If a seller (usually an out-of-state merchant) does not collect California sales tax, the user (i.e., UCSB) must collect USE TAX when it purchases tangible personal property for use, storage or consumption in California.

The FlexCard Allocation Module adds use tax to transactions from all merchants:

  1. whose billing address is out-of-state, AND
  2. which do not break out sales tax (if collected) as a subtotal of the total charge.

Since not all merchants provide the level of transaction detail that shows sales tax, use tax may be added in cases where it is included in the original charge. In other cases, the commodity purchased may not be taxable (a service, downloaded software with no deliverable, optional warranty agreements, etc.). The original charge may also include non-taxable shipping charges.

Whenever use tax is added to a transaction:

  1. it appears in the use tax column on the Transaction Review screen, AND
  2. the Non-Taxable Subtotal, RC and Freight fields are open for data entry and are highlighted in YELLOW.

No, use tax does not always need to be paid. To be on the safe side, the FlexCard Allocation Module adds it broadly, allowing departments to remove it when not appropriate.

In addition to instances where the out-of-state merchant has already charged California sales tax, there are three other situations in which use tax is not appropriate:

  1. all or part of the purchase is not taxable; for example, labor, a software download with no physical deliverable, an optional software or equipment warranty/maintenance agreement, or a periodical subscription
  2. shipping or freight charges for delivery by a third-party shipper such as UPS, FedEx, or the USPS *
  3. purchases from the US Government, other US states outside California and foreign governments; this exclusion includes the institutions of such entities, such as state and national universities

* NOTE: Handling charges are taxable and combined shipping/handling charges, if the handling portion is not broken out separately, are also taxable.

Use tax is initially calculated by multiplying the Vendor Total by the current sales tax rate (7.75%).

The initially calculated use tax is reduced as you enter amounts into the Non-Taxable Subtotal and/or Freight fields. For example:

  1. Initial Vendor Total $1,000.00 - Use Tax Total $77.50 ($1,000.00 x 0.0775)
  2. $250.00 entered into Non-Taxable Subtotal field - use tax reduced by $19.38 ($250.00 x 0.0775); Use Tax Total now $58.12 ($750.00 x 0.0775)
  3. $100.00 entered into Freight field - use tax reduced by $7.75 ($100.00 x 0.0775); Use Tax Total now $50.37 ($650.00 x 0.0775)

If a credit is received, the amounts entered into the Non-Taxable Subtotal and Freight fields must be negative.

Sales tax is included in the original charge, or the entire purchase is non-taxable.

  1. Enter the full Vendor Total into the Non-Taxable Subtotal field (freight does not need to be entered separately).
  2. Enter the appropriate Reason Code into the RC field. *
  3. Click SAVE (if you are an Allocator, or if the expense needs to be reallocated on the Transaction Allocation screen), OR
  4. Click APPROVE (if you are a Reviewer and no reallocation needs to be made)

* If you double-click within the RC field, a pop-up window appears, providing a list of the most common reasons why a transaction may not be subject to use tax.

The purchase is taxable, but the original charge includes non-taxable shipping charges.

  1. Enter the freight (shipping) amount in the Freight field.
  2. Click SAVE (if you are an Allocator, or if the expense needs to be reallocated on the Transaction Allocation screen), OR
  3. Click APPROVE (if you are a Reviewer and no reallocation needs to be made).

A portion of the purchase is taxable but another portion is non-taxable. For example, a computer purchased with an optional maintenance agreement. There are no shipping charges.

  1. Enter the optional warranty amount into the Non-Taxable Subtotal field.
  2. Enter Reason Code 41 into the RC field.
  3. Click SAVE: in most cases, you will need to proceed to the Transaction Allocation screen, to create a new distribution line for the non-taxable amount, using a different object code, so you should not click APPROVE.

A portion of the purchase is taxable but another portion is non-taxable. For example, a computer purchased with an optional maintenance agreement. There are shipping charges.

  1. Enter the optional warranty amount into the Non-Taxable Subtotal field.
  2. Enter Reason Code 41 into the RC field.
  3. Enter the freight (shipping) amount in the Freight field.
  4. Click SAVE: in most cases, you will need to proceed to the Transaction Allocation screen, to create a new distribution line for the non-taxable amount, using a different object code, so you should not click APPROVE.

Use the FlexCard Use Tax Correction Financial Journal if:

  1. you forget to remove all or part of use tax during the allocation and approval process
  2. a transaction with incorrect use tax passes to the ledgers unapproved after 14 days
  3. (rarely) if use tax was not assessed by the Allocation Module

Please do not submit journals for small errors of less than a dollar! They are inconsequential and will probably be offset by other errors.

Instructions for completing and submitting the form, and the form itself (an Excel document) are provided under the forms section of this website.

Vendors do not always asess the correct sales tax when processing charges. They may tax non-taxable commodities, not tax an entire order, or apply an incorrect tax rate (their local rate rather than the Santa Barbara delivery tax rate).

Unless the amount of the error is substantial, there is no need to process a journal to make sales tax corrections. One vendor may under-tax you by .25%; another will over-tax by .25% - the errors will offset each other over time.

If the error is substantial, the Cardholder must contact the vendor and ask it to issue a correcting (credit for overpaid sales tax; debit for an underpayment) transaction. Sales tax errors are the vendor's responsibility and cannot be corrected via financial journal.