Arizona Sales Tax

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Arizona Sales Tax Use TaxChunyan PanTax
ComplianceFinancial Services Office August 2008
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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)

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Sales Tax Rate

• AZ State Tax
• 5.6 for most of the categories including retail,
  restaurant, utilities, communications, job
  printing and publication.

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Sales Tax Rate

• Pima County excise tax
• 0.5 for most of the classifications such as
  retail, restaurant, utilities, communications,
  job printing, publication.

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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, utilities,
  communications, job printing and publication

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Sales Tax Rate Summary

• For most of the categories
• State 5.6
• Pima County 0.5
• State County Combined 6.1
• Tucson City 2
• Applies when the University is a purchaser and
  purchase from a Tucson Vendor

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Sales Tax Rate Transient Lodging

• Transient Lodging Classification (Hotel Tax)
• State 5.5
• Pima County 0.55
• Tucson City 6
• Total in Tucson 12.05
• varies if the hotel is located in different
  state, county and city

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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 that did
  not collect the use tax
• If the Sales tax has been paid on the purchase,
  then exempt from Use Tax

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Use Tax Rate

• AZ State Use Tax rate is generally 5.6
• Counties generally do not impose Use Tax
• The university is not subject to City Use Tax

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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 access Use Tax on its
  purchases if the vendor does not charge Sales 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

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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

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General Exemptions on Tangible Personal Property

• Machinery and equipment 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 status such as ARS 42-5061
  or ARS 42-5159

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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
• http//www.fso.arizona.edu/fso/deptman/10
  /1014spec.html

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Tax Exemption on Research Equipment(Contd )

• 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

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Other exemptions on research

• (a) Chemicals used for research
• Chemicals that are used or consumed in
  activities such as packaging, storage or
  transportation is NOT considered used for
  research, therefore, not exempt
• (b) un-expendable clean rooms used for
  research of semiconductor products (e.g.
  fixtures, piping, movable partitions)

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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 is sold
  as a separate item and the price is stated
  separately
• Software maintenance agreement for canned
  updates, modification or revisions is taxable

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Internet Purchase

• Internet purchases are generally subject to Sales
  Tax or Use Tax
• Some internet companies record the Arizona State
  Sales tax rate and will charge Sales Tax
  accordingly
• Some internet companies do not charge sales tax
  leaving the liability of Use Tax on the purchaser

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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
  Universitys Federal Tax ID (74-2652689), AZ
  Sales Tax License Number (20221243), and the
  reason for exemption
• The Tax Exemption Certificate for a P-card
  purchase must be singed by the individual at the
  Department who authorizes the purchase
• Tax exemption certificate is located on eFforms
  http//uabis.arizona.edu/eforms/Launcher.asp?For
  mID172

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Tax Exemption Certificate
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Tax Exemption Certificate
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Apply Exemption on Use Tax

• If the vendor does not charge Sales tax, and does
  not request the Sales Tax Exemption Certificate,
  document the reason for Use Tax exemption
• Reconcilers must check the service/tax exempt
  box in PaymentNet to avoid paying Use Tax

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Tax at University of Arizona As a Seller

• When the University makes sales to its customers,
  it generally collects the sales tax from the
  customers unless the sales are exempt by the
  statutes

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Tax at University of Arizona As a Seller

• Department s responsibility (1) identify the
  taxable sales, collecting the sales and tax
  revenues and depositing the revenues to the
  University accounts (2) maintaining detailed
  records of sales activities.
• FSO s responsibility prepare Sales Tax return
  (along with the self-assessed use Tax) and remit
  the taxes to the State of Arizona

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Common Tax Exemptions on Sales

• Professional or Personal Services
• Sales to vendors for resale
• Freight or shipping if separately stated on the
  invoice
• Sales to a non-resident for use outside Arizona
  when
• item is shipped or delivered outside
  Arizona.
• Casual sales
• Textbooks required for course work, sold by
  bookstore
• Sales or renting to nonprofit or state-operated
  hospitals and healthcare facilities (must have an
  Exemption Letter issued by AZ department of
  revenue)
• A certain food sales, including vending machine
  food, student meal tickets and patient food
• Others as set forth in ARS 42-5061

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Special Case Sales to Out-of-State Customers

• If an order is called in by an out-of-state
  purchase and delivered directly to the
  out-of-state address, the sales are tax-exempt
  must maintain the proper shipping documentation
• If the out-of-state customer picks up the
  merchandise in AZ, sales are taxable unless the
  purchaser has proof of out-of-state residence and
  the merchandise is shipped out of State for use
  out of State. The department must maintain
  appropriate exemption certificates provided by
  the purchaser.

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Special Case Casual Sales

• an occasional, isolated sale made by a person not
  in the business (whether within or without
  Arizona) of selling property of that type or
  character.
• Example departments surplus sales of unused
  equipment

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Special Case Sales to Federal Government

• Retail sales are taxable at one-half of the
  regular tax rate (3.05).
• Exempt on products sold directly to the US
  government as a manufacturer, modifier, assembler
  or repairer of such products

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More information

• http//www.fso.arizona.edu/fso/deptman/8/811sales.
  html

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Questions?
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Contact Information

• For assistance to determine the taxability of a
  purchase or sale
• Chunyan Pan, FSO-Tax Compliance 621-1957
• For assistance to record the purchase, sales and
  related tax correction of use tax contact your
  fund accountant at
• FSO- Financial Management