Business Operations ForumUNIVERSITY

CONTRACTS & TAXATION

January 20th, 2010

INTRODUCTION

~ John Fitzgibbon, Finance

~ Art Evjen, Business and Support Services

~ Michele Zollna, Accounting Office

~ Susan McFarlane, Administration Systems Management

Coming Soon

2/10/10 - Travel (Course Number: 000225, Session: 0027)

3/17/10 - TBD (Course Number: 000225, Session: 0028)

4/21/10 - TBD (Course Number: 000225, Session: 0029)

Service Agreements

Service Agreements

Contracts (including Purchase Orders)

MOUs

All require signed documents

Service Agreements

An email exchange IS NOT a valid agreement

An invoice and a Payment Authorization

DO NOT constitute a valid agreement

A verbal agreement IS NOT a valid agreement

Service AgreementsExamples of Activities that require a Service Agreement

Guest Speakers/Lecturers

Accompanists

Music Performers

Sign Language Interpreters

Video Recording Services

Sound Mixer Services

DJ Services

Sports Announcers

ANY Compensated Service performed by an external entity

Service AgreementsExamples of Activities that require a Service Agreement or

Contract

ANY Compensated Service performed by CSUMB

ANY CSUMB Resource made available that will generate compensation or revenue

ANY Permit for external entity to enter property and work

Service Agreements

Internal Entities (Employees) shall not engage in

service agreements or contracts for CSUMB

Not Independent Contractors

Tax Implications

Conflict of Interest

Service AgreementsRisk Evaluation

Vendor Data Record (VDR / STD Form 204)

Vendor ID created – Unique Vendor ID #

Agreement / Contract (Signed by Dept and by BSS and Vendor)

Signed Purchase Requisition

Signed Purchase Order

Services are Performed

Invoice with PO stamp and signed by authorizing official

Cover Memo if Special Instructions are needed

Payments must be Vouchered – Checks cut on Thursdays

Service AgreementsCritical Elements

Dates, Duration, Termination

Scope of Work

Timeline and Deliverables

Compensation Terms and Payment Schedule

Payment and any Reimbursements

CSU General Provisions

Other Terms and Conditions

Service AgreementsSignatures (At least three)

Vendor should sign our agreement first

Signed by Department Authority

Check on Protocols for your Department

Signed by Director of Business Support Services

Delegation of Authority

Service Agreements

Fully Signed is Fully Executed

Initiating Department should receive an email with a scanned pdf file of the signed document

Purchase Order will be held until a signed agreement is obtained

A requested payment without an agreement will be returned

Provost Reminders to Academic AffairsGuests Compensated for Official Business

Prior to Arrival:MOU with Scope of Work, Dates, Compensation $, Reimbursable

$

Signed by Guest, Chair, Dean and CSUMB Business Manager

Travel and Lodging must be arranged by dept staff

Do Not personally pay expenses and then seek reimbursement

Consultant WorkAgreement must be approved by Provost prior to work

Budget and Funding source

Route the agreement at least 7 days prior to work starting

Any exceptions require written justification from the Dean

TAXATION

TAXATION ON GOODS & SERVICES

CSUMB is responsible for:

~ Paying taxes on the purchase of tangible GOODS.

~ Reporting SERVICES received to the Federal and State and local government. Taxes may be withheld.

Sales Tax versus Use Tax~ SALES TAX is imposed on California vendors or out-of-

state vendors who have a business location in California.

NOTE: The invoice should reflect sales tax on tangible purchases for goods. If not, then Accounts Payable will compute sales tax and add to the amount paid on an invoice.

~ USE TAX is accrued by Accounts Payable (AP) if sales tax was not been paid on tangible goods. Mainly Use Tax is accrued on out-of-state purchases where the vendor does not have a business location in California e.g. Amazon.com.

What is Sales Tax?~ CSUMB is not exempt from sales tax, in most cases.~ Sales tax is imposed on tangible personal property.~ Sales tax rate is determined by the point of delivery.~ Sales tax is paid to the vendor.~ Sales tax is reported and paid to the BOE by the vendor.

BOE = State Board Of Equalization http://www.boe.ca.gov

What is Use Tax?~ CSUMB is responsible for accruing use tax on tangible

purchase of goods from vendor when sales tax has not been charged on the invoice.

~ Use tax accrued is reported and paid directly to the BOE by CSUMB.

~ Departments need to determine what is taxable and budget for it.

Software Purchases, License & Maintenance Agreements

~ Mandatory maintenance agreements are taxable.

~ Optional maintenance agreements are not taxable.

~ Custom software, license & maintenance agreements are not taxable.

~ Canned software, license & maintenance agreements are taxable if delivered via tangible media i.e. diskette, cd-rom.

~ Canned software, license & maintenance agreements are not taxable if delivered electronically or loaded by the vendor.

~ Canned software optional maintenance agreements on tangible media that is a lump-sum, all inclusive billing is taxable.

Go to http://www.boe.ca.gov for more information

PLEASE HELP ACCOUNTS PAYABLE AND PROCUREMENT

in determining if a purchase is taxable or not.

~The invoice does not always provide enough information for AP/Procurement to make the determination.

~Departments need to also understand the tax laws.

Don’t forget to include the Description!!!

Please Check Applicable

Boxes

Procurement Card Update - 12/16/2009

What’s Certain

~ Taxes We are NOT Tax-Exempt!• California Sales Tax

• Based on point of receipt/delivery (Seaside = 9.25%)

• If delivered and charged less than 9.25%, we still pay the difference (happens “behind the scenes”)

• Use Tax (happens “behind the scenes”)• Purchases made outside CA that would be taxed if in CA

• Must still pay tax; full amount to appear on your financial reports

• Based on Seaside rate (currently 9.25%)

~ Budget Accordingly !

SERVICES – Reporting & TaxationEMPLOYEE VS NON-EMPLOYEE

EMPLOYEE – Is hired at HR, fills out a W4, receives a payroll check. Salary earnings and tax withholding are reported via W2 to the Federal Government and the State. Fringe benefits are also reported by HR and Accounts Payable, and included on the W2.

FRINGE BENEFIT or perks are defined as “something additional to regular pay”, which an employee receives from an employer.

FRINGE BENEFITS Examples of areas susceptible to reportable

fringe benefits are:~ Some expense reimbursements i.e. meals less than 24 hours, non-

receipted lodging, state per diem, tips

~ Moving Relocation Expense

~ Moving Relocation Mileage Reimbursement

~ Overtime Meal Compensation

~ Uniforms

~ Professional/Nonprofessional Dues/Memberships

~ Gifts

~ Employee discounts

~ Non-cash services

EMPLOYEE VS NON-EMPLOYEE

NON-EMPLOYEE – Independent Contractor Services including Honoraria, Guest Lecture Fees, Performing Artist, and Professional Service Fees i.e. consultants, lawyers, accountants, architects and doctors etc.

Need to set up a contract, complete required tax forms and STD. 204 (Vendor Data Record) form.

INDEPENDENT CONTRACTOR

General Definition

An independent contractor is engaged in a distinct profession and is in the business of providing services related to the job being contracted. Independent contractors have control over the work being performed, set their own hours, pay for their own business expenses, and provide their own equipment, liability insurance, and office space.

Employee or Independent Contractor

IMPORTANT: A CSUMB employee cannot also be hired as an independent contractor by CSUMB (there may be exceptions-contact HR).

Misclassification of a worker as an independent contractor can result in serious financial penalties in a State or Federal Audit.

How to determine if Independent Contractor?

~ Must determine prior to hiring if the individual can be classified as an independent contractor.

~ Use 23 Determination Factors to help classify as an independent contractor.

Contact Wes Scheibly or Art Evjen to help make this determination.

~ Do not sign any contracts since you are not authorized to execute any contractual agreements on behalf of the University. Contact Art Evjen.

IMPORTANT

Must determine if California resident, non-resident or foreign since need to verify residency status and/or Visa status prior to hiring.

NON-EMPLOYEESTATE TAX (FTB)

~ Resident – no California tax withholding.

~ Non-Resident – California tax withholding (7% of all payments that exceed $1,500 accumulative per calendar year).

~ Non-Resident Alien (foreign) – California tax withholding (same as non-resident).

RESOURCE: The World Theatre is an expert on campus on processing independent contractors.

http://www.ftb.ca.gov

NON-EMPLOYEESTATE TAX (FTB)

Non-resident business or non-profit, if granted a waiver or reduction by the State (FTB), must provide us with a copy of the Withholding Exemption Certificate (Form 590).

A personal letter stating doing non-resident business or is non-profits is not sufficient to waive the withholdings.

NON-EMPLOYEEFEDERAL TAX (IRS)

US RESIDENT: Reportable payments – Non-employee compensation

to US Residents, where payment is not to a corporation, if paid $600 or more in a calendar year:

Must complete a STD. 204 form to know if 1099 reportable

http://www.irs.gov

NON-EMPLOYEEFEDERAL TAX (IRS)

Examples of what is 1099 reportable:~ Non-employee compensation

~ Commissions

~ Gross proceeds paid to attorneys

~ Rents

~ Royalties

~ Interest

~ Dividends

NON-EMPLOYEEFEDERAL TAX (IRS)

Who does not get 1099-MISC?~ Employees

~ Corporations except attorneys or medical/health care providers

~ Businesses purchased tangible goods

~ Payments of Rents to Real Estate Agents

~ Exempt Organizations IRC 501(c)(3)

NON-EMPLOYEEFEDERAL TAX (IRS)

FOREIGN - Non-resident Alien (NRA) Possible Federal Tax withholding (28% or partial)

depending on the Tax Treaty between the US and the Country.

Withholding determination

~ Case-by-case basis

~ VISA status

~ Country Tax Treaty

Contact Art Evjen if considering contracting a NRA

NON-EMPLOYEEFEDERAL TAX (IRS)

Federal Income Tax Withheld of 28%

If individual does not furnish a TIN (taxpayer ID)

SSN – social security number XXX-XX-XXX

EIN - employer ID XX-XXXXXX

Must complete STD. 204

Who To ContactTAX COMMITTEE

~ Chair, Michele Zollna x4302

~ Co-Chair, Mickey McGuire x4224

CONTRACTS

~ Art Evjen x3394

Employee vs. Independent Contractor Determination

~ Payroll, Wes Scheibly x3586

~ Procurement, Art Evjen x3394

~ STD. 204 Form, Eva Salas x3751