Ball State University Procedure for Collecting, Paying and Reimbursing Sales Tax

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1 Ball State University Procedure for Collecting, Paying and Reimbursing Sales Tax EFFECTIVE DATE: November 3, 2014 REVISION DATE: July 18, 2017 PROCEDURE ISSUED FROM: Office of University Controller I. PURPOSE: This procedure ( Procedure ) is hereby adopted for the purpose of detailing the situations in which Indiana sales tax will or will not be reimbursed by Ball State University ( University ). It will also detail when sales made by the University will be subject to the State Gross Retail Tax. 1 This procedure also addresses when the County Food-and-Beverage Tax and County Innkeeper s Tax will need to be collected. Finally, this procedure discusses when the University is liable for Indiana Use Tax. II. BACKGROUND: The University is a governmental agency created by an Indiana Code ( IC ) statute. It is, therefore, entitled to certain exemptions from tax for purchases and sales that support the exempt government function and educational mission of the institution. Transactions that do not support the University s exempt educational mission or that are associated with a proprietary activity (defined below) are subject to tax. III. APPLICABILITY: This procedure applies to sales made by the University and to purchases made with or reimbursed by University funds. IV. PROCEDURE DEFINITIONS: State Gross Retail Tax Use Tax An excise tax imposed on retail transactions made in Indiana. The person who acquires property in a retail transaction is liable for the tax on the transaction and pays the tax to the retail merchant as a separate added amount to the consideration in the transaction. This tax is commonly referred to as Indiana Sales Tax and will be referred to as such in this procedure. The retail merchant collects the tax as agent for the state at a rate of seven percent (7%). An excise tax imposed on the storage, use or consumption of tangible personal property in Indiana if the property was acquired in a retail transaction, regardless of the location of that transaction. An exemption from this tax is allowed if the property was acquired in a retail transaction in Indiana and the state gross retail tax (Indiana Sales Tax) has been paid on the acquisition of that property; or the property was acquired in a transaction that is exempt from the state gross retail tax (Indiana Sales Tax) and the property is being used, stored, or consumed for the purpose for which it was exempted. If a tax exemption certificate is issued for the acquisition of tangible personal property and subsequent use, storage, or consumption of that property is for a nonexempt purpose, use tax shall be remitted. The retail merchant collects the tax as agent for the state at a rate of seven percent (7%). 1 Please see the attached Sales Tax Matrix for information regarding all other states. 1 P a g e

2 County Food- and- Beverage Tax County Innkeeper s Tax 2 Student 3 Educational materials Proprietary Activity An excise tax levied on any transaction in which food or beverage is furnished, prepared or served for consumption at a location, or on equipment, provided by a retail merchant in the county in which the tax is imposed. Taxable transactions include those served by a retail merchant off the merchant's premises, food sold in a heated state or heated by the merchant, two (2) or more food ingredients mixed or combined by a retail merchant for sale as a single item or food sold with eating utensils provided by a retail merchant, including plates, knives, forks, spoons, glasses, cups, napkins, or straws. The retail merchant collects the tax as agent for the state at a rate of one percent (1%). A tax levied by the county on each entity engaged in the business of renting or furnishing, for periods of less than thirty (30) days, any room or rooms, lodging, or accommodations in any hotel or university residence hall located in the county. The tax does not apply to a student renting lodgings in a university residence hall while that student participates in a course of study for which the student receives college credit from a college or university located in the county or a person who rents a room, lodging, or accommodations for a period of thirty (30) days or more. The retail merchant collects the tax as agent for the county at a rate of five percent (5%). An individual enrolled or registered in courses that grant credit toward the attainment of an undergraduate or graduate degree or who is enrolled in an elementary or a secondary school. The term student also includes any individual enrolled in remedial courses that are certified by the University. Materials that communicate information, graphic images, or sounds that are utilized in teaching, instruction, or research. These materials may be in many forms including scholarly and professional journals, instructional audio and video materials and instructional software and computerized research tools. An activity that generates revenues for the University from the general public and that is both customarily associated with the conduct of a private business enterprise and that is outside the scope of activities of governmental and educational functions as defined for state universities. Examples of these activities include: Sales by a bookstore of items such as T-shirts, sweatshirts, hats, athletic apparel, memorabilia, class rings, license plates, etc. Sales of books, stationery, haberdashery, supplies, or other property 2 The University is liable for this tax per IC in Delaware County. 3 Both Burris and Indiana Academy s students fit within the description of students for exemption purposes. See IC Ball State University has confirmed with the Indiana Department of Revenue that all of campus serves as the school premises for the two entities. 2 P a g e

3 Sales of merchandise, cards, clothing, toiletries, and other goods typically purchased in retail stores Sales of catering and food services provided to the general public Sales of computers, software, and related items Sales of food and drink at athletic, theatrical, artistic, cultural, or informational events Receipts from the rental of accommodations for periods of less than 30 days to nonstudents 4 Sales of abandoned personal property if the property was not originally used in connection with the University s educational purpose Any other activity customarily considered as being competitive with private enterprise Student Organization Educational Mission Informal student clubs whose memberships consist of students who share a common interest in the particular cause or activity for which the organization exists, promotes, or furthers. The educational mission or purpose for which state colleges and universities are granted exemption falls into one of four categories: 1. Teaching and instruction that involves educating citizens, businesses, and institutions of the state through the use of conventional and electronic classroom facilities to provide: Courses that grant credit toward the attainment of an undergraduate or a graduate degree Post-graduate practical training and instruction in academic disciplines offered by state universities Continuing education courses (non-credit) Professional development activities, and Educational conferences, seminars, and training meetings 2. Research that includes expanding the knowledge base of the citizens, businesses, and institutions of the state of Indiana through scientific inquiry and the dissemination of scholarly information. Activities associated with the fulfillment of this function include participation in laboratory and field research and the development and distribution of educational or researchrelated tools or materials that are published, copyrighted, or patented by a state college or university. 4 These sales are subject to Indiana sales tax and the County Innkeeper s Tax. The term accommodations include any room or rooms and any lodgings in a commercial hotel, university residence hall, tourist camp, or tourist cabin. The tax does not apply to any student renting lodging in a residence hall while participating in a course of study for college credit at the University. 3 P a g e

4 3. Public service that includes activities that are consistent with other governmental and educational functions serviced by the state of Indiana and other charitable, nonprofit purposes for which the University is granted exemption from Indiana adjusted gross income tax and federal income tax. 4. Other university activities that are customarily undertaken in the conduct of governmental functions, including: Sponsoring continuing education activities Operating the county extension service for the state Providing public access to intercollegiate athletic functions Providing public access to recreational and physical fitness facilities Providing public access to musical, theatrical, and artistic performances Providing access to informational and cultural events and productions, and Providing recruiting and development activities including recruiting of students and faculty V. PROCEDURE DETAILS: The applicability of sales tax will depend on the facts and circumstances of a transaction. Purchases by the University Transactions involving tangible personal property or services are exempt from sales tax pursuant to Indiana Code if the purchases are invoiced directly to the University and paid for directly via University funds, and the purchases are for an official University function and not a proprietary activity. This means that to qualify for a sales tax exemption on purchases, the articles purchased must be used for the same purposes (listed above in the definition of educational mission) for which the University is exempted. The requirement for expenses to be paid directly via University funds means that if an item is purchased with private funds and is to be reimbursed by the University, the purchase is not exempt and sales tax must be paid at the time of purchase. If an item which would have been tax exempt if purchased directly with University funds is instead subject to sales tax due to purchase with private funds, any reimbursement will not include the sales tax paid. The University s Accountable Plan requires that an expense is substantiated within 60 days after it is paid or incurred in order to be eligible for reimbursement. Any request made outside of the prescribed time limit will not be reimbursed unless extraordinary circumstances exist. An amount not repaid within the University s chosen safe harbor is subject to a formal review by the Director of Accounting. In the State of Indiana, purchases for the private benefit of any individual, such as meals and lodging, are not eligible for exemption. Additionally, purchases used for social purposes are never exempt. Tangible personal property purchased for resale by the University is eligible for the sales tax exemption. If an item is purchased on a tax-free basis and is later used for a proprietary purpose the University is liable for use tax on that item. 4 P a g e

5 Sales by the University Proprietary Activities Sales of tangible personal property as part of a proprietary activity by the University are generally subject to sales tax. 5 Bundled vs. Unbundled Certain programs related to the University s educational mission, such as conferences, may grant tangible personal property to participants in a bundled charge without incurring a sales tax liability. If the tangible personal property (e.g. a t-shirt with the conference s logo on it) is available for sale separately at registration, and therefore part of an unbundled sale, these items are subject to sales tax. A large exception to the proprietary activities rule is the sale of food directly to or for the primary benefit of students. Such sales may take place on an exempt basis as long as certain conditions are met. 6 In addition to the Indiana sales tax, prepared and/or catered food is subject to Indiana Food & Beverage Tax. The University s student-run restaurant, Allegre, sells meals to both students and the general public. Two different pricing structures are in place at the restaurant: one for students and one for the public. While a student eating at Allegre can enjoy their meal without being subject to tax, any meal sold a non-student is subject to both sales tax and Food and Beverage tax. The restaurant has selected to include these taxes in the price advertised to patrons for ease. Delivery Charges Delivery charges (consisting of transportation, shipping, crating, handling, packing, and postage charges) that are not separately stated on the invoice, bill of sale, or similar document issued to a customer by the University are subject to sales tax. An exclusion from the application of sales tax exists for tangible personal property that is sold pursuant to an available exemption. If the item being sold is not subject to sales tax, the delivery charges related to that item also are not subject to sales tax. If some of the items being delivered are exempt and some of the items are subject to sales tax, the delivery charge attributable to the taxable items is subject to tax. Separately stated postage charges 7 are not included in the definition of gross retail income and therefore are not subject to sales tax. When separately stated, sales tax does not apply to charges for serving or delivering food and food ingredients furnished, prepared, or served for consumption at a location or on equipment provided by the University. However, charges for delivery of prepared food beyond the University s location and not served on University equipment are subject to sales tax. 5 Sales designed to contribute to the University s educational mission may be exempt from collecting sales tax. See IC These sales are exempt from sales and use tax pursuant to IC if the purchaser is a student at the University. Sales of food to members of the faculty or other employees are subject to Indiana sales tax. Sales of food to nonstudents of the University do not qualify for exemption. 7 Postage charges are defined to mean the purchase price of stamps or similar charges, as incurred by the seller on behalf of its customers, for mail or parcel delivery through the United States mail, without any additional amounts added to the actual price. Note: postage charges do not include any charges for mail or parcel delivery by any means other than through the United States mail. The term also does not include any amount representing a markup over and above the purchase price of the stamps incurred by the seller. 5 P a g e

6 Educational Materials Sales of educational materials, excluding books, stationery, or supplies, by the University are exempt if sold to its students because these sales primarily serve the governmental function of the institution. The sale of such educational material sold to the general public is subject to tax because these items would be taxable if sold by a retail merchant. Telecommunications The University is required to collect Indiana sales tax when it furnishes or sells an intrastate telecommunication service to students, members of the faculty, or staff. 8 If the University bills students and members of the faculty and staff for their respective long-distance intrastate phone calls, the charges will reflect sales tax being charged. Any charges billed directly to students or members of the faculty and staff for local service charges would also be subject to the collection of Indiana sales tax. U.S. Government The United States Constitution prohibits any state from imposing any tax directly on the U.S. government, its agencies, and federal instrumentalities, unless Congress consents to such taxation. Thus direct federal purchases are exempt from Indiana sales and other transaction-based taxes. The fact that the U.S. government, agency, or federal instrumentality may ultimately reimburse an employee does not exempt such a purchase from tax. 9 The University is not required to collect sales tax on sales made directly to the U.S government, its agencies, and federal instrumentalities if the exemption can be verified by documenting the facts and circumstances of the transaction. Student Organizations To be exempt from Indiana sales tax on purchases, the student organization must be: 1. Recognized by the University Connected with the University 3. Under the supervision of the University 4. Held as an agency fund with records maintained by the University A student organization that is registered with and under the control of the University will not be required to register with the Indiana Department of Revenue as a nonprofit organization and will be considered a part of the University. 11 As such, recognized student organizations may be eligible to make tax exempt purchases. If a student organization engages with a vendor requesting a tax exemption certificate please contact the University s Tax Director. These purchases will be reviewed on a case-by-case basis to ensure compliance. Purchases for the benefit of any member of the organization or for any other individual, such as all prepared foods, meals, banquets, lodging or gifts, are not eligible for exemption and sales tax should always be paid when 8 See IC Indiana law applies all applicable taxes to purchases made by Federal employees when the purchase is funded by the employee. Often Federal employees will have a corporate credit card to present when purchasing items. This corporate card s bill must be directly paid by the U.S. government for a purchase to be exempt. A reimbursement arrangement associated with the corporate card will not lead to an exempt purchase. 10 Information on becoming a recognized Student Organization can be found by visiting the following: 11 If a student organization is making sales outside of the University for fundraising purposes it may present the University s Form W-9 to receive payment if the funds will be deposited into the student organization s University agency fund. 6 P a g e

7 purchasing these items. Student organizations conducting sales to members or non-members become a retail merchant and must collect sales tax on these sales. The State of Indiana sales tax of 7% must be collected by the student organization when conducting sales activities. The proceeds from these sales must be deposited into the student organization s agency fund held with the University. 12 VI. REPORTING: The University claims to be exempt from Indiana sales tax via a General Sales Tax Exemption Certificate ( Form ST-105 ). Any entity purchasing taxable items from the University would need to present a completed Form ST-105 at the point of purchase claiming that exemption in order for tax not to be charged. VI. Examples: 1. The University hosts a three-day convention for its faculty in Indianapolis. The University rents meeting rooms in a hotel to conduct its educational meetings. The room rentals are invoiced directly to the University and a Form ST-105 is presented to the hotel. This transaction will be exempt from the sales tax and local Innkeeper s Tax, if applicable. 2. At the same convention, meals are served. These meals are provided for the convenience of the University and its employees. These meals are subject to Indiana sales tax even when served in conjunction with a meeting that is furthering the University s educational purpose. 3. At the same convention, the University reserves and pays for the cost of four hotel rooms to be used by its employees for lodging. The lodgings provided for the University s employees are not exempt from the Indiana sales tax or the County Innkeeper s Tax, if applicable. The rental of rooms for its employees provides a private benefit for an individual and is not for the purpose for which the University is exempt. 4. If an employee of the University purchases a meal or lodging, even if the employee is to be reimbursed by the University or is paid directly with University funds, the purchase is not exempt and the employee must pay sales tax at the time of purchase. The employee will be reimbursed for the Indiana sales tax paid since the University is not exempt on private benefit purchases. 5. Mrs. Administrator is presenting a student with a framed certificate associated with an academic accomplishment. The frame was purchased at Hobby Lobby using Mrs. Administrator s departmental purchasing card. Since Mrs. Administrator presented the University s Form ST-105 upon checkout, Mrs. Administrator was not charged sales tax on this exempt transaction. 6. Mr. Carpenter ran out of nails while building a ramp to be used at the entrance of an older building. Mr. Carpenter had to finish the ramp before the next day so he made a trip to the hardware store to 12 Any taxable sales made by student organization should be deposited to account number The corresponding sales tax will be deposited to for payment to the Indiana Department of Revenue. 7 P a g e

8 purchase nails with his personal funds. Since the nails would have been exempt if procured through the University s purchasing system, Mr. Carpenter will not be reimbursed for the sales tax he paid. 7. Mrs. Coach was traveling with her team to Indianapolis. On the way to the game, she realized that the scorebook had been forgotten. The team stopped at a sporting goods store and Mrs. Coach bought a scorebook with her cash advance issued by the University. Mrs. Coach did not have the University s Form ST-105 available to be presented, though, so tax was charged. Since the scorebook would have been exempt if procured through the University s purchasing system, the sales tax Mrs. Coach paid cannot be used to offset her outstanding advance. 8. Mr. Resident Assistant is having a pizza party for the students on his floor. The residence hall is funding the purchase of pizza. While the University s funds are used directly for the purchase, immediately consumable food purchased by the University is not exempt from Indiana sales tax. 9. Ms. Resident Assistant buys a DVD at Wal-Mart to be given away as a prize for attendance at a hall function. Since this DVD will be used as a part of a social function, the purchase is not exempt from Indiana sales tax. 10. Mr. Professor needs an extension cord for an off campus presentation that afternoon. Since there is no time to order the cord through the University s procurement system, Mr. Professor uses his department s purchasing card and presents the University s Form ST-105 when buying the cord at Staples. This transaction is exempt from sales tax. 11. Mr. Professor still needs an extension cord but he does not have his department s purchasing card. Mr. Professor will be charged sales tax upon checkout. Since the extension cord would have been exempt if procured through the University s purchasing system, Mr. Professor will not be reimbursed for the sales tax he paid. 12. A private individual or corporation hosts an event on campus. Any room rental and/or sales of food are not exempt from sales tax. 13. Business Affairs rents a meeting room at a local hotel for a staff retirement function and also provides for catered food at the function. The room rental and the purchase of food are not exempt due to the event s departure from the University s educational mission. 14. Ms. Camp Leader sells registration to a band camp to be held on campus during the summer months. Registration includes the fee for the instructional part of camp and a t-shirt to wear during camp. The registration is bundled and therefore the entire transaction is exempt from sales tax. The rental of rooms while on campus for a period of less than 30 days is not exempt from sales tax and is also subject to County Innkeepers Tax. 8 P a g e

9 15. Mr. Administrator needs to purchase a book to assist with his work. The book is only available online at Amazon.com. Mr. Administrator uses his department s purchasing card to buy the book. The purchase of the book is exempt from sales tax due to its related nature to the University s mission. Since the Amazon account he purchased the book through was his personal account, Amazon charged sales tax. Mr. Administrator will have to contact Amazon and send the University s tax exemption information as an attachment to tax-exempt@amazon.com with the following: order number, address associated with the account the order was placed under and proof of exempt status for the state where the order was shipped. 16. Ms. Professor is purchasing software from Amazon.com to assist with her class preparations. She purchased the software with her personal credit card from her personal Amazon account. This transaction is not exempt since it was not paid for directly with University Funds. When Ms. Professor s expense reimbursement request is processed she will not be reimbursed for the amount of sales tax shown on the receipt. Contact in Case of Questions: University Tax Compliance, Office of University Controller, or bsutax@bsu.edu Ball State University policies are subject to change at any time. If you are reading this procedure in paper or.pdf format, you are strongly encouraged to visit BSU.edu to ensure that you are relying on the most current version. This information is not intended as tax advice but rather to alert employees of potential tax ramifications and IRS rules. The University is not providing you with tax advice nor attempting to evaluate your particular situation. You are urged to consult your own tax advisor(s) or the IRS concerning the federal, state, and employment tax ramifications of your particular situation. 9 P a g e

10 begin No Is the purchase for goods sold in or delivered to Indiana? Yes Review the Ball State Exemption Status by State Sales Tax Matrix for appropriate taxability No Is the purchase for lodging, airfare, meals consumed in restaurants, or leasing/renting of tangible personal property? Yes No Is the purchase for a social or proprietary activity? Yes University is not taxexempt in these cases and tax can be reimbursed No Would the purchase have been taxexempt if it had been invoiced directly to the University or paid directly with University funds? University is not taxexempt in these cases and tax can be reimbursed University is not taxexempt in these cases and tax can be reimbursed Tax will not be reimbursed in these instances end