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Section 5 - Revenue, Income, and Receivables

Section 5.3 - California Sales & Use Tax

Date: 5/2/05 — Approved: Finance Board

California Sales & Use Tax (Sales Tax) is collected on all applicable sales of tangible personal property and certain services, as required by state law. Tax exempt sales are also reported even though tax is not collected.

CATEGORIES AND DEFINITIONS OF SALES

Taxability of Sales

Reportable sales are divided into two categories of taxability:

Taxable - Sales that do not qualify for any of the exemptions listed below.

Nontaxable, exempt - Reportable sales that are nontaxable due to some specific exemption provided by law. Exemptions include:

• Resale-- This exemption occurs when a wholesale transaction is made-that is, when a department sells to a retailer who charges sales tax to customers. The unit should obtain the resale tax number of the customer to substantiate the exemption.
• Exempt organizations — In general are not exempt. Their exemption occurs when the department sells to any organization that is formed and operated exclusively for religious, educational, or charitable purposes, or any governmental body. In order to substantiate the tax exempt status, the A.S. department should obtain the special exemption identification number issued by the California State Board of Equalization for such purpose.

Sales of service — Just because an entity is a non-profit does not mean it is automatically exempt from paying Sales and Use taxes. Sales of service only are always exempt from Sales & Use tax. However a taxable event may occur when a transfer of tangible personal property is made in the process of providing service to a customer. A common example is when service work is performed on equipment and sales tax is charged on the cost of the parts installed. The entire sale is reported, but the labor portion plus the markup over cost on the parts installed are deducted as a nontaxable exemption.

REPORTING OF SALES

The A.S. Controller is responsible for developing A.S. procedures for collecting and reporting sales and applicable rates, and for remitting collected sales tax to appropriate governmental bodies.

Deposit of sales tax - The sales tax collected should be deposited into the appropriate A.S. liability account according to A.S. procedures.

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