Reduced sales/use tax rate on equipment purchased for research.
Effective July 1, 2014 through June 30, 2030, the California Department of Tax and Fee Administration (CDTFA) is offering a reduced sales/use tax rate on equipment purchased for research. This has the potential to result in significant savings for UC Davis.
The reduced rate applies to:
- Machinery and equipment with a minimum useful life of a year that will be used over 50% of the time, and for over one year, in research and development anywhere in California. While the CDTFA does not have a minimum threshold for qualified purchases, we have opted to make this exemption available for purchases that meet our capital equipment definition of $5K and above. This practice is consistent system-wide. Also, the CDTFA has limited the reduced rate to a specific purchase amount over the calendar year, which will be monitored by Accounting & Financial Services (A&FS). A&FS will keep you updated.
- The exemption includes leased equipment and special purpose buildings.
The exemption reduces the current sales tax rate by 3.9375%, resulting in an effective rate of 3.3125% for research equipment delivered to campus. The effective rate may change if equipment is delivered to a different location in California.
A&FS has developed a process to facilitate and maximize UC Davis' benefit from this exemption. This includes identifying research equipment with a checkbox in KFS on the Requisition document which automatically notifies Contracting Services and the Tax Reporting & Compliance units.
Campus customers making a purchase they believe qualifies for the partial tax exemption should complete the Partial Sales and Use Tax Exemption for Equipment Eligibility Checklist and attach it to their KFS Requisition in the Notes and Attachments section. Tax Accounting will review the information provided to confirm that it qualifies for the tax reduction and the Contracting Services buyer will insert appropriate language and reduce the sales tax amount on the Purchase Order.
In some instances, the vendor may still require a Partial Exemption Certificate to allow for the reduction. If this is the case, please ensure that the top & middle sections are completed and forwarded to the Tax unit for authorization. Tax is the proper office for authorizing these certificates which are only valid for the specific item(s) mentioned. The certificate should not be used as a blank certificate to authorize an exemption for multiple purchases of different items from the same vendor. For those transactions where the vendor is not collecting sales tax and we are self-assessing use tax, please follow the same process of completing the checklist and attaching to the KFS document, in addition to completing the KFS Use Tax Accrual Correction Form.
We encourage departments to actively work with vendors to ensure the appropriate sales tax rate is applied to the initial purchase to ensure efficiency and timeliness in taking advantage of this exemption. The CDTFA does allow for a retroactive refund of sales and use tax if UC Davis identifies qualifying equipment after the time of payment. For these purchases, please complete the Partial Sales and Use Tax Exemption for Equipment Eligibility Checklist and forward to the Tax unit. If the sales tax was paid directly to the vendor, Tax will issue an exemption certificate along with supporting documentation to the Department to then forward to the vendor. The vendor may then file a claim for refund for the overpaid portion of sales and use tax on the UC’s behalf. If the transaction was subject to use tax where the UC self-assessed, then Tax will file a claim directly with the CDTFA.
For more information, please contact Diane Davies-Conley, Director of Tax Reporting & Compliance unit at firstname.lastname@example.org or 530-752-6155.