Transcript State Board of Equalization Sales & Use Tax Department

State Board of
Equalization
Sales & Use Tax Department
Use Tax Basics For CSU
Purchasing &
Contracting Staff
November 20, 2008
Presenter: Sergio Quiniola
Objectives

To provide a basic understanding
of the sales and use tax law

To recognize and avoid common
mistakes.

To publicize available services
within BOE.
What Is Sales Tax?

Tax imposed upon the retailer (seller)
for the privilege of selling tangible
personal property at retail in the state
of California.

Retailer may be reimbursed for the
sales tax by their customers.

Tax due is based on the gross receipts
from retail sales.

It’s the responsibility of the retailer
(seller) to pay Sales Tax to the Board
of Equalization.
What Is Use Tax?

Tax imposed on purchaser.

Use tax was put in place to protect
California merchants from
aggressive out-of-state competition.

When you buy a physical, tangible
product that will be used, consumed,
given away, or stored in California.
Analysis of the California Sales and Use
Tax Law
•
Out-of-state retailers “engaged in
business” in California must collect
and pay use tax on items sold to
Californians.
•
Tax is measured by the purchase
price.
•
Remember that use tax items are
supplies and/or equipment that you
use in your business. Merchandise
that you sell (inventory) is not a
supply item.
Sales Tax vs. Use Tax (in
General)
The tax rate is the same for both sales &
use tax.

Sales Tax
Tax imposed on
retailer (seller).


Seller reports and
pays the sales tax
due on items sold
at retail in
California.


Tax measured by
the gross receipts
from the sale.

Use Tax
Tax imposed on
purchaser
(consumer).
California
consumer owes use
tax due on items
purchased without
tax.
Tax measured by
the purchase price.
When Might Use Tax Be
Due?
Example 1
Inventory
items
purchased
with a resale
certificate
without
payment of tax
Items withdrawn
from inventory for
use other than
resale (including
use as gifts and
free samples or for
personal use)
=
Use Tax
Due
Resale Inventory
Analysis of the California Sales and Use
Tax Law
When Might Use Tax Be
Due?
Example 2
Items purchased without
payment of California sales or
use tax:


From out-of-state businesses and
Purchases for your own use (not
inventory).


Analysis of the California Sales and
Use Tax Law
Required Records (For Use
Tax Transactions)

Records of purchases including:
 Purchase invoices
 Purchase journals
 Credit card statements (including
backup)

Normal books of account.

Schedules or working papers used in
preparing tax returns.

Records must be maintained for at
least four (4) years.
Regulation 1698
Publication 116 –
Sales and Use Tax
Records
Components of the Tax
State Tax
County Tax
Local Tax
District
Tax(es)
State Tax - currently at 6.25%
 County Tax - .25%
 Local Tax - .75%
 District Tax(es) - up to 1.50%
Any city or county with applicable district
taxes will have a sales and use tax rate
over 7.25%

California District Taxes
What is District Tax?
•
Voter-approved special taxes in
certain California counties, cities or
districts that increase the total rate of
sales and use tax.
•
There may be multiple District Taxes
in one county.
•
Refer to Publication 71 for a list of
counties/cities in which the district
tax applies.

Be sure to check the tax rate applied to
your purchase. While out-of-state vendors
often apply tax at the statewide rate
(currently 7.25 percent), you are liable for
use tax at the full rate in effect at the
California location where you will first use
the merchandise.

When that location is within a special tax
district, the full tax rate in effect for that
district applies (statewide tax rate +
district tax rate).

If the vendor charged you tax at a rate
lower than the rate in effect for your
location, you owe the remaining use tax to
the State.
INVOICE
XYZ, Inc.
Out-of-State Company
INVOICE #100
DATE: APRIL 12, 2006
TO:
SHIP TO:
John Doe
Sacramento, CA
John Doe
Sacramento, CA
COMMENTS OR SPECIAL INSTRUCTIONS:
SALESPERSON
P.O. NUMBER
QUANTITY
10
REQUISITIONER
DESCRIPTION
Widgets
SHIPPED VIA
F.O.B. POINT
TERMS
USPS
Shipping
Due on receipt
UNIT PRICE
TOTAL
100.00
1,000.00
SUBTOTAL
1,000.00
SALES TAX (@7.25%)
72.50
SHIPPING & HANDLING
25.00
TOTAL DUE
1,097.50
Seller’s Permit Number: SR OH 12-345678
NOTE:
CUSTOMER IS LOCATED IN SACRAMENTO WHERE THE TAX RATE IS 7.75%, INCLUDING THE DISTRICT TAX OF .5%. USE TAX
SHOULD BE ACCRUED AND PAID ON THE ADDITIONAL .5% OR $5.
Specific Exemptions
Delivery Charges



If items are delivered by retailer’s
facilities, delivery charges are
generally taxable if the sale is
taxable.
If items are delivered by common
carrier, delivery charges (sometimes
called “shipping charges”) are
generally not subject to tax as long
as they are actual (not marked up)
and are separately stated on the
invoice, or contract for sale.
“Handling” charges typically are
taxable if the sale is taxable.
Regulation 1628
http://www.boe.ca.gov/pdf/reg1628
.pdf
INVOICE
ABC, Inc.
Out-of-State Company
INVOICE #100
DATE: APRIL 12, 2006
TO:
SHIP TO:
John Doe
In-State Location
John Doe
In-State Location
COMMENTS OR SPECIAL INSTRUCTIONS:
SALESPERSON
P.O. NUMBER
QUANTITY
10
REQUISITIONER
DESCRIPTION
Ink Cartridges
SHIPPED VIA
F.O.B. POINT
TERMS
ABC Truck
Shipping
Due on receipt
UNIT PRICE
TOTAL
100.00
1,000.00
SUBTOTAL
1,000.00
SALES TAX
Out of State
SHIPPING & HANDLING
25.00
TOTAL DUE
1,025.00
NOTE:
HANDLING CHARGES ARE TAXABLE WHEN RELATED TO A TAXABLE TRANSACTION. WITHOUT KNOWLEDGE OF ACTUAL SHIPPING
CHARGES, USE TAX SHOULD BE ACCRUED ON THE FULL PRICE CHARGE FOR SHIPPING & HANDLING.
INVOICE
Parts Etc., Inc.
Out-of-State Company
INVOICE #100
DATE: JANUARY 13, 2005
TO:
SHIP TO:
John Doe
In-State Location
John Doe
In-State Location
COMMENTS OR SPECIAL INSTRUCTIONS:
SALESPERSON
P.O. NUMBER
QUANTITY
1
SHIPPED FROM
DESCRIPTION
Computer Equipment
SHIPPED VIA
F.O.B. POINT
TERMS
USPS
Shipping
Due on receipt
UNIT PRICE
TOTAL
800.00
800.00
SUBTOTAL
800.00
SALES TAX
Out of State
INBOUND FREIGHT (SUPPLIER
TO PARTS ETC. RENO NV)
45.00
TOTAL DUE
845.00
NOTE:
INBOUND FREIGHT FROM THE VENDORS SUPPLIER TO THE VENDOR IS TAXABLE AS GROSS RECEIPTS RELATED TO THE SALE OF
TANGIBLE PERSONAL PEROPERTY.
Software (Custom vs.
Prewritten)


Custom software - software
prepared to the special order of
the customer even though it may
incorporate preexisting routines,
utilities or similar program
components.
Prewritten software - software
held or existing for general or
repeated sale or lease. The term
also includes a program
developed for in-house use which
is subsequently offered for sale or
lease as a product.
Software

Custom Programs



Not taxable.
May include significant custom
modifications to prewritten programs
Prewritten (Canned) Programs

Tax applies to entire amount charged for
program including license fees.

No tax due if program is transferred by
remote telecommunications or by “Load &
Leave” (if no tangible personal property is
received).
INVOICE
XYZ, Inc.
Out-of-State Company
INVOICE #100
DATE: APRIL 12, 2006
TO:
SHIP TO:
John Doe
In-State Location
John Doe
In-State Location
COMMENTS OR SPECIAL INSTRUCTIONS:
SALESPERSON
QUANTITY
100
P.O. NUMBER
REQUISITIONER
SHIPPED VIA
F.O.B. POINT
TERMS
USPS
Shipping
Due on receipt
UNIT PRICE
TOTAL
DESCRIPTION
LICENSING FEES FOR WINDOWS XP FOR 100 EMPLOYEES
NOTE:
LICENSING FEES ARE TAXABLE WHEN RELATED TO CANNED SOFTWARE.
500.00
50,000.00
SUBTOTAL
50,000.00
SALES TAX
Out of State
SHIPPING & HANDLING
0.00
TOTAL DUE
50,000.00
Software Maintenance
Agreements
Mandatory Maintenance Agreements:

Examine software invoices and
contracts to determine if the
maintenance agreement is
mandatory or optional with the
purchase of software.

If you must purchase the agreement
in order to purchase or lease the
software, the charges are taxable.

Mandatory consultation charges are
also taxable.
INVOICE
XYZ, Inc.
Out-of-State Company
INVOICE #100
DATE: JANUARY 13, 2005
TO:
SHIP TO:
John Doe
In-State Location
John Doe
In-State Location
COMMENTS OR SPECIAL INSTRUCTIONS:
SALESPERSON
P.O. NUMBER
QUANTITY
REQUISITIONER
SHIPPED VIA
F.O.B. POINT
TERMS
USPS
Shipping
Due on receipt
UNIT PRICE
TOTAL
DESCRIPTION
1
Microsoft Office
1
Mandatory One Year Software Maintenance Agreement Per
Contract
300.00
300.00
100.00
100.00
(Includes 100 hours of tech support and all software updates)
SUBTOTAL
400.00
SALES TAX
Out of State
SHIPPING
10.00
TOTAL DUE
410.00
NOTE:
IF THE SOFTWARE WAS RECEIVED BY REMOTE TELECOMMUNICATIONS, NO TAX IS DUE. I F TANGIBLE PERSONAL PROPERTY WAS
RECEIVED, USE TAX IS DUE ON THE FULL PURCHASE PRICE OF $400, INCLUDING THE MANDATORY SOFTWARE MAINTENANCE
AGREEMENT.
Optional Maintenance Agreements:

Lump-sum maintenance agreements
which provide program updates &
telephone or technical support.

50% of the lump-sum charge is
considered taxable.

If no updates are transferred during
contract period, no tax is due.
INVOICE
Software, Inc.
Out-of-State Company
INVOICE #100
DATE: JANUARY 13, 2005
TO:
SHIP TO:
John Doe
In-State Location
John Doe
In-State Location
COMMENTS OR SPECIAL INSTRUCTIONS:
SALESPERSON
P.O. NUMBER
QUANTITY
REQUISITIONER
SHIPPED VIA
F.O.B. POINT
TERMS
USPS
Shipping
Due on receipt
UNIT PRICE
TOTAL
DESCRIPTION
1
Desktop Computer
1
Microsoft Office
1
Optional One Year Software Maintenance Agreement
500.00
500.00
300.00
300.00
100.00
100.00
(Includes 100 hours of tech support and all software updates)
SUBTOTAL
900.00
SALES TAX
Out of State
SHIPPING
10.00
TOTAL DUE
910.00
NOTE:
USE TAX SHOULD BE ACCRUED AND PAID ON PURCHASE PRICE OF $800. IN THE EVENT THAT SOFTWARE UPDATES ARE
RECEIVED, USE TAX SHOULD BE ACCRUED ON %50 OF THE SOFTWARE MAINTENANCE AGREEMENT OR $50.
Labor Charges

Charges for installation & repair labor
are not taxable.

Installation labor is labor to affix new
or used property onto used property or
work done to real property.

Repair labor is labor to return an item
back to its original condition.

Charges for fabrication & assembly
labor are taxable.
INVOICE
Steel, Inc.
Out-of-State Company
INVOICE #100
DATE: JANUARY 13, 2005
TO:
SHIP TO:
John Doe
In-State Location
John Doe
In-State Location
COMMENTS OR SPECIAL INSTRUCTIONS:
SALESPERSON
P.O. NUMBER
QUANTITY
1
REQUISITIONER
SHIPPED VIA
F.O.B. POINT
TERMS
USPS
Shipping
Due on receipt
UNIT PRICE
TOTAL
DESCRIPTION
25 Feet of Steel Pipe
Labor: Thread both ends of steel pipe
NOTE:
THE FABRICATION LABOR TO THREAD BOTH ENDS OF THE PIPE IS SUBJECT TO USE TAX.
10.00
10.00
25.00
25.00
SUBTOTAL
35.00
SALES TAX
Out of State
SHIPPING
5.00
TOTAL DUE
45.00
Leases

Lessor has the option of charging tax
on lease receipts or paying tax on
purchase price of leased item.

If no use tax is noted on sales invoice,
verify with lessor that tax was paid on
purchase price.

If not, accrue use tax on lease receipts.
Commonly Noted Use Tax
Problem Areas

Books

Tools

Office Supplies

Equipment

Printed Material

Construction Contracts
INVOICE
Construction Co., Inc.
Out-of-State Company
INVOICE #100
DATE: JANUARY 13, 2005
TO:
SHIP TO:
John Doe
In-State Location
John Doe
In-State Location
COMMENTS OR SPECIAL INSTRUCTIONS:
SALESPERSON
P.O. NUMBER
REQUISITIONER
SHIPPED VIA
F.O.B. POINT
Facilities
QUANTITY
DESCRIPTION
Paint both bathrooms located on the 13
th
floor.
TERMS
Due on receipt
UNIT PRICE
TOTAL
5,000.00
5,000.00
SUBTOTAL
5,000.00
Wall color to be painted off-white and trim to be painted brown.
SALES TAX
SHIPPING & HANDLING
TOTAL DUE
NOTE:
THE INVOICE INCLUDES “MATERIALS””, IS INVOICED LUMP-SUM AND THE CONTRACTOR IS ENGAGED IN BUSINESS IN
CALIFORNIA. NO TAX IS DUE ON THE PART OF THE CUSTOMER, BECAUSE THE CONTRACTOR IS ENGAGED IN BUSINESS IN
CALIFORNIA, HAS INVOICED LUMP-SUM AND HAS NOT FURNISHED EQUIPMENT. SEE REGULATION 1521 FOR FURTHER
INFORMATION.
5,000.00
Section 6406 Credit

Can I get credit for paying another
state’s tax on my purchase?

If you were required to pay, and did
pay, another state’s tax on your
purchase, you may be able to take a
credit against the California use tax
due. This is referred to as a “6406”
credit on the return.
INVOICE
Parts Etc., Inc.
Out-of-State Company
INVOICE #100
DATE: JANUARY 13, 2005
TO:
SHIP TO:
John Doe
In-State Location
John Doe
For pickup at Reno NV location
COMMENTS OR SPECIAL INSTRUCTIONS:
SALESPERSON
P.O. NUMBER
SHIPPED FROM
SHIPPED VIA
F.O.B. POINT
TERMS
Due on receipt
QUANTITY
1
DESCRIPTION
Computer Equipment
UNIT PRICE
TOTAL
800.00
800.00
SUBTOTAL
800.00
SALES TAX 7.25% NV
58.00
TOTAL DUE
858.00
NOTE:
NEVADA SALES TAX WAS REQUIRED TO BE PAID BECAUSE THE EQUIPMENT WAS PURCHASED AND PICKED UP AT THE
VENDOR’S NEVADA LOCATION. THEREFORE, CREDIT FOR THE NEVADA SALES TAX WOULD BE ALLOWED AGAINST THE
CALIDOFRNIA USE TAX DUE.
Services Available

Tax Information

BOE Website


Local Board Offices

BOE Information Center




www.boe.ca.gov
 Library of BOE information
 Links to other CA websites
 On-line Verification of Seller’s Permit
numbers
1-800-400-7115/TDD 1-800-735-2929 Mon. Fri. 8am to 5pm
24 hr fax-back service
 Commonly requested forms and
publications to choose from
automatically faxed back to you
24 hr voice recordings on specific topics
Taxpayers’ Rights Advocate

1-888-324-2798
 If you have been unable to resolve a
disagreement with the Board, or if you
would like to know more about your
rights under the law
Other Services Available

BOE Website
(http://www.boe.ca.gov)
On-line Tutorial (PDF)
 E-file
 Classes & Seminar
 Publications Specific to Your Type
of Business
 Frequently Asked Questions
(FAQ’s)
 Directory of BOE Offices
 Board Member Biographies
 Tax News
 On-line Verification of Seller’s
Permit Numbers
 Credit Card Payments
 Useful Links to Other Websites

We hope you
enjoyed this
presentation.
We welcome your comments and
suggestions.