Home : Financial : Accounting

Once the activity has begun, appropriate monitoring must take place. To ensure proper accounting, prudent management of business considerations, and proactive management of tax, legal, and insurance risks.

ACCOUNTING

Financial transactions for a particular external sales activity should be isolated by using the ChartField string effectively (a descriptive combination of Fund-DeptID-Program[Function]-CF1-CF2-Fin EmplID).  It is important to use the correct fund to designate where the revenue is coming from as well as selecting the External Sales Program that is correctly assigned to the appropriate function code.

1. Determine budget amounts for the activity:

a) Estimate the amount of sales revenue for the year in which the sales are expected to occur.
b) Estimate the amount of expenses that will be incurred to generate the expected sales (any raw materials, supplies, postage, rentals, equipment, additional personnel or benefits costs, etc.).

2. Establish a chart of accounts structure for the activity:

a) Submit a value request if they need a new CF2 value, CF1 value (ESAF/Contract number), or Program, if needed.

3. Prepare budget documents:

a) Establish at least one budget account for the chartfield combination needed (Fund-DeptID-Program), if needed.For assistance with proper accounting, consult with Accounting Services or the Office of External Sales.

PRICING

External sales activity should generally be self-supporting. Goods and services should be priced at a rate to cover both direct and indirect University expenses as well as to provide residual support for the University's departments and programs. In addition, where similar products or services are commercially available through the local small business community, prices should approximate fair market rates in order to avoid allegations of unfair commercial business practices.

INSURANCE

Consider your need for additional insurance coverage. Consult with the Office of Risk Management and Insurance or the Office of External Sales for assistance.

SALES TAX

Departments expecting to sell goods and/or services to purchasers other than the University of Minnesota, including sales to individual students, faculty, and staff, have a legal obligation to collect Minnesota sales tax on taxable sales. Consult the University Tax Management Office at taxhelp@umn.edu for guidance on whether the goods or services are subject to tax.

Minnesota laws impose a sales tax rate based on the destination of the sale. If a buyer picks up an item at the seller’s location, the rate at the seller’s location applies. If the goods are shipped to another location in Minnesota, the rate at the “shipped to” address applies. If the items are shipped out of Minnesota, Minnesota sales tax does not apply.

All campuses must collect Minnesota state sales tax when applicable. The current state sales tax rate is 6.5 %. In addition, there are numerous local taxes imposed in Minnesota. If the destination jurisdiction of the sale imposes a local tax, the department must collect the local rate. The Minnesota Department of Revenue provides information on local tax rates in Fact Sheet 164, entitled Local Sales and Use Taxes. There is a link to this Fact Sheet on the tax web site at http://tax.umn.edu.  Please consult this resource for updated rates.

For example, departments on the Minneapolis campus of the University are responsible for collecting a .5% Minneapolis city tax, a .15% Hennepin County tax, as well as the 6.5% state sales tax on taxable sales on campus for a total tax rate of 7.15%. The Duluth campus must impose a 1% local tax on campus sales. The cities of Rochester and St. Paul both impose .5% local taxes, but the St. Paul campus is actually located in Falcon Heights, so unless a sale is shipped to St. Paul proper, the St. Paul .5% rate does not apply.

Departments do not need to collect tax if the purchaser provides a Certificate of Exemption, such as a completed Minnesota Department of Revenue form ST3. This may be a charitable, religious or educational purchaser, or a reseller. The federal government is also an exempt buyer and does not need to provide an exemption certificate if it can be shown that the federal government made the purchase. 

Departments that are disposing of University equipment or other University property subject to tax should be aware that collecting sales tax on such equipment can be labor and time intensive. Turning unneeded equipment/items over to Inventory Services for further use within the University system or disposal may be more cost effective than selling the items to an entity outside the University.

Collecting Sales Taxes
Generally, sales tax must be separately stated from the sales price of an item. As in a retail store setting, the customer is charged for the listed price of the goods sold along with a separately stated amount of related taxes. The amount of sales tax should be readily identifiable on the sales receipt.

There are some situations where it is not practicable to separately state the sales tax, such as when items are sold in a vending machine. In these situations, the tax on the sale is included in the sales price of the goods. When a person buys candy from a vending machine, additional separate charges for sales taxes are not added to the vending price but rather, the vending price already includes sales tax. Sellers that cannot separately state the sales tax, and consequently utilize this method of sales tax collection, must use a mathematical formula to determine the amount of the gross sales price that is the sales tax portion.

To calculate the tax portion when it is not separately stated, first determine the applicable tax rate. Then divide the total receipts by (1 + the tax rate) to get the revenue, or the amount subject to tax. The remaining amount collected is the tax.

Recording Tax Collections
Record each sale of taxable or nontaxable goods or services. Collect sales tax on every sale determined to be taxable. The amount of sales tax should be itemized on the customer receipt.

Record sales tax collections as a contra expense in Object/Sub-object code 7520-10 or 15 (Sales Tax Activities). Separate the amounts being deposited on Cash Receipt (CR BA 1290) documents as sales income, from the amounts being deposited as sales tax.

For example: if the sales income is $100 and the tax collected is $7, credit $100 on the CR to the external sales revenue code and credit $7 to object code 7520-10 or 15.

Maintain departmental records of sales tax collected and due to the Minnesota Department of Revenue. Reconcile to the general ledger the sales tax object code amount on the department's monthly CUFS reports.

For example: if the monthly taxable sales are $1,000 and the tax collected is $70, a credit of $70 to object code 7520-10 or 15 should appear on your monthly CUFS report. If the tax is NOT correctly collected or reported, IT IS STILL DUE to the Department of Revenue.

Filing with the State of Minnesota
Sales and use tax is set up on a monthly, quarterly or annual filing basis depending on how much tax is owed each month.

Annual Filing –	Tax must average less than $100 per month. Due Date: February 5
Quarterly Filing –	Tax must average less than $500 per month. Due Dates: April 20, July 20, October 20 and January 20
Monthly Filing –	Tax averages more than $500 per month. Due Dates: 20th day of the following month

When the due date falls on a Saturday, Sunday or legal holiday, the due date becomes the next business day. If you mail your payment, it must be postmarked by the due date.

Centralized Reporting
The option of centralizedfiling is available to University departments that are eligible to file on an annual reporting basis (calendar year) to the State of Minnesota. University departments must average less than $100 in monthly sales tax collections to qualify for the annual centralized filing.

If you are eligible and you would like Accounting Services to file the Minnesota Sales Tax Return on behalf of your department, please complete the “Centralized Annual Sales Tax Reporting Form”(UM 1604), available on the Uwide forms library.  The information you provide on the form will be used to file an annual centralizedSales Tax Return. The form is due to Accounting Services by January 10 so they can complete the forms necessary to file with the Minnesota Department of Revenue by the due date of
February 5.

University departments participating in the annual centralizedSales Tax Return will have their sales tax (that you collected during the year) remitted to the State, County or City as indicated on your reporting form. Although Accounting Services prepares the centralized University Sales Tax Return and the tax payment for the annual filing, it is the responsibility of the University departments to retain supporting documentation. This applies whether departments use the centralized filing option or they file their own sales tax return.

Department Reporting
Alternatively, departments may report and remit sales tax collected directly at the department level. Steps for doing so are outlined below:

1. Apply with the Minnesota Department of Revenue for the following:
   
   • MN Business Registrations (Form ABR)
   • MN Sales and Use Tax Registration
   • Local Tax Registration
   Applicable forms may be obtained from the Minnesota Department of Revenue at www.taxes.state.mn.us.
2. Determine how frequently withheld sales tax must be reported and remitted (i.e., monthly, quarterly, annually).
3. At the required interval, the amount of sales tax withheld should be reported and remitted to the Minnesota Department of Revenue. Make sure you allow enough time for the payment document to be processed through Disbursement Services or for the payment to be electronically transferred through Asset Management.

For any activity billed through PeopleSoft, sales tax will calculated and tracked in PeopleSoft. A sales tax return will be completed and filed centrally for this activity.

For departments with point-of-sale activity, or during the AR/Billing phase-in period for departments that continue running their own billing system, tracking, remitting, and filing sales tax returns will remain a departmental responsibility (unless they qualify for the central annual filing option).

Contact the Office of External Sales for questions on any of these topics.