8.11 Sales Tax

Definitions

1. Exemptions: Activities that have been specifically excluded from sales tax by Arizona Statute and therefore are not reported in an object code used for taxable sales.
2. Deductions:  Nontaxable sales that are reported in the object codes used for taxable sales, but are subtracted from gross sales as nontaxable when sales tax revenue is calculated.
3. Sales Tax Object Codes:  Includes revenue object codes in the range 0400 through 0590 except for 0550, Sales - Tax Paid - Internal.

Policy Statements

4. It is the responsibility of the revenue producing department to identify taxable sales activity, and to collect and deposit the applicable sales and tax revenue into University accounts.
5. If the tax is not collected for a particular type of sales activity that is determined to be taxable, the revenue producing department may be liable for the tax on sales made.
6. It is the responsibility of Financial Services, and not the department, to prepare and submit the required remittances to the State of Arizona.

Policy Guidelines

7. Determine Taxability: Refer to the Table of Taxable and Nontaxable Sales Activities chart, which provides the major categories of taxable and nontaxable sales activities. Nontaxable sales may be exemptions or deductions. Additional information may be obtained by contacting Financial Management.
8. Determine External/Internal Tax Status: Refer to the Summary of External and Internal Sales Activities Chart. Choose an "external" coding for taxable sales made to a purchaser outside of the University of Arizona, such as students, employees, and the general public. Use an "internal" coding for taxable sales made to another department or unit of the UA. (The University differentiates among these types of sales in order to produce accurate annual financial statements.)
    

   Summary of External and Internal Sales Activities
   0400	External code. Taxable sales to customers external to the University when tax is added to the stated price
   0410	Internal code. Taxable sales to customers internal to the University when tax is added to the stated price
   0450	External code. Taxable sales to customers external to the University when tax is included as part of the stated price
   0460	Internal code. Taxable sales to customers internal to the University when tax is included as part of the stated price
   0550	Internal code. Nontaxable sales to customers internal to the University when tax was previously paid on the item

9. Record Taxable Sales and Tax Revenue: Each department is responsible for implementing a method of accumulating taxable sales and tax revenue. Each department engaged in taxable sales is responsible for ensuring that taxable sales revenue and sales tax expenses are properly recorded to the appropriate object codes. This may be accomplished when the receipts are initially recorded in the system, or may require a journal entry to reallocate the receipts. (When the tax is included in the selling price, the amount of sales tax is not recorded separately from the sales revenue; therefore, the amount of tax will be computed by Financial Services monthly.)
10. Retention: Each department is responsible for maintaining detailed records of sales activity for a possible tax audit by the Arizona State Department of Revenue. The retention schedule for such records is a minimum of 39 months from the date the tax was due or the return filed, whichever is later.
11. Deductions: Any deductions must be stated separately on the invoice or receipt. If the deductible amount is not stated separately on the invoice or receipt, the entire amount of the invoice will be considered taxable.
12. Monthly Reporting: Monthly reporting of sales tax revenue to the Arizona Department of Revenue will be handled by Financial Services. Tax liability will be charged to the proper account and reconciled by Financial Services.

Collection/Payment of Sales Tax by Resale Units

13. Payment of Sales Tax at Time of Purchase: If the unit does not collect sales tax when items are sold, the unit must pay sales tax when items are first purchased for resale. Units that pay sales tax at the time of purchase are usually IDB units that sell items to other departments within the University.
14. Collection of Sales Tax at Time of Sale: This procedure is generally used by units that sell goods or services to purchasers outside the University. Units that collect sales tax at the time resale items are sold may collect the tax in one of two ways.
    1. Tax Included: The sales tax is included in the marked selling price. For example, if a poster is sold for $10.00, the actual price of the ticket is $9.43, and the related tax is $.57, for a total of $10.00. If this method is used, the customer must be informed at the time of purchase of the amount of tax included in the selling price. This may be accomplished through use of a sign, or this information may be printed on the invoice or receipt at the point of sale.
    2. Tax Added: The sales tax can be added separately to the marked selling price. For example, if a poster is sold for $10.00, and a 7.1% tax is added, the sales tax is $.71, and the total amount collected from the customer is $10.71. If this method is used, sales tax should appear as a separate line item on the invoice at the point of sale. 
        
    3. Tax Rate: Rates vary by Business Classification and County. Current rates are published by the State of Arizona Department of Revenue at www.azdor.gov. If you have any questions on the current rate, contact Financial Management.
15. Coding Purchases of Items for Resale: When the items are purchased for resale, units must choose one of the following object codes.
    1. If sales tax is paid at the time of purchase, use 5800 or 5820, Resale Supplies - Tax Paid @ Purchase.
    2. If sales tax is collected at the time of sale, use 5810 or 5830, Resale Supplies - Tax Collected @ Sale.
16. Coding Revenues from Sales:
    1. Resale units paying tax at the time of purchase must use object code 0550, Sales - Tax Paid Internal. This code should only be used for sales on Internal Billing documents.
    2. Resale units that collect tax at the time of sale should select from the following object codes for taxable sales:

        

       If the tax is included in the selling price:
       0450	Sales - Tax Included
       0460	Sales - Tax Included - Internal
       If the tax is added as a separately identified item, use the code 0570, Sales - Tax Collected or 0579, Sales Tax Collected - Internal, to record the amount of tax collected, and record the amount collected from the sale of the product in one of the following codes.
       0400	Sales - Tax Added
       0410	Sales - Tax Added - Internal
       0420	Sales - To US Govt - Tax Added*
       *Deductions and Exemptions are listed in the Table of Taxable and Nontaxable Sales Activities under the appropriate Business Classification

        

    3. Following is a list of activities that may be taxable. If you are doing business in these categories, contact Financial Management.
       • Advertising (not currently taxable - use object code 0680) 
       • Communications 
       • Contracting
       • Meat Packing
       • Feed/Wholesale
       • Mining/Pipelines
       • Railroad and Aircraft
       • TimberingTransport/Towing
       • Utilities

    Table of Taxable and Nontaxable Sales Activities
    This table provides a summary of taxable and nontaxable sales activities. It also lists activities that are exempt from sales tax, and activities that may be deducted from the revenue subject to sales tax. This list is not all inclusive; several internal object codes are available when dealing with other university departments.  Common internal object codes are indicated below, following their external counterpart, when available for a particular revenue or deduction type.  If in doubt about a particular sales activity, contact Financial Management.
    Publishing
    Object Codes	Description of object code usage
    0400 / 0410	Circulation revenue from publication of newspapers, periodicals, pamphlets & other publications when tax is added to the sales price separately. NOTE: Books are taxable under the Retail category.
    0450 / 0460	Circulation revenue from publication of newspapers, periodicals, pamphlets & other publications when tax is included in the sales price. NOTE: Books are taxable under the Retail category.
    0420	DO NOT USE. Use the appropriate tax added or tax included object codes and collect the tax when making sales to the US Government.
    Deductions
    0500 / 0501	Sales to vendors for resale.
    0510 / 0511	Labor revenue if separately stated on invoice.
    0520	Sales to nonprofit and government owned hospitals.
    0530	DO NOT USE. Use the appropriate tax added or tax included object codes and collect the tax on out-of-state subscriptions.
    Exemptions
    0600 / 0616	Services, such as video dubbing, editing, contracted layout, freight-out and delivery.
    0680	Advertising sales.
    0720	Textbook sales.
    Printing
    Object Codes	Description of object code usage
    0400 / 0410	Job printing, engraving, copying sales when tax is added to the sales price.
    0450 / 0460	Job printing, engraving, copying sales when tax is included in the sales price.
    0420	DO NOT USE. Use the appropriate tax added or tax included object codes and collect the tax when making sales to the US Government.
    Deductions
    0500 / 0501	Sales to vendors for resale.
    0510 / 0511	Labor revenue if separately stated on invoice.
    0520	Sales to nonprofit and government owned hospitals.
    0530	Use for sales shipped out of state.
    Exemptions
    0600 / 0616	Services, such as typesetting, freight out and delivery.
    Rental - Personal Property
    Object Codes	Description of object code usage
    0400 / 0410	Leasing or renting use of tangible personal property when tax is added to the stated rent or lease price.  Includes charges for installation, labor, insurance, maintenance, repairs, pick-up, delivery, assembly, set-up, personal property taxes, and penalty fees, even if separately stated on the invoice.
    0450 / 0460	Leasing or renting use of tangible personal property when tax is included in the stated rent or lease price. For lease-purchase sales of inventory or leases to commercial lessors -Contact Financial Management.
    0420	DO NOT USE. Use the appropriate tax added or tax included object codes and collect the tax when renting personal property to the US Government.
    Deductions
    0500/0501	Rental of equipment used in manufacturing of items for resale.
    0520	Sales to nonprofit and government owned hospitals.
    0530	Rentals where the property is shipped or delivered out-of-state for use out-of-state. NOTE: Rentals to out-of-state lessees are taxable if the property is used in Arizona. Use the appropriate tax added or tax included object codes and collect the tax.
    Exemptions
    0690	Films rented to taxable theaters, TV stations. Coin operated laundry, car wash.
    0600 / 0616	Misc Income - freight-out and delivery charges if separately stated.
    Restaurant
    Object Codes	Description of object code usage
    0400 / 0410	Sale of prepared food or drink for consumption on or off premises when tax is added to the sales price.
    0450 / 0460	Sale of prepared food or drink for consumption on or off premises when tax is included in the sales price.
    Deductions
    0500 / 0501	Sales to vendors for resale.
    0510 / 0511	Labor revenue, such as gratuities if separately billed.
    0520	Sales to nonprofit and government owned hospitals.
    Exemptions
    0650	Nontaxable food sales, includes: Groceries, Vending machine food, Student Meal tickets, Patient Food
    Retail
    Object Codes	Description of object code usage
    0400 / 0410	Sale of tangible personal property when tax is added to the sales price.
    0450 / 0460	Sale of tangible personal property when tax is included in the sales price.
    0420	Sales of tangible personal property to the US Government.NOTE: For items manufactured or repaired by the University, Contact Financial Management.
    Deductions
    0500 / 0501	Sales to vendors for resale, including sales to lessors.
    0510 / 0511	Labor revenue, such as services, repairs and installation charges, if separately stated on the invoice.
    0520	Sales to nonprofit and government owned hospitals.
    0530	Sales of items shipped or delivered and used out of state.NOTE: Sales to out-of-state customers are taxable if the item is used in Arizona. Use the appropriate tax added or tax included object codes and collect the tax.
    Exemptions
    0550	Interdepartmental sales if tax was paid at purchase.
    0600 / 0616	Services, such as freight-out and delivery.
    0610 / 0615	Admissions and ticket sales. NOTE: Concessions are taxable. Use the appropriate tax added or tax included object codes and collect the tax.
    0640	Farm sales, including produce, livestock, feed and seed.
    0720	Textbooks required for course work.
    	For the following types of sales, Contact Financial Management: Original art, eyeglasses, prescriptions, hearing aids. Manufacturing, mining or agricultural equipment.