Sales

1
Sales Use Tax GuidelineEffective April 1, 2009

• Lihua Gu
• Principal Accountant Sales Use Tax
• Lihua.gu_at_ucsf.edu
• 415-476-0804
• Prepared Date March 4, 2009

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Table of Contents

• Universitys Tax Status
• Universitys Roles Responsibilities
• Tangible Personal Property (TPP)
• Sales Tax vs. Use Tax
• Accounts Payable Process
• How to Determine The Taxability on a Purchase

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Universitys 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
  Universitys 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.

4
Universitys 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.

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Tangible Personal Property (TPP)

• Seen
• Weighed
• Measured
• Felt or touched
• Perceptible to the senses
• Examples Furniture, equipment, canned software
  programs, books, office supplies.

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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 (SBE) 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 (SBE) or other State Tax
  Authorities by the University.

7
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.
• AP must check the SUT Exempt button if purchase
  is tax exempt.

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Accounts Payable Process - TPP for
Self-Consumption or Usage

• Vendors 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 UCSF
  Distribution Storage Center in South San
  Francisco, San Mateo County where the sales use
  tax rate is 9.25, but will be consumed or
  utilized in San Francisco where the sales use
  tax rate is 9.5, UCSF must accrue use tax for
  the difference to make up 9.5.
• Note The above rule must be applied to
  all California out-of-state invoices.

9
Accounts Payable Process- TPP for Resale

• Vendors 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 purchase
  merchandises for self-consumption or usage.

10
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.

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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, is any
  Resale Certificate issued?
• If the purchase of TPP is for self-consumption or
  usage, is any sales tax charged on invoice?
• If no sales tax charged on 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?

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Resources

• The University of California Sales Use Tax
  Manual http//www.ucop.edu/ucophome/policies/sutm/
  welcome.html
• Taxability by product description
• http//www.ucop.edu/ucophome/policies/sutm/s
  utm.pdf
• On pages 138-145 of Section 3 The
  University As Purchaser.
• State Board of Equalization
• http//www.boe.ca.gov/
• State Board of Equalization Special Notice
  Sales and Use Tax Rate Increases on April 1, 2009
• http//www.boe.ca.gov/news/pdf/l212b.pdf
• Frequently Asked Questions
• http//acctg/accounts_payable/faq/sales_use_
  tax.htm
• http//www.boe.ca.gov/sutax/faqscont.htm
• Contact
• Sales Use Tax Accountant, Lihua Gu at
  www.lihua.gu_at_ucsf.edu, or at (415) 476 0804.