Sales and Use Tax

Page Contents

How Sales vs. Use Taxes Apply to UC ANR
District Taxes
District Taxes vs. Sales/Use Taxes
Procurement Card System-Assessed Tax

Reduced Rate

Applied to Research Equipment
What the Reduced Rate Applies To
Partial Sales and Use Tax Exemption for Equipment Eligibility Checklist

Farm Equipment and Machinery

Introduction

California sales and use tax law, administered by the state California Department of Tax and Fee Administration (CDTFA) and applies to the University of California and its campuses, including UC ANR

Only tangible personal property is subject to sales and use tax. Services generally are not taxable unless they are related to the sale of tangible personal property (for example, assembly or fabrication labor services).

The basic California statewide sales and use tax rate is 7.25%. Many counties and cities have imposed local “District Taxes" under the Transactions and Use Tax Law. Current applicable tax rates are listed at the CDTFA website.

How Sales Tax vs. Use Tax Apply to UC ANR

Sales Tax	Use Tax
As a purchaser, UC ANR pays sales tax to California vendors on taxable purchases made in California, unless the item is purchased for resale. As a seller, UC ANR charges sales tax on sales to California customers external to the UC system. Sales between UC ANR or between UC campuses are not subject to sales or use tax since the departments and campuses are part of the same legal entity.	As a purchaser, UC ANR accrues use tax and remits directly to the CDTFA in the following situations: Purchases from out-of-state vendors who are not doing business in California and who do not charge California sales tax. Purchases from in-state vendors who assess a rate less than applicable to the sale. This situation typically occurs when the vendor does not charge the correct district rate.

District Taxes

Many counties and cities have imposed local "District Taxes" under the Transactions and Use Tax Law. Current applicable tax rates are listed at the CDTFA website.

As a purchaser, you are generally required to report and pay district use tax on the purchase price of tangible personal property when:
• You make the first taxable use of the property in a district.
• You purchased the property without district tax or at a lesser rate of district tax than is imposed in the district of use.

What are some of the differences between district taxes and sales/ use taxes?

Since district tax ordinances must incorporate provisions of the Sales and Use Tax Law, the taxes are generally the same except for:

Sales of property made in a district and delivered to a customer outside the district may not be subject to the district tax of the vendor's location. District taxes are applicable in the location that the goods are first used.
Retailers located outside a district delivering property into a district may be required to collect the district’s tax if they are engaged in business in the district.
Fixed-price contracts, including leases entered prior to the starting date of a new district tax may not be subject to that district tax.

Procurement Card System-Assessed Tax

For Procurement Card purchases with out-of-state (non-California) vendors, the system will assess the tax rate based on the Ship-To Zip Code for your organization. The zip code indicated for your organization should be the one that is most frequently used for shipments.

Reduced Rate

Reduced sales/use tax rate on equipment purchased for research.

Effective July 1, 2014 through June 30, 2030, the California Department of Tax and Fee Administration (CDTFA) is offering a reduced sales/use tax rate on equipment purchased for research. This has the potential to result in significant savings for UC ANR.

The reduced rate applies to:

Machinery and equipment with a minimum useful life of a year that will be used over 50% of the time and for over one year in research and development anywhere in California.

While the CDTFA does not have a minimum threshold for qualified purchases, we have opted to make this exemption available for purchases that meet our capital equipment definition of $5K and above. This practice is consistent system-wide.

Also, the CDTFA has limited the reduced rate to a specific purchase amount over the calendar year, which will be monitored by Accounting & Financial Services (A&FS). A&FS will keep you updated.
The exemption includes leased equipment and special-purpose buildings.

The exemption reduces the current sales tax rate by 3.9375%, resulting in an effective rate of 3.3125% for research equipment delivered to campus. The effective rate may change if equipment is delivered to a different location in California.

A&FS has developed a process to facilitate and maximize UC ANR’s benefit from this exemption. This includes identifying research equipment with a checkbox in Aggie Enterprise on the Requisition document, which automatically notifies Contracting Services and the Tax, Compliance and Controls units.

Partial Sales and Use Tax Exemption for Equipment Eligibility Checklist

Campus customers making a purchase they believe qualifies for the partial tax exemption should complete the Partial Sales and Use Tax Exemption for Equipment Eligibility Checklist and attach it to their Aggie Enterprise Requisition in the Attachments section. Tax, Compliance and Controls will review the information provided to confirm that it qualifies for the tax reduction. The Contracting Services buyer will insert appropriate language and reduce the sales tax amount on the Purchase Order.

In some instances, the vendor may still require a Partial Exemption Certificate to allow for the reduction. If this is the case, please ensure that the top & middle sections are completed and forwarded to the Tax unit for authorization. Tax is the proper office for authorizing these certificates, which are only valid for the specific item(s) mentioned. The certificate should not be used as a blank certificate to authorize an exemption for multiple purchases of different items from the same vendor. For those transactions where the vendor is not collecting sales tax and we are self-assessing use tax, please follow the same process of completing the checklist and attaching it to the Aggie Enterprise Requisition.

We encourage departments to actively work with vendors to ensure the appropriate sales tax rate is applied to the initial purchase to ensure efficiency and timeliness in taking advantage of this exemption. The CDTFA does allow for a retroactive refund of sales and use tax if UC Davis identifies qualifying equipment after the time of payment. For these purchases, please complete the Partial Sales and Use Tax Exemption for Equipment Eligibility Checklist and forward to the Tax unit. If the sales tax was paid directly to the vendor, Tax will issue an exemption certificate along with supporting documentation to the Department to then forward to the vendor. The vendor may then file a claim for refund for the overpaid portion of sales and use tax on the UC’s behalf. If the transaction was subject to use tax where the UC self-assessed, then Tax will file a claim directly with the CDTFA.

For more information, please contact your BOC Team for more information.

Farm Equipment and Machinery

Application of the Sales Tax exemption for the purchase of Farm Equipment and Machinery

To qualify for the Farm Equipment partial sales tax exemption the machinery must be used 50% or more directly to produce food sold for resale.

Although we certainly grow a substantial number of crops for research, education and to feed our on-site food animals, the equipment is not typically used to produce food for general sale.

If your department is purchasing farm equipment that fits this use description, please reach out to BOC Team. They will work directly with Tax Reporting and Compliance to brainstorm.