University of California Sales & Use Tax Manual July 2019 University of California Sales and Use Tax Manual Table of Contents Section 1: General Overview Section 2: Campus Activities – University As Seller Section 3: Medical Center As Seller Section 4: University As Purchaser Section 5: Medical Center As Purchaser Section 6: Campus Specific Issues Section 7: Compliance Section 8: Definitions Section 9: Exhibits Section 10: Addendum – UC Guidelines California Partial Sales and Use Tax Exemption Section 1: General Overview Section 1: General Overview I. INTRODUCTION ..................................................................................................................................... 2 II. WHAT IS SALES TAX ............................................................................................................................... 3 A. Imposition of Sales tax ...................................................................................................................... 3 B. California Retailer ............................................................................................................................. 3 C. Out-of-State Retailer Engaged in Business in California ................................................................... 3 D. UC Transaction/District Tax Responsibility For Sales Outside Its District ......................................... 4 III. SALES FOR RESALE ............................................................................................................................. 5 A. Good Faith ......................................................................................................................................... 5 B. Form of Certificate (Regulation 1668) .............................................................................................. 5 C. Timeliness of Certificate.................................................................................................................... 6 D. Length of Validity .............................................................................................................................. 6 E. Exemptions from Resale Certificate .................................................................................................. 6 IV. OCCASIONAL SALES ........................................................................................................................... 7 V. WHAT IS USE TAX .................................................................................................................................. 8 A. Imposition of Use Tax ....................................................................................................................... 8 B. Leases - Use Tax ................................................................................................................................ 9 C. Obligation of California Retailer & Purchaser Who Self-Consumes; Sales Tax vs. Use Tax .............. 9 D. Out-of-State Retailer Engaged in Business in California; Sales Tax vs. Use Tax ................................ 9 E. Out-of-State Retailer Without Nexus in California ......................................................................... 10 F. Drop Shipments (Section 6007; Regulations 1706) ........................................................................ 10 G. Receipt to Relieve Liability .............................................................................................................. 11 1 | Page Section 1: General Overview I. INTRODUCTION The University of California ("UC") is subject to the sales and use taxes imposed by the State of California upon retailers and purchasers conducting business in the state. Federal Law states that no person will be relieved from the payment, collection or accounting for any sales or use tax levied by any state or duly constituted taxing authority having jurisdiction to levy the tax (4 U.S.C. Section 105). Although 4 U.S.C. Section 107 prohibits the levy of the tax on the United States and its instrumentalities, all other "persons" are subject to the sales and use tax. The University of California is defined as a person under the sales and use tax law [see Los Angeles City High School District v. The State Board of Equalization]. Accordingly, it is subject to the sales and use taxes imposed by California. The taxes are imposed for the privilege of retailing or consuming tangible personal property in California. California's sales and use tax laws are administered by the California Department of Tax and Fee Administration ("CDTFA") as of July 1, 2017. The previous administrator was the State Board of Equalization (“BOE”). The sales and use tax laws are found in the California Revenue and Taxation Code, sections 6001 et. seq. The laws are interpreted by regulations, court cases, hearing reports, opinion letters and annotations. In California, the base rate for sales and use tax purposes are the same. City, county and other local taxes may add to the base rate, and vary from location to location. In general, sellers must determine whether they must collect or accrue sales or use tax on the sale or lease of tangible personal property in California. Whether such tax is technically a sales tax or a use tax, the practical result is the same--the seller will report the same amount of tax with respect to the transaction. (See Section 4 for definitions of various terms used throughout this manual) From a purchaser's standpoint, similar determinations must be made upon the acquisition of property and subsequent sale or self-consumption of such property. The key issues for a seller in determining applicability of tax are: • Is the transaction subject to sales or use tax, or otherwise exempt from such taxes? • Does the purchaser have a valid resale certificate? • If the tax must be collected, at what rate must it be collected? A purchaser faces similar issues: • Is the transaction subject to sales or use tax, or otherwise exempt from such taxes? • Is tax being collected by the seller, and is the seller able to provide a Receipt to Relieve Liability? • If sales or use tax must be collected or accrued, at what rate? 2 | Page Section 1: General Overview II. WHAT IS SALES TAX A. Imposition of Sales tax The California sales tax is generally imposed upon a retailer for the privilege of selling tangible personal property in California at retail (Section 6051). The retailer may be a California retailer or an out-of-state retailer engaged in business in California. The retailer may pass the liability for the sales tax on to the consumer pursuant to an agreement of sale between the retailer and consumer (e.g., via contract, purchase order, invoice terms and conditions) (Civil Code Section 1656.1).1 Certain “qualified” property with a useful life of more than one year may receive a partial exemption from state sales tax if used for research and development and a partial exemption certificate is provided to the retailer. Please see Appendix – 1 for more information on the partial sales and use tax exemption when purchasing qualified property used for research and development. B. California Retailer A "California retailer" is a seller of tangible personal property who has a business location in California and engages in selling tangible personal property in the state at retail. C. Out-of-State Retailer Engaged in Business in California2 An "out-of-state retailer engaged in business in California" is an out-of-state retailer who, historically, had a physical presence (i.e., business operations or "nexus") in the state and sells tangible personal property or taxable services to a California consumer. Nexus for California sales and use tax purposes is defined in Cal. Rev. & Tax. Cd. Section 6203(c). Generally, an out-of-state retailer with nexus in California is responsible for remitting sales tax to the CDTFA when selling tangible personal property in California. In addition to the physical presence test to determine if nexus exists, California adopted Assembly Bill No. 147 (AB 147), which modifies California’s sales and use tax economic nexus provisions for remote sellers without a physical presence in the state and establishes marketplace collection requirements. It has a $500,000 threshold for sales of tangible personal property, regardless of the number of sales transactions within California by amending Cal. Rev. & Tax. Cd. Section 6203. Under the new law, out-of- state retailers and related parties making more than $500,000 of total combined sales from tangible personal property for delivery into California will be required to collect and remit sales and use tax based on a retroactive effective date of April 1, 2019 (Section 6203(c)(4)(A)). In addition, effective Oct. 1, 2019 under Cal. Rev. & Tax. Cd. Section 6049.5, marketplace facilitators3 are required to collect and remit California sales and use tax on 1 All section references are to the California Revenue and Taxation Code unless otherwise indicated. 2 All the $500,000 minimum sales of “tangible personal property” thresholds in California include nontaxable sales. See Section 8.I.EE for definition of "tangible personal property". 3 See Section 8.I.K for definition of "marketplace facilitator". 3 | Page Section 1: General Overview California sales made by their third-party marketplace sellers4 if the marketplace facilitator has California sales and use tax nexus based on a physical presence within California or meets the new $500,000 tangible personal property sales threshold based on a combination