8.05 - Paying Sales Tax (Purchases)

TSOP NO:

8.05

SUBJECT:

Paying Sales Tax for Purchases on Behalf of IU

SOURCE:

University Tax Services - Financial Management Services

ORIGINAL DATE OF ISSUE:

08/02/2019 GL

DATE OF LAST REVISION:

8/19/19 samn

RATIONALE:

To provide Indiana University Departments with instructions on when/how to utilize IU’s Sales Tax Exemption while making purchases on behalf of IU.

PROCEDURES:

1. Examples of transactions that are exempt from sales and use tax per Indiana state law are:

  • Non-prepared food
  • Services (transactions in which there is little or no transfer of tangible personal property)
  • Purchases for resale

2. As a state university, Indiana University is entitled to exemption from paying sales tax for sales transactions that support the following missions of the university :

  • Teaching and instruction
  • Research
  • Public Service

3. Purchases of tangible personal property that are not related to the missions of Indiana University or that are associated with a proprietary activity are subject to tax.

4. Four factors should be considered to determine the tax treatment of a purchase:

  • Purpose: Education, Research, Public Service. Must meet IU’s mission and governmental purpose as an instrumentality of the State of Indiana.
  • Purchaser: Purchase must ultimately benefit IU, not the individual making the purchase
  • Proof: Must present IU’s ST-105 Sales Tax Exemption certificate to seller as proof of exemption.
  • Payment: Purchase must be paid for using IU’s funds directly. Employee cannot use their own funds, even if intending to be reimbursed.

5. The purchasing matrix below takes into account these factors to determine the tax treatment for typical purchase on behalf of Indiana University.

purchasing matrix

6. If the seller will not honor IU’s ST-105 exemption certificate, that is their prerogative. Ideally, if practical, take our business elsewhere to a seller that will accept it. If that is not practical, go ahead and pay the tax, and send an email to taxpayer@iu.edu . We will attempt to recover the tax from the state.

7. States do not recognize each other’s sales tax exemption, but IU does have exempt status in select other states. For states other than Indiana, please visit the following webpage to determine whether IU has an exemption certificate. You will find links to those certificates, which contain instructions on what they apply to and how to use them:

https://fms.iu.edu/tax/sales-tax/paying-sales-tax/other-states-exemption-certificates/

Examples:

  1. The University, through IU Conferences is hosting a 3-day conference in Indianapolis. The university rents meeting rooms in a hotel to conduct its educational conference. The rental of the meeting rooms will be exempt from the sales tax and local innkeepers’ tax if applicable due to our governmental function exemption. Sales of meals during the conference are taxable because the meals are provided for the convenience of the attendees. Such meals are taxable even when served in conjunction with a meeting which is furthering the university’s exempt purpose. At the same conference, the organization reserves and pays for, out of its IU funds, the cost of four hotel rooms for lodging. The lodgings provided for the attendee, or speakers are not exempt - unless the individuals are employees of Indiana University - from the sales tax or the innkeepers’ tax if applicable. The rental of hotel rooms is a private benefit for the individual and does not serve the purpose for which the organization exists.
  2. A department holds a catered educational seminar with prepared food. All prepared food is subject to tax unless the event is for recruitment of students within Indiana, is considered a learning experience for students, or is primarily a student function. Charges for labor to serve food or beverages furnished, prepared, or served for consumption at a location are not subject to sales tax. Also, the rental of linens and equipment in conjunction with the meal are exempt because the event falls within the University’s mission. Finally, the rental of the rooms will be exempt from sales tax and local innkeepers’ tax if applicable.
  3. Question: A Science Olympiad is held on campus for local non-IU students in grades 4-12. Would the food provided to the students not be taxed? Should the food provided for IU student judges not be taxed, while food provided for non-student judges be taxed? Does equipment rental from a local rental company need to be taxed? If ordering boxed lunches for both IU student and non-student judges, does the order need to be separated or allocated by percent in order to tax the non-student group or are both non-taxable? Would the taxability of the event be based on the purpose of the event and not who is consuming the food? Answer: The taxability of food for the event is based wholly on its purpose. If the event is an IU sponsored one and the purpose of the event is student recruitment then the exemption applies. All other considerations of breaking out IU/non-IU judges for taxability are unnecessary.
  4. Question: A department rents a meeting room for a staff retirement function. Food is included. What is taxable? Answer: The room rental would be subject to tax because the function is not teaching research or public service. The food would also be taxable as this is not a student function. Tax should be paid to outside vendors and when purchased or rented from an IU department in the business of catering and renting space.

DEFINITIONS:

Tangible Personal Property – means personal property that: 1) can be seen, weighed, felt or touched: or 2) is any other manner perceptible to the senses.

Proprietary Activities – is defined by the state of Indiana as an activity that generates revenues for state colleges or universities 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 college or universities.

Related to IU Mission – means relating to all or one of the following activities: teaching, research or public services of the university.

Indiana University Student – an individual enrolled or registered in courses that grant credit toward the attainment of an undergraduate degree or graduate degree at Indiana University.

K-12 Student – Includes enrolled K-12 students attending IU operated educational conferences, camp, institutes, etc.

Student Organizations – are 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.

Educational Related Program : Class or program provided by IU, not necessarily for college credit. Does not include events held at IU by third parties or as non-educational activities.

Conference Attendees :  Conference, camp or institute attendees other than IU and K-12 students.

Exempt Entities :  Non-profit or governmental entities that provide appropriate proof of exempt status. (A completed ST-105 from the entity or a US Department of State Exemption card for that individual).

Non-Exempt Entities :  Entities other than Tax Exempt Entities, including corporations, partnerships, LLC’s, etc.

Private Individuals :  Individuals (including IU employees) or their personal service corporations that sponsor conferences, camps, etc.

Student Functions An IU conducted function or activity where IU student participate.

IU Department Any department with an account in FIS

NOTE: If the department bills a third party for the provided services, sales tax needs to be charged once and passed on to the third party.

CROSS REFERENCES: