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Arizona Sales Tax & Use

Tax

Tax Compliance

Financial Services Office

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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 publication, and lease of personal property.

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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, job printing, publication, lease of personal property, and amusement

4% for utilities and telecommunication

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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 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

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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 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

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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

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

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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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 )

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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.

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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 it 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 companies charge sales tax on their online sales

Other 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 University’s 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 signed by the individual at the Department who authorizes the purchase

Tax exemption certificate is located on eForms: http://uabis.arizona.edu/eforms/Launcher.asp?FormID=172

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Tax Exemptio

n Certificat

e

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Tax Exemptio

n Certificat

e

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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

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) maintain detailed records of sales activities.

FSO’s responsibility: prepare Sales Tax return and remit the tax receipts to the State of Arizona

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 the

retail item is shipped or delivered the outside Arizona. 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 or ARS 42-5159

Special Case: Retail 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 certificate provided by the purchaser.

Publications If the item (e.g. newspapers,

magazines, journals) is published in AZ, the publisher is liable for sales tax even the customer subscribe from out-of-state

Books are under retail category so sales tax is exempt on out-of-state sales

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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

Resources:

www.fso.arizona.edu/tax-services Arizona Sales and Use Tax

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Contact Information For assistance to determine the

taxability of a purchase/sales:FSO-Tax Compliance: 621-1957

For assistance to record the purchase, sales and related tax; correction of use tax:FSO-Financial Management: 621-6748

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Questions?