Appendix: Sales and Use Tax Overview 

For information regarding the specific applicability of sales and use tax, refer to the appropriate Payment / Reimbursment guide. 

  1. Sales and Use Tax Basics
  2. Sales and Use Tax Rates for UCSC Locations
  3. Ensuring Compliance
  4. Exemption for Services
  5. Exceptions
  6. Tax on Merchandise Delivery
  7. Fabrications
  8. Sales Taxes on Shipping and Handling
What to KnowFilter
Sales and Use Tax Basics

Definition: Tangible good

  • Property that can be seen, weighed, measured, felt, touched or is in any manner perceptible to the senses.

Generally, all purchases of tangible goods are subject to the assessment of sales or use tax.

  • If the full amount of sales tax is not collected by the vendor (as indicated on the receipt or invoice), the remaining amount of tax due will be charged to the department making the purchase.
Sales and Use Tax Rates for UCSC Locations

Important information to know.

The campus is responsible for paying sales and use taxes on all purchases of tangible goods at the rate applicable to the location where the product or good is used, whether or not the vendor collects the tax (as listed on the vendor's invoice, receipt, or bill of sale).  When the tax is paid by the buyer rather than the seller it is called a 'use' tax.

  • The “base” California state sales tax rate is 8.25%
  • Cities and counties may assess additional “district taxes,” noted in parenthesis below, increasing the total sales and use tax rate applied to purchases.
    • Santa Cruz County (0.75%) 9.00%
      • City of Capitola (1.0%) 9.25%
      • City of Santa Cruz (1.25%) 9.5%
      • City of Scotts Valley (1.0%) 9.25%
      • City of Watsonville (1.0%) 9.25%
    • Monterey County (0.0%) 8.25%
      • City of Del Rey Oaks (1.0%) 9.25
      • City of Salinas (0.5%) 8.75%
      • City of Sand City (0.5%) 8.75%
      • City of Seaside (1.0%) 9.25%
    • San Mateo County (1.0%) 9.25%
    • Santa Clara County (1.0%) 9.25%
  • Additional 'sales', i.e. 'use' tax, will need to be assessed to campus departments on purchases in the following situations:
    • when a California or out-of-state vendor's invoice shows tax was charged at only the “base” state sales rate of 8.25%.
      • when an out-of-state vendor's invoice does not show/include any sales tax.
    • Special situations
      • Vendor charges: Sales tax applies to mandatory charges levied by a vendor.
        • Charges associated with optional services provided by the vendor are not subject to sales tax
  • Excess sales tax paid
Ensuring Compliance

Either FAST-AP or the campus unit is responsible for accruing the appropriate use tax to ensure compliance with sales and use tax regulations.

For most campus units, the FAST-AP unit reviews purchase transactions and processes a journal to accrue use tax when appropriate.  Check with your business office to see if your unit is one of the exceptions that has elected to accrue the use tax on purchases transactions.

Exemption for Services

Services are not subject to California sales or use tax even if tangible personal property is transferred to the purchaser, as long as any personal property is incidental to the service.

At times it is difficult to distinguish a service that transfers incidental tangible property from a service for which the tangible personal property is subject to tax. If the service is the true object of the contract, the transaction is not subject to tax.

Example:  The university is setting up a mainframe system and requires customized programming for the operation to run. The program is delivered on a disk. The customized programming is a service. The true object of the contract is the programming and not the CD transmitted with the service.

Exceptions
  • Federal Contracts - When title to the goods vests with the US government, the purchase is not subject to sales and use tax.
  • Resale - If the items are intended for resale and a resale permit is used, the tax is deferred until the goods are sold. (Note: If payment of tax occurs at the time of the initial purchase, there is still an obligation if the final sale will be for an amount in excess of the original purchase price. Tax must be collected and paid on the excess amount.)
  • Fabrications - When an item is being fabricated by a vendor, tax is charged on the entire amount of both materials and fabrication labor even if the vendor lists these charges separately on the invoice.
  • Installation - In the above example, installation of the fabricated product is usually considered a non-taxable service, if stated separately on the invoice
  • Repair Service - Repair labor is a non-taxable service, if stated separately
  • Trade-ins - Orders that include a trade-in are taxed on the basis of the sales price before the trade-in. The trade-in amount is then deducted from the sales price excluding tax.
  • Food - Prepared foods are generally taxable. Non-prepared food is not taxable. Food not for human consumption, see: Animal Life, Feed, Seeds, Plants and Fertilizer Guide for additional information.
  • Software - Purchase, licensing, and maintenance of canned software are generally taxable. Custom written software is not taxable. When software (initial purchase and updates) is received via an electronic means (internet, fax, email attachment etc.), it is not taxable. If received in hard copy (CD) it is taxable. See: Software Guide for additional information
  • Rentals - Rentals may or may not be subject to use tax depending on whether the rental company paid sales tax on the initial purchase of the merchandise. If a rental company charges tax, the University pays the tax.
Tax on Merchandise Delivery

Freight is the cost to transport supplies, materials, or equipment; it may also include packing, crating, and handling costs. Sales tax is only applicable when a charge for the delivery, shipping or freight is listed on the invoice. 

  • If the supplier uses their own vehicle to deliver purchased item(s), any transportation or freight charge that appears on the invoice is taxable. If no delivery charge is on the invoice, no tax applies.
  • If the supplier is setup as a vendor who does not collect taxes, and freight and handling is listed on the invoice, sales tax applies.
  • If the supplier is setup as a vendor who collects all taxes, no sales tax applies. 
  • When stated separately on the invoice, freight via  a common carrier (UPS, FedEx.. etc.) is not taxable.
  • Handling or shipping and handling listed together, are subject to sales tax. When separately stated, shipping or freight alone is not subject to sales tax.
  • Handling charges are taxable unless in conjunction with exempt property

Lump sum charges for shipping.

Note:  If shipping and handling charges are lumped together, they are taxable. Charges for shipping must be separately stated from handling charges to keep the tax exemption for shipping costs intact. However, tax should only be accrued if the property purchased is subject to sales tax.

Fabrications

Equipment is often fabricated in campus laboratories or shops by UCSC employees for use in campus research activities.

In this situation, sales tax applies to the cost of items used at any stage of the fabrication, production, processing, printing, or imprinting process that results in the creation of tangible personal property used by the University.

  • No sales tax is applicable to the associated labor costs when the resulting equipment is used by the campus.
  • This exemption does not apply to fabricated tangible personal property intended for resale.
Sales Taxes on Shipping and Handling
Situation Sales Tax Applicable? Yes/No Vendor Collects ALL Taxes Vendor does NOT collect taxes UCSC accrues
Shipping (freight) by outside company
Bill of lading required if $500 or more		 NO N/A N/A
Shipping (freight) by Vendor's own truck/vehicle
- Bill of lading required
- Do NOT pay or accrue tax		 YES, if the vendor chooses to include shipping as a taxable item on the invoice Pay Vendor as invoiced N/A
Handling YES, if handling is listed separately on the invoice Pay Vendor if invoiced Accrue sales tax to state
Shipping & handling listed as 1 line item YES Some vendors will collect the tax. Do not adjust Accrue sales tax to state