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Financial Policies

FN33 Sales and Use Taxes

Policy Status: 

Active

Subject Matter Expert: 

Office of Tax Services, taxservices@psu.edu

Policy Steward: 

Associate Vice President for Budget and Finance

TABLE OF CONTENTS

PURPOSE:

This policy governs The Pennsylvania State University (“University”) requirements for sales and use taxes as required by applicable law.

SCOPE:

The University’s financial policies are applicable throughout the University, including all direct and indirect subsidiaries, and are required to be followed by all University employees who engage in financial, accounting, purchasing or other transactions, including University employees who in the course of their assigned duties engage in such transactions on behalf of third parties such as the Penn State Alumni Association or other related entities. The University’s financial policies are not applicable to Penn State Health or its subsidiaries, or to Penn College of Technology, each of which has its own financial policies.

DEFINITIONS:

  • Sales tax - a consumption tax on the sale of goods or services.
  • Use tax - a form of sales tax paid for goods and services intended for use in a state which typically assesses sales tax if purchased in that state.

POLICY

As an instrumentality of the Commonwealth of Pennsylvania, the University is exempt from Pennsylvania (PA) sales tax on most purchases for consumption in University operations directly related to the University’s mission of instruction, research, and public service. The exemption status is affirmed by the Attorney General of the Commonwealth of Pennsylvania. See the Tax Exempt Letter and the Tax Exemption Certificates on the Office of Central Procurement website for complete details. It is each University business area’s responsibility to provide vendors with the University’s applicable sales and use tax exemption certificate before the purchase is made.

The University’s sales tax exemption is not transferable to faculty, staff, students, or unrelated entities or persons for personal purchases. University employees purchasing business related taxable products or services with personal funds may be assessed sales tax. The University does not reimburse employees for sales tax paid on business purchases with personal funds. Only purchases made with University funds related to the University’s tax-exempt mission are exempt from sales tax.

The University is subject to PA sales tax on certain goods or services purchased for use in University operations, including but not limited to goods or services (i) identified as unrelated business taxable income, (ii) alcohol beverages, (iii) materials and supplies utilized in construction (excluding materials and supplies used in routine repair and maintenance), and (iv) certain equipment. See Title 61, Part I, Subpart B, Article II, Chapter 32, 32.21 (a)2(ii) and (iii) for complete details.

Purchases of tangible personal property used in the performance of an unrelated trade or business are subject to PA sales tax. Revenue-generating activities not directly related to the University’s exempt purposes of instruction, research, and public service may be subject to federal and state unrelated business income tax (UBIT). Determining whether an activity is considered unrelated for UBIT purposes is based on federal laws, regulations, and Internal Revenue Service guidance. Tax Services, a division of the Office of Budget and Finance, can work with the business area to determine when a new activity is generating unrelated business income (UBI) and when the UBI is reported on the University’s UBIT return, Form 990-T.

University purchases of alcohol from a distributor for consumption at University events or for resale to the public on University property are not exempt from Pennsylvania sales tax. The University is subject to the assessment of sales tax at the time of purchase from the distributor. The University is not required to collect sales tax on resale of alcohol to a consumer.

The University may be required to collect PA sales tax on the sale of a taxable good or service to the public, including without limitation faculty, staff, and students for personal use. Policy FN27 Establishing and Billing Service Center User Rates defines the requirements for establishing a Service Center within Penn State. A Service Center is a unit providing goods and/or services of a specialized nature on a recurring basis and charges a fee for those goods/services. Goods and services provided to the consumer by the Service Center may be subject to sales tax, except for internal transfers. Any questions pertaining to Service Centers should be directed to Cost Analysis and sales tax questions should be directed to Tax Services.

The University may be subject to sales tax assessed by other states if a taxable good or service is purchased and/or shipped and consumed in another state. The University maintains several other state sales tax exemption certificates, which are available through the Central Procurement website.

DETERMINE CUSTOMER'S TAX STATUS:

When a business area sells a taxable good or service, the business area is responsible for collecting the sales tax, unless a tax exemption certificate is obtained. Customers exempt from sales tax must provide a fully executed Pennsylvania Exemption Certificate form to the business area. Notwithstanding the foregoing, provided that acceptable documentary evidence is submitted to the business area, a Pennsylvania Exemption Certificate is not required for the following: (1) property sold or rented is not tangible personal property or a taxable service, (2) the customer is the United States or an instrumentality thereof, the Commonwealth, or a political subdivision or instrumentality of the Commonwealth, or (3) the seller is required to deliver the property sold, rented, or serviced to a destination outside of the Commonwealth and did so.

Sales tax exemption certificates are to be kept on file by the selling business area.

COLLECTING SALES AND USE TAXES:

All business areas of the University engaged in retail sales, rentals, or service transactions subject to the Pennsylvania sales or use tax must:

  1. Collect due taxes
  2. Keep records of transactions
  3. Report tax collected as deposits are made or accounts receivables are established

The Pennsylvania sales tax rate is 6 percent. By law, a 1 percent local tax is added to purchases made in Allegheny County, and a 2 percent local tax is added to purchases made in Philadelphia. Sales tax must be separately stated from the sales price of an item on an invoice and/or receipt.

REMITTING SALES AND USE TAXES:

The University is required to remit sales tax collections monthly in accordance with established practices of the Commonwealth of Pennsylvania. See Procedure FN2033 Collecting and Remitting Sales and Use Taxes for the process of collecting and remitting sales and use taxes.

DOCUMENT RETENTION:

It is the responsibility of the business area making the sale to retain supporting documentation. This requirement applies regardless of the tax filing system used by the business area. See the Financial Records Retention Schedule in Policy AD35 University Archives and Records Management for specific information.

VIOLATIONS:

Violation of a financial policy should be reported to your supervisor, your human resources representative, unit manager and/or the office responsible for the policy. Where these resources are inadequate, you may choose to make an anonymous report through the Pennsylvania State University hotline or by calling 1-800-560-1637.

SANCTIONS OR NON-COMPLIANCE:

Units that do not follow the guidelines set forth in this policy will, at a minimum, be held responsible for any fines, penalties, or losses.

FURTHER INFORMATION:

For questions or additional details, please contact the Director of Tax Services at taxservices@psu.edu.

CROSS REFERENCES:

REVISION HISTORY:

  • November 2, 2023 - New policy.

Date Approved: 

November 2, 2023

Date Published: 

November 2, 2023

Effective Date: 

November 2, 2023