Transcript CSU Sales and Use Tax

Presented by Hui Won, Systemwide Tax Coordinator
March 11, 2014
Overview
 Sales Tax vs. Use Tax
 District Taxes
 Mandatory vs. Optional Maintenance Agreements
 Software Sales
 Copier Lease Arrangements
Sales Tax vs. Use Tax
Sales tax applies to sales of tangible personal property.
Use tax generally applies when you buy merchandise
that will be used, stored, or consumed.
Examples where use tax applies:
• California consumer or retailer purchases from out-ofstate vendors (including foreign merchants) who do
not collect California sales tax on their sales.
• You withdraw taxable merchandise from your
business’s resale inventory and use it for your personal
or business use.
Sales Tax vs. Use Tax (cont.)
Why do some out-of-state retailers collect tax and others do
not?
• If a company is not engaged in business in California, they
will generally not charge you California sales tax.
• A company is engaged in business in California when they
have a sales office, warehouse, or sales representative
located in California, receive rental receipts from
equipment located in California, or have some other
physical presence in California.
• An out-of-state retailer engaged in business in California is
responsible for collecting the use tax from the purchaser.
However, the purchaser still remains liable for payment of
the use tax.
Sales Tax vs. Use Tax (cont.)
Question
 You purchased a backpacking tent over the internet
from a company in Wyoming. The seller shipped the
tent to your home and did not charge you any tax. Do
you owe California use tax on this purchase?
Sales Tax vs. Use Tax (cont.)
Answer
 Yes, this is an example in which you would owe use tax.
Sales Tax vs. Use Tax (cont.)
Question
 You went to Maine to spend Christmas with your
parents last year and purchased $200 in stereo
equipment for use at home in Sacramento. You were
charged 5.5% Maine sales tax. Do you owe California
use tax on this purchase?
Sales Tax vs. Use Tax (cont.)
Answer
 Yes, however, Revenue and Taxation Code section 6406
allows you to take a credit for sales or use tax paid to
another state. Therefore, a portion of the California use tax
you owe on the purchase is offset by the sales tax you paid
to the retailer in Maine. Since the sales and use tax rate in
Sacramento at the time of purchase is 8.5%, use tax of $17
would be due on your purchase. However, after deducting
the $10 in Maine sales tax you paid when you purchased the
equipment, you would only owe $7 in California use tax on
the purchase.
Sales Tax vs. Use Tax (cont.)
Question
 Your company assigned you to work in Portland,
Oregon, for nine months. When you first arrived in
Portland, you purchased a personal computer and
software from a local retailer. Oregon does not have a
sales tax or use tax and you were not charged tax. Do
you owe California use tax on the personal computer
and software when you return to California?
Sales Tax vs. Use Tax (cont.)
Answer
 No. You would not owe use tax on this purchase since the
personal computer was used in Oregon for nine months.
Tangible personal property (excluding vehicles, vessels,
and aircraft) is not considered to have been purchased for
use in this state when:
i.
ii.
A person uses the item outside of California for more than
90 days after the purchase, exclusive of any shipping or
storage time; or
A person first uses the item outside of California, brings it
back into California within 90 days of purchase, and then
uses the item outside of California for more than half the
time during the next six months.
Sales Tax vs. Use Tax (cont.)
Exemptions from Use Tax
• Use tax does not apply to items specifically exempt
from sales tax such as prescription medicines and most
food items purchased at a grocery store.
District Taxes
• The sales and use tax rate is not the same in all
California locations.
• The standard statewide rate is currently 7.5 percent.
• The total sales and use tax rate is higher where there
are district taxes.
• The total tax rate includes the standard statewide tax
rate plus the district tax rate.
District Taxes (cont.)
•
•
•
•
Statewide Base Sales and Use Tax Rate – 7.50%
County Rate (e.g. Orange County) – 0.50%
City Rate (e.g. Costa Mesa) – 0.00%
Costa Mesa is in Orange County so the total sales and
use tax rate for Costa Mesa is 8%.
• City of La Habra is the only city in Orange County with
a city rate (0.50%).
• There is no city rate for Long Beach. But the sales tax
rate for Long Beach is 9%, the combined rates of 7.5%
statewide rate and 1.5% Los Angeles County rate.
District Taxes (cont.)
Question
 CSU Long Beach campus purchased copier machines
for use on campus from a vendor located in Costa
Mesa. The vendor charged 8% on the sales. Does CSU
Long Beach owe California use tax on this purchase?
District Taxes (cont.)
Answer
 Yes, CSU Long Beach must self accrue and report the
applicable 1% transit taxes (use tax).
 Sales and use tax rate in Costa Mesa = 8%
 Sales and use tax rate in Long Beach = 9%
Maintenance agreements
(Warranties)
• Many retailers sell warranties with products such as cars,
computers, and home electronic equipment.
• Mandatory warranties
 A mandatory warranty is a contract required to be purchased as a
condition of the sale and is included in the total selling price.
 Examples include standard manufacturers’ warranties that come
with new vehicles, computers and other electronic devices,
appliances, and auto repair shop parts-and-labor warranties on
repairs.
 If your sale of the product is taxable, the mandatory warranty is also
taxable.
 Example: An electronics store sells a new computer to a consumer
for $1,500. The price includes a one-year parts-and-labor warranty,
backed by the manufacturer. The full $1,500 charge is taxable.
Maintenance agreements
(Warranties) (cont.)
• Optional warranties
 An optional warranty or maintenance agreement is a contract
you choose to purchase for an additional charge.
 If you can buy the product without buying the warranty, the
warranty is optional.
 Separate charges for optional warranties are generally not
taxable
 Example: A car dealership sells a used car for $10,500. They
offer the customer the option to buy an extended, 18-month
warranty for an additional $500. The customer can buy the
car without the warranty. If the customer buys the car and
the optional warranty, tax would apply to the $10,500 charge
for the car, but not to the $500 charge for the warranty.
Software Sales
• Sales of computers are taxable.
• Sales of software are not taxable if the program is
downloaded through internet. The transaction does
not constitute a transfer of tangible personal property.
• However, if the program is downloaded through
internet and also provided on a hard copy, then it
becomes taxable.
Software Sales (cont.)
• Mandatory software maintenance agreements
 Not taxable if both the software and the updates are
distributed electronically.
 Taxable if the original software is transferred on tangible
media.
 Taxable if the original software is transferred
electronically and the updates are distributed on
tangible media.
Software Sales (cont.)
• Optional software maintenance agreements
 Not taxable if the updates are distributed electronically.
 50 percent taxable if the updates are distributed on
tangible media.
i.
ii.
50% of the charge is treated as the taxable sales of tangible
personal property.
The remaining 50% is treated as a nontaxable charge for
repair.
Copier Lease Arrangements
• Lease is a rental, hire or license for tangible personal
property.
• Generally, the lessee is liable for use tax measured by
rental receipts.
• The lessor must collect the use tax from the lessee at
the time rentals are paid by the lessee and furnish a
receipt relieving the lessee of the responsibility for the
payment of the tax.
Copier Lease Arrangements (cont.)
• The Receipt to Relieve Liability need not be in any particular
form, but must reflect the following (Regulation 1686):
 The name and place of business of the retailer.
 The serial number of the retailer’s permit to engage in business as a





seller or the retailer’s Certificate of Registration – Use Tax.
The name and address of the purchaser or lessee.
A description identifying the property sold to the purchaser or
leased to the lessee.
The date on which the property was sold or leased.
The sale price of the property, or, in the case of rentals, the amount
of the rental for the period covered by the invoice.
The amount of tax collected from the purchaser or lessee.
• An invoice showing the data required above, together with
evidence of payment of such invoice, will constitute a receipt.
Copier Lease Arrangements (cont.)
• The lessors have the option to pay tax on the purchase
price of items they will lease and not collect tax on the
rental receipts derived from the property.
• If the invoice does not include tax, it should state the
reason why no tax was charged to the lessee. The
phrase “Purchase Tax Paid at Source” may be used to
indicated that the lessor paid sales tax upon acquiring
the property.
Copier Lease Arrangements (cont.)
• Click charge - A photocopier is leased for a monthly
rate plus an additional amount for every copy
produced by the machine. That additional amount is
called a “click charge”.
• All amounts paid for the lease, including the unit
usage charge (click charge), are included in the rental
receipts subject to tax.
• Mandatory maintenance services - taxable
• Optional maintenance services - nontaxable
Questions ???