personal property, whether subject to or
  exempt from the tax and
• claim deductions for sales not subject to the
  tax, however, it is the Universitys burden to
  support claimed exemptions

62
Review of Sales and Use Tax Returns
Section Seven
Total Sales

• The sale of tangible personal property is to be
  included in total sales reported on line 1 of the
  sales and use tax return (on the accrual basis
  regardless of payment).
• The following receipts should be excluded
• Lottery sales
• Money order service charges
• Sales of gift certificates

63
Review of Sales and Use Tax Returns
Section Seven
Use Tax - Line 2

• As a purchaser, the University is required to pay
  use tax on purchases of tangible personal
  property purchased without tax, either from an
  out-of-state seller not authorized to collect the
  tax or purchased for resale without tax and later
  withdrawn from inventory and used by the
  university.
• Examples of property are
• Fixed assets
• Supplies used by the campus or the medical center
• Property withdrawals from resale inventory and
  donated

64
Exemptions and Deductions
Section Seven
Exemptions and Deductions - Lines 4-10

• Exemptions or deductions may arise based on any
  of the following
• Type of transaction
• sale for resale, labor/services, tax paid
  purchases, bad debts, occasional sales, etc.
• Type of property
• food, candy, bottled water, animal feeds, seeds,
  plants, printed sales messages, etc.
• Type of purchaser
• U.S. Government
• Other Deductions and Exemptions include
• Manufacturers exemption (line 10(e))
• Cash discounts (line 10(d))
• Exempt Transportation Charges

65
Type of Transaction
Section Seven
Sales for Resale
Sale for resale The sale of property purchased
for resale in the regular course of business.
(line 4)

• Requirements
• Must be supported by the seller
• Generally the support is a completed resale
  certificate taken timely and in good faith.

• Results
• Seller not required to collect tax
• Deduction on sales and use tax return

66
Type of Product
Section Seven
Food - Line 5

• Food products (see Food Services for Specifics)
• Candy, confectionery, snack foods, and bottled
  water
• Food products sold through vending machines
• Animal life, feed, seeds, plants, and fertilizer
• Medicated feed and drinking water
• Purchases made with food stamps

67
Type of Transaction
Section Seven
Labor and Services - Line 6

• Taxable
• Fabrication - services that result in the
  creation or production of tangible personal
  property.
• Assembly - generally services to prepare the
  property for the first functional use.
  Constitutes a step in the manufacturing process.
• Non-taxable
• Repair labor - generally services to restore
  property to its original condition.
• Installation labor - generally involving real
  property.

68
Type of Purchaser
Section Seven
U.S. Government - Line 7

• U.S. Government - All sales and leases of
  tangible personal property to the U.S. Government
  are exempt from sales tax.

69
Type of Transaction
Section Seven
Bad Debt - Line 10(a)

• Deduction applies to
• Uncollectable payments
• Worthless charges and credit sales
• Taxable portion of the sale, excludes non taxable
  receipts
• Requirements
• Bad debt deduction should be charged off for
  income tax purposes or
• Written off in accordance with GAAP, if not
  required to file income tax returns
• Sales and use tax should have been previously
  paid to the state
• Claimed in period amount determined worthless and
  written off
• Subsequent collection of written off amount
  should be included in period received
• Support deduction by maintaining adequate and
  complete records

70
Type of Transaction
Section Seven
Tax-paid Purchases Resold - Line 10(b)

• The deduction applies when tax paid property is
  resold prior to use.
• Use does not include retention, demonstration or
  display of the property.
• Deduction should be taken in the period the
  property is sold.
• Tax Paid Property is property that the
  University purchased and on which California
  sales or use tax was paid. A tax-paid purchase
  resold credit arises when the University resells
  the property prior to any use of the property.
• Example The UCLA Extension program purchases
  10 boxes of file folders for its own use. Sales
  tax is properly paid on the purchases. The
  bookstore subsequently transfers 5 boxes to
  resale inventory. The 5 boxes are sold at
  retail to various students. A tax paid purchase
  resold credit should be taken on the sales tax
  return for the 5 boxes ultimately resold.

71
Type of Transaction
Section Seven
Returned Taxable Merchandise - Line 10(c)

• The deduction applies when the full sales price,
  including sales tax, is refunded either in cash
  or credit, and
• The customer, in order to obtain the refund or
  credit, is not required to purchase other
  property at a price greater than the amount
  charged for the property that is returned.
• The refund is deemed to be given when the
  purchase price, less re-handling and restocking
  costs, are refunded or credited to the customer.
• The amount charged for re-handling or restocking
  may not exceed the actual cost of re-handling or
  restocking the returned merchandise.

72
Type of Transaction
Section Seven
Cash Discounts on Taxable Sales - Line 10(d)

• The deduction applies to discounts actually taken
  by customers on the purchase of taxable
  merchandise.
• Sales tax should be computed upon the price after
  the discount is deducted to avoid collecting
  excess tax reimbursement.

73
Selected Topics
Section Eight
74
Selected Topics
Section Eight

• Event Management
• In general, only retail sales of tangible
  personal property are subject to sales and use
  tax.
• Professional services are generally not taxable
  unless there is also a related transfer of
  taxable tangible personal property.
• Seminars
• The University writes and develops seminar
  materials that are used in the seminar by the
  participants and presenters. This is regarded as
  a service. Sales tax does not apply.
• Admission charges, e.g., football games and
  student fairs
• Admission charges are not taxable unless the
  principal purpose of attending an event is to
  purchase taxable tangible personal property.

75
Selected Topics
Section Eight

• Auctions
• Persons engaged in the business of making retail
  sales at auction of tangible personal property
  owned by such person or others are retailers, and
  are, therefore, required to hold sellers permits
  and pay tax measured by the gross receipts from
  such sales. California Sales and Use Tax
  Regulation 1565, AUCTIONEERS
• If the University hires an independent auctioneer
  to conduct its auction, the independent
  auctioneer is liable for collecting and remitting
  sales tax.
• If the University conducts its own auctions, it
  is liable for collecting and remitting the tax.
• Special Events
• Sales tax will be applied to the total price of a
  ticket if the price includes both the cost of a
  taxable item and access to the event.
• If the taxable item is separately stated from the
  access to the event on the ticket, sales tax will
  only be applied to the taxable item.

76
Selected Topics
Section Eight
Procurement Cards

• What are they and why are they important from a
  sales and use tax perspective?
• Similar to a credit card (Visa or MasterCard)
• Because most purchases made with procurement card
  involve paperless transaction, sales invoices are
  not available and upon audit it becomes extremely
  difficult to support the Universitys payment of
  sales and use tax
• Tax Application The tax treatment of purchases
  made with procurement cards is identical to any
  other purchase made by the University

77
Selected Topics
Section Eight
Sales Use Tax Audit Process

• Preparing for an audit
• California has a three year statute of
  limitations for sales and use tax purposes
  (registered businesses).
• Taxpayers may be audited every three years.
• The objective of a sales and use tax audit is to
  verify that a taxpayer has reported and paid the
  correct amount of sales and use taxes.
• All contact with the SBE auditor should be
  handled in a centralized manner.

78
Selected Topics
Section Eight
Sales Use Tax Audit Process

• Generally, books and records include
• Summary Records (general ledger, financial
  statements, tax returns, etc.).
• Supporting and Source Documents (sales and
  purchase invoices, leases, bill of lading and
  other shipping documents, resale certificates)
• Bills of Lading and resale certificates are
  extremely important to support deductions for
  interstate commerce and resale transactions.
• Supporting documents should be retained for 3
  years and may be filed centrally in the tax
  department or maintained in permanent files
  within the department.

79
Selected Topics
Section Eight
Sales Use Tax Audit Process

• The Audit
• The auditor will generally examine sales and
  purchases on a test basis. Deficiencies noted in
  the test will be used to compute error rates to
  be applied to the remaining items in the
  population.
• Example
• Total sales 10,000
• Test Sample 100
• Errors 10
• Error rate is (10/100) 10
• Audit Adjustments 1,000

80
Selected Topics
Section Eight
Sales Use Tax Audit Process (CONT)

• Note the 10 error resulted in a 1,000
  assessment against the University because of the
  states projection. Your diligence in
  documenting and supporting the exempt
  transactions of your department may effect more
  than just your department.

81
Selected Topics
Section Eight
Sales Use Tax Audit Process

• Auditors decisions are not final and should
  always be questioned
• Frequently, auditors and taxpayers disagree on
  the audit results
• Avenues of appeal

Appear before the members of the Board of
Equalization
A Notice of determination is issued

Discussions with the auditor Discussions with the
audit supervisor Discussions with the District
Principal Auditor
File a Petition for Redetermination and Request a
Meeting with a Hearing Officer
File an appeal with the Settlement Section