What does the exemption mean to North Carolina Central University?

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1 Question #1 What is the authority for North Carolina Central University's sales tax exemption? The sales tax exemption is the result of Senate Bill 100 passed by the 2003 Session of the General Assembly of North Carolina. Click for documentation on sales tax exemption. Question #2 What is the scope of the sales tax exemption? The sales tax exemption applies to North Carolina sales tax on all direct purchases of tangible items made by the University. This includes purchases made via a Purchase Order, University check or electronic transfer. The exemption from tax does not apply to the following taxes; these taxes must be paid to the vendor: 1. Prepared food and beverage taxes levied and administered by various local governments in the State. 2. Occupancy taxes on hotel/motel lodging 3. Highway use taxes on the purchase, lease, or rental of motor vehicles 4. State sales taxes levied on electricity or telecommunication services 5. Scrap tire disposal tax on new tires 6. White goods disposal tax on new white goods 7. Dry-cleaning solvent tax on dry-cleaning solvent purchased by a dry-cleaning facility. 8. Excise tax on piped natural gas. Question #3 What does the exemption mean to North Carolina Central University? The exemption means that all payments made to vendors using a University Check (written on any checking account in the name of North Carolina Central University), or an electronic transfer through North Carolina Central University banks are exempt from sales tax except as discussed in question #2. Payments made to employees and other individuals for reimbursement of expenses are not exempt from sales tax. Question #4 Why are payments to employees and other individuals for reimbursement not exempt? The State Law applies only to payments made directly to vendors by the University. Reimbursement to employees and other individuals are not direct payments to vendors.

2 Question #5 When does the exemption go into effect? July 1, Qualifying goods/services received on or after this date are exempt from sales tax paid directly by North Carolina Central University. Question #6 What steps has the University taken to notify vendors that we are exempt from sales tax? The University has taken the following steps: 1. A sales tax exemption notification letter was sent on June 11, 2004 to every vendor that has been paid by a University Accounts Payable check over the past eighteen months. 2. A statement informing the vendor of North Carolina Central University's tax exemption and tax exempt number will be printed on all payee check stubs beginning on July 1, All new Purchase Orders processed on and after May 15, 2004 have included the taxexempt number printed on the face of the purchase order. 4. The Notification of the University's Sales Tax Exemption from the Department of Revenue has been posted on the Purchasing Department s WEB site. Question #7 How does the campus community make sure that the vendor knows we are exempt from sales tax and has our sales tax exempt number? At the time an order is placed, the person placing the order should inform the vendor that the University is exempt from sales tax and provide them with the tax-exempt number. If necessary, a copy of the notification letter from the NC Department of Revenue can be provided to the vendor. Question #8 How will vendors paid through P-card transactions be notified of our sales tax exempt number? Again, the person placing the order should make sure the vendor has been notified of our sales tax exemption. This is done by (1) showing North Carolina Central University's tax exempt number, (2) indicating the tax-exempt information in the comment section of the order form if available, or (3) contacting a sales representative through the vendor's WEB site messaging process or by telephone. The person placing the order should review the completed order to make sure that sales tax has not been added. If tax has been added, the person placing the order should contact the vendor's sales representative for adjustment. Question #9

3 If goods are received prior to 7/1/04 but payment is on 7/1/04 or later, do we have to pay the tax? Yes. If goods are received, or title for the goods passes prior to 7/1/04, sales or use tax must be paid on the item. Question #10 If an employee purchases something for work purposes using their own funds, will that purchase be exempt from tax? No. Purchases of taxable items by employees, which are reimbursed by NCCU, are not eligible for sales and use tax exemption. Question #11 Can the department reimburse employees for tax on items purchased by the employee for work related expenditures? Reimbursement of tax paid by an employee for work expenditures will be at the discretion of the department. Question #12 Should North Carolina Central University pay sales tax if it is charged on invoices for goods received after 6/30/04? No. Tax should not be paid on invoices for goods purchased or received after 6/30/04. If tax is included on the invoice, the campus department should contact the vendor, provide them with a copy of our tax-exempt documentation and request a revised invoice. Question #13 What happens if North Carolina Central University mistakenly pays sales tax on purchases made after 6/30/04? The University will have to resolve this with the vendor. The Department of Revenue will not refund any sales tax paid in error to a vendor. Question #14 Will there be a Budget impact because of the sales tax exemption? Yes. The State Appropriated budget will be reduced based on an estimated savings resulting for the sales and use tax exemption.

4 Question #15 Can departments use State or Federal funds to pay for sales tax on employee reimbursements? Yes, if charged to the appropriate project and college approved. It is up to the College/Department to decide whether to allow reimbursements for sales tax paid. Colleges/Departments should review their methods for vendor payments including employee reimbursements to ensure that direct payments (payment by NCCU check) are made to vendors as much as possible. Question #16 How can the Colleges/Departments ensure that their methods of vendor payment result in an efficient use of funds? NCCU Colleges/Departments should review their methods of payment for vendor purchases and reduce as much as possible payments that are not sales tax exempt, such as employee reimbursements. In place of employee reimbursements, Colleges/Departments may consider establishing credit accounts with vendors or use a P-Card for expenses that employees would normally be reimbursed for. These types of credit arrangements must be coordinated with the Purchasing Department. As always, Good Business Practices must be used by the College/Department to ensure credit account expenses have been properly approved, documented and reconciled. Question #17 How can food/supplies be purchased from a grocery/supply store and the purchase be exempt from sales tax? First of all, you must either use an NCCU electronic check request, or request authorization for a reimbursement for this type of expenditure. Employee reimbursements are not exempt from sales tax. Make sure that you contact the grocery/supply store in advance to understand their procedures. Some stores require forms to be completed while others will simply need our tax exemption number: If, after presenting the sales tax exempt letter and your P-Card (with the tax-exempt number printed on the card), you are still charged sales tax, please provide your purchasing agent with a copy of the receipt, the names of the persons you presented our sales tax exempt number too and any other pertinent information related to the purchase (such as project and account paid from) so that we can work with the Vendor to obtain a refund for the sales tax paid. We will notify you when refunds are received and distribute them to the proper account. The exemption only applies to sales tax on food purchases. NCCU is not exempt from the prepared food and beverage taxes administered by local counties and

5 municipalities. For example, Durham County imposes a 2% tax prepared food and beverages. This tax is administered by the county and is not subject to the exemption. Question #18 Is NCCU exempt from tax paid on the lease or rental of motor vehicles? No. The tax paid on the lease or rental of motor vehicles is considered a highway use tax and is not subject to the exemption.