Only tangible personal property (TPP) is subject to sales and use tax. Services generally are not taxable unless they are related to the sale of TPP (“true object test”).

Example: Date Retrieval Service.

Sales tax applies to intrastate (within California) transactions. If a TPP sale originates in California and possession of the TPP passes in California, sales tax applies. Vendors/sellers are responsible for remitting sales tax to the California State Board of Equalization (SBE).

Technically, use tax is imposed on any purchaser/buyer who stores, uses, or consumes in the state TPP purchased from an out-of-state vendor/seller. As a practical matter, use tax (which was invented to protect California vendors/sellers from unfair out-of-state competition) is predicated on using TPP in California. Purchasers/buyers are responsible for remitting use tax to the SBE.

The current statewide sales and use tax base rate is 7.25%. Of the 7.25%, the state gets 6.00%; the county where the sale of TPP occurs gets 0.25%; and, the city where the sale occurs gets 1.00%. Many “districts” (counties) throughout the state have additional “transaction taxes” which range up to 1.25%. District taxes generally apply based on the place or district where TPP is delivered.

Noteworthy Exemptions, Exclusions and Other Loop-Holes

Transactions between UCSD and the US government, other State of California entities/agencies, entities/agencies of other states and entities/agencies of foreign governments are not taxable.

Example: Cape Grim Baseline Air Pollution Station, Australia

Occasional sales---less than three sales in a twelve month period are not taxable.

TPP delivered to points outside California and functionally used outside the state for more than 90 days is exempt from California sales and use tax.

SPECIFIC TOPICS

Cautionary Note

Common carrier “actual” transportation charges from a vendor to a purchaser are not taxable if the charges are separately stated. Common carriers include UPS, FedEx, US Mail, freight lines, etc. Sometimes common carriers add an additional “hazardous charge”, insurance charge, or something similar. These charges also are not taxable.

Transportation charges are taxable when a vendor uses its own truck, vehicle, etc to deliver TPP.

are taxable.

Technically, if shipping and handling charges are billed lump sum, the “actual” shipping charges are not taxable. As a practical matter, most everyone, including UCSD, considers combined shipping and handling charges to be taxable.

is taxable. A fabrication creates a new item or changes the function of an existing item.

is taxable. Assembly is considered to be the final step in the production process.

is not taxable. Installation involves placing an item into position for it to function.

is not taxable if separately stated. A repair returns an existing item to its original condition. Repair parts/materials generally are taxable.

In general, vendors, especially non-California vendors, should be asked to separately state labor and parts/materials. A non-California vendor’s invoice for repairs that does not separately state labor and parts/materials normally is totally taxable.

are taxable. If a purchaser/buyer is required to purchase the agreement, the price of the agreement is considered to be part of the selling price of the equipment.

are not taxable.

are not taxable. We are paying a journal to publish our scientific article.

are taxable TPP, unless there is an exemption that applies; e.g. purchase for resale.

Software can be purchased outright. Software also can be acquired via a software license agreement that, depending on agreement terms, is considered to be purchase or a lease. In general the same rules apply to software purchases and software license agreements.

are not taxable. Custom software is a computer program created and tailored specifically for a particular customer application. The definition includes modification of “canned” software at a charge of 50% or more than its original purchase price.

are taxable if delivered via tangible media; e.g., tape, disk, diskette, cd-rom, etc. Canned software is not taxable if delivered electronically or by “load and leave”. Canned software is a pre-written program developed for general or repeated sale or lease.

are considered to be part of selling price of the software itself and are taxed accordingly.

Canned Software Optional Maintenance Agreements, Lump-Sum All-Inclusive

are taxable if we receive TPP; e.g., tape, disk, diskette, cd-rom, etc.

Canned Software Optional Maintenance Agreements, “Cafeteria Plan”

may or may not be taxable. Telephone support is not taxable. Software updates in the form of TPP are taxable.

Internet Sales/Purchases

Currently transactions made via the Internet are subject to the same tax rules as transactions made from a storefront or from catalogs.

Purchases for Resale

Purchases of TPP for resale are exempt from both sales and use tax. It is our responsibility to collect sales tax from our customer unless an exemption applies. Resale certificates vs. qualified purchase orders.

UCSD Use Tax Exclusion-Six Month Test

To quote from the SBE auditor’s official communication on this topic:

“TPP purchased from out-of-state vendors is subject to use tax when the property enters California. If the property is merely stored, fabricated and/or incorporated in California for the sole purpose of being shipped outside California for use outside California, the Storage and Use Exclusion 6009.1 would apply as long as the property is not returned within 6 months.”

Federal Grant Funds

Purchases of TPP from a federal grant fund are taxable unless the grant award document has a specific clause passing title to the federal government at the time of acquisition.

“Cost Plus” Federal Contract Funds

Purchases of TPP from a “cost plus” federal contract fund are taxable unless the contract award document includes Government Property Title Clause FAR 52.245.5.

“Fixed Price” Federal Contract Funds

Taxability of TPP from a “fixed price” federal contract is dependent upon the nature of TPP purchased, specific Government Property Title Clauses in the contract and other variables. Please contact General Accounting for additional information.

Website Info

Sales and use tax law, regulations, etc., can be obtained at the SBE’s website: http://www.boe.ca.gov

UCSD General Accounting Contacts

Special Thanks To

Mr. Lloyd Geggatt, CPA, State Board of Equalization, San Diego Office