1 Arizona Sales Tax & Use Tax Chunyan Pan Tax Manager Financial Services Office

2 Sales Tax Defined  Transaction Privilege Tax: tax imposed on vendors for the privilege of doing business in AZ  Vendors register as a merchant in AZ and have a AZ business license  AZ vendors usually pass the tax on to the customers, but the vendors are ultimately liable for the tax (file sales tax return and remit the tax to the State)

3 Sales Tax Rate AZ State Tax: 6.6% for most of the categories including retail, restaurant, utilities, communications, job printing publication, and lease of personal property.

4 Sales Tax Rate Pima County excise tax: 0.5% for most of the classifications such as retail, restaurant, utilities, communications, job printing, publication.

5 Sales Tax Rate Tucson city sales tax The University of Arizona DOES NOT charge city sales tax to its customers but pays to Tucson vendors if charged Tax rate is 2% for most of the classifications, such as retail, restaurant, job printing, publication, lease of personal property, and amusement 4% for utilities and telecommunication

6 Sales Tax Rate: Summary For most of the categories: State : 6.6% Pima County: 0.5% State & County Combined: 7.1% Tucson City*: 2% Applies when the University is a purchaser and purchase from a Tucson Vendor

7 Sales Tax Rate: Transient Lodging Transient Lodging Classification (Hotel Tax*) State: 6.5% Pima County 0.55% Tucson City: 6% Total in Tucson: 13.05% * varies if the hotel is located in different state, county and city

8 Use Tax Defined  Tax on the use, storage or consumption of tangible personal property in AZ  AZ Purchasers are liable for the use tax on goods purchased from an out-of-state vendor which did not collect the use tax (out-of-state vendor may collect use tax)  If the sales tax has been paid on the purchase, then exempt from use tax

9 Use Tax Rate  AZ State use tax rate is generally 6.6%  Counties generally do not impose use tax  The university is not subject to city use tax

10 Tax at University of Arizona As a Purchaser  The University is NOT an exempt entity for AZ sales and use tax purpose  The University of Arizona generally pays sales tax to the vendor or self-assesses use tax on its purchases if the vendor does not charge sales tax/use tax  Specific exemptions may apply if in the AZ State Statutes – on a purchase-by-purchase basis  If there is a sales tax exemption, then a corresponding use tax exemption generally also exists

11 Nontaxable/Tax-exempt Services Professional and personal services Repair, maintenance and installation services (if charges are separately stated on invoices and records) Warranty or service contract (if not required to purchase with the tangible personal property, and is charged separately on an invoice) Delivery charges (freight or shipping) if separately stated on the invoice Internet access and cable services Conference registration fees Professional membership dues

12 General Exemptions on Tangible Personal Property Machinery and equipment used in research and development Chemicals used in research and development Printed and other media materials (available to the public) by UA Libraries Food for home (human) consumption Medically prescribed drugs, equipment or devices Purchase for retail Others as set forth in statutes such as ARS or ARS

13 Tax Exemption on Research Equipment  Research does not include  (1) social science  (2) psychology  (3) computer software development  (4) non-technological activities or technical services  Equipment does not include  (1) expendable materials  (2) office equipment, furniture and supplies  (3) hand tools  (4) janitorial equipment  (5) licensed motor vehicles  (6)shops, buildings, depots

14  Equipment should be used exclusively for research  Dollar amount does not necessarily affect the decision  A repair or replacement part of a tax- exempt research equipment is exempt  Leases and rentals of tax-exempt research equipment are exempt Tax Exemption on Research Equipment (Cont’d )

15 Exemption on Chemicals Used in Research  Research does not include  (1) social science  (2) psychology  (3) computer software development  (4) non-technological activities or technical services  Chemicals cannot be used or consumed in activities such as packaging, storage or transportation  It is up to the researcher who orders the item to determine whether it is “chemical”

Supplies and Materials Used in Research – Generally NOT exempt If an item does not fit into “equipment used in research” or “chemical used in research,” it generally DOES NOT qualify for tax exemption. 16

17 Computer Hardware, Software & Services Hardware: generally taxable Custom software is not taxable Pre-written software is taxable, regardless if it is CD-Rom or through digital means Computer services such as analysis, design, repair, support engineering are not taxable Maintenance and warranty agreement for hardware and software: is generally not taxable if it is sold as a separate item and the price is stated separately Software maintenance agreement for canned updates, modification or revisions is taxable

18 Internet Purchase Internet purchases are generally subject to Sales Tax or Use Tax Some companies charge sales tax on their online sales Other companies do not charge sales tax leaving the liability of use tax on the purchaser

19 Apply for Tax Exemption with the Vendor Vendors usually charge sales tax on tangible personal property in absence of a Sales Tax Exemption Certificate The Tax Exemption Certificate should provide the University’s Federal Tax ID ( ), AZ Sales Tax License Number ( ), and the reason for exemption The Tax Exemption Certificate for a P-card purchase must be signed by the individual at the Department who authorizes the purchase Tax exemption certificate is located on eForms:

20 Tax Exemption Certificate

21 Tax Exemption Certificate

22 Apply Exemption on Use Tax When an out-of-state vendor is registered to collect use tax, provide the Sales Tax Exemption Certificate to claim exemption on use tax with the vendor. If the vendor does not charge any sales or use tax, document the reason for the use tax exemption and keep in file (can use Sales Tax Exemption Certificate or memo) Reconcilers must check the ‘service/tax exempt’ box in PaymentNet to avoid paying Use Tax

Resources: AZ Sales and Use Tax 23

24 Contact Information For assistance to determine the taxability of a purchase: Chunyan Pan, Tax Compliance For assistance to record the purchase, sales and related tax; correction of use tax: Fred Pearson, Financial Management

25 Questions?