Asset 9

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Financial Services FAQ

Providing accounting and related services to The Claremont Colleges community.

 

Below, listed by category, you will find the most frequently asked questions. If you have a question that is not listed below, feel free to contact us at (909) 621-8043.

 

Advances and Reimbursements

What are the Accountable Employee Reimbursement Plan (AERP) rules?

The plan rules are as follows:

    1. Expenses must have a business connection (qualified business expenses must have been paid or incurred while performing services as an employee).

    2. Adequate accounting must be provided for these expenses within a reasonable period of time.

    3. Any excess reimbursement, advance or allowance must be returned within a reasonable period of time.

An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for. The definition of reasonable period of time depends on the facts and circumstances of the situation. However, regardless of the facts and circumstances of the situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time.

    1. Advance received within 30 days of the time of an expense.

    2. Adequate accounting of the expenses received within 60 days after they were paid or incurred.

    3. Any excess reimbursement received within 120 days after the expense was paid or incurred.

For more information, please review IRS Publication 463.Travel, Entertainment, Gift and Car Expenses.

Note: You must follow the policies and procedures outlined by your institution. Please refer to your institution’s policies and procedures.

What happens if my supervisor approves reimbursement for non-business related expenses?

If you are reimbursed for expenses that do not have a business connection, it does not meet the first rule of the AERP and the amount is required to be included on your Form W-2 - Wage and Tax Statement.

Nonresident Alien

What is the definition of nonresident alien?

An individual who is not a U.S. citizen and who does not meet the “green card test” or the “substantial presence test.” Additionally, an individual who qualifies as a “resident of a treaty country” or a resident of Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U.S. Virgin Islands or American Samoa is a nonresident alien. For more information on the tests mentioned above and nonresident aliens, please review IRS Publication 519-U.S. Tax Guide for Aliens.

I am preparing a supplier invoice/ad hoc payment for a nonresident alien. What documents and/or form(s) do I need to complete and attach?

Sufficient documentation that validates the payment to the nonresident alien (i.e. service contract or agreement) and, if the payee does not want 30% withheld from the payment, either Form 8233, W-8BEN, W-8ECI, W-8IMY or W-8EXP must be attached to the supplier invoice/ad hoc payment.

    • Form 8233—Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual—Complete this form if payment is to an individual for independent personal services and the payee wants to claim a tax treaty withholding exemption for part or all of the compensation and/or to claim the daily personal exemption amount. Review Instructions for Form 8233 for definitions and more information.

    • Form W-8BEN—Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding—Complete this form if payment is to an individual for interest, dividends, rents, royalties, premiums, annuities or services performed, if the payee wants to claim they are a beneficial owner of the previously mentioned income or if the payee wants to claim a tax treaty withholding exemption for part or all of the income. For services performed, if the payee does not want to claim an exemption under IRS Form 8233 the payee must complete a W-8BEN. Review Instructions for Form W8-BEN for definitions and more information.

    • Form W-8ECI—Certificate of Foreign Person's Claim for Exemption from Withholding on Income Effectively Connected with the Conduct of a Trade or Business in the United States—Complete this form if compensation is not for personal services or for interest, dividends, rents, royalties, premiums or annuities and income is deemed to be effectively connected with the conduct of a trade or business within the United States and can be included in the beneficial owner's gross income for the tax year and the payee wants to claim an exemption from withholding. See Instructions for Form W-8ECI for definitions and more information.

    • Form W-8EXP—Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding—Complete this form if payment is to a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation or government of a U.S. possession for interest, dividends, rents, royalties, premiums, annuities compensation for services performed and the payee wants to claim a tax treaty withholding exemption for part or all of the compensation. Review Instructions for Form W-8EXP for definitions and more information.

I am preparing a supplier invoice/ad hoc payment for a nonresident alien and the payee does not have a U.S. Social Security Number (SSN) or individual tax identification number (ITIN). Is it absolutely necessary to provide this information, and if so, how does this person apply for a tax identification number?

Yes, a U.S. SSN or ITIN is essential. The IRS will return the Form 8233 if a SSN or ITIN is not provided. Therefore, TCCS financial services will not process the payment without a SSN or ITIN. To apply for a SSN, the payee must complete Form SS-5 and submit it to Social Security Administration. If the payee is not eligible to receive a SSN the payee must receive an ITIN. To apply for an ITIN, the payee must file Form W-7. It takes about four to six weeks to receive an ITIN.

Sales & Use Tax

What is the difference between sales and use tax?

Sales tax applies to the sale of new or secondhand tangible personal property, including vehicles by a California vendor. The California vendor is responsible for remitting and reporting sales tax to the State Board of Equalization. Use tax applies to the purchase of new or secondhand tangible personal property that will be used, consumed, given away or stored in California. The purchaser is responsible for remitting and reporting use tax to the State Board of Equalization. Section 6016 of the Revenue and Taxation Code defines tangible personal property as "personal property which may be seen, weighed, measured, felt or touched or which is in any other manner perceptible to the senses."

Why do I need to accrue use tax if I already paid sales tax?

If the purchase was made from a state other than California and the sales tax paid was less than 9.0% use tax is owed:

Use tax was put in place to protect California merchants from out-of-state competition. The Revenue and Taxation Code section 6406 allows you to take a credit for sales or use tax paid to another state. Therefore, a portion of the California use tax you owe on the purchase is offset by the sales tax you paid to the retailer in another state. (i.e. If you purchase merchandise in another state that charged you 5% sales tax you would only need to accrue 4% use tax.)

Note: For each purchase, you can only take a credit for sales tax paid to another state up to the amount of California use tax you owe on that purchase. If you paid an amount in excess of the California use tax due on a purchase, you cannot use this additional tax paid to offset the tax due on another transaction.

If the purchase was made in the state of California and in a county other than Los Angeles County and the sales tax paid was less than 9% use tax is owed.

The use tax rate is comprised of the current standard statewide tax of 7.5% and a district tax. The district tax is imposed by the local jurisdiction, and most are levied on a county-wide basis. Therefore it varies depending on the county or city. The district tax rates range from 0.125% to 0.5% per district. In some areas, there is more than one district tax in effect. In others, there is no district tax. Los Angeles County district sales and use tax rate equals 1.25%; therefore, the total sales and use rate equals 8.75%.

District use tax is due on the consumption, usage or storage of tangible personal property that was purchased outside of the district. A credit is allowed for any district sales tax already paid. For example, if you purchase office supplies from the Staples in Montclair, which is located in San Bernardino County, with a sales tax rate of 8% and use the supplies at the colleges, which are located in Los Angeles County, with a use tax rate of 8.75%, 0.75% use tax is due on the purchase to the State Board of Equalization.

Note: A refund of district tax is not available if the tax owed in the district is less than the district tax paid.

What is the current sales and use tax rate?

The current sales and use tax rate for The Claremont Colleges is equal to 9%. View the following link to view current sales and use tax rates.

What types of transactions are exempt from sales and use tax?

Unfortunately, a general list cannot be provided because the rules vary depending on the situation. A list of items not subject to sales or use tax can be found in Publication 61—Sales and Use Taxes: Exemptions and Exclusions. The publication is organized by industry and by alphabetical order.

If I paid sales tax on tangible personal property purchased for resale, is it exempt from sales tax when sold?

No, sales tax is not exempt. Sales tax must be collected and remitted to the State Board of Equalization. A deduction can be taken on the quarterly tax return or a claim for refund must be filed. Please notify your college's assistant controller of transactions involving the sale of merchandise or inventory in which sales tax was paid when the merchandise/inventory was purchased “Tax-Paid Purchases Resold.” For more information, please review Regulation 1701 — Tax-Paid Purchases Resold.

Why is it important to accrue use tax?

Every three years the California State Board of Equalization (SBOE) sends an auditor to review records to determine whether sales and use taxes are being remitted and reported properly. Instances of noncompliance are accumulated and extrapolated over the years being audited. The extrapolated amount calculated by the auditor, plus interest, must be remitted to the SBOE. As you can see, it is extremely important to be knowledgeable of sales and use tax issues.

What happens if I do not accrue use tax?

All invoices and receipts are reviewed to ensure that the appropriate use taxes are being paid. If not, the reviewer calculates and accrues the appropriate use tax amount. You will see additional expense charges on your supervisor’s reports as a result of use tax accruals.

 

Travel, Entertainment & Gifts

What is the definition of travel?

Travel expenses are the ordinary and necessary expenses of traveling away from home for your job. Traveling away from home is defined as being away from home longer than an ordinary day's work and you need to sleep or rest to meet the demands of your work while away from home. For more information, please review IRS Publication 463.Travel, Entertainment, Gift and Car Expenses.

What are the current federal per diem rates?

View the following link for the current federal per diem rates.

What is the current mileage reimbursement rate?

View the following link for the current standard mileage reimbursement rate.

What is the definition of entertainment?

Entertainment includes any activity generally considered to provide entertainment, amusement or recreation. This includes entertaining guests at restaurants, social events, theaters, sporting events, athletic clubs, while on business and similar trips. The cost of a meal you provide a customer or client is entertainment only if you or your employee is present when the food or beverages are provided. For more information, please review IRS Publication 463-Travel, Entertainment, Gift and Car Expenses.

Why do I need to provide the business purpose and people who attended for entertainment expenses?

According to IRS Publication 463-Travel, Entertainment, Gift and Car Expenses, additional information must be provided to prove entertainment expenses are for business and not personal purposes. The IRS requires the following information for entertainment expenses:

    1. The cost of each separate expense.

    2. Date of entertainment.

    3. Name and address of the location or place of entertainment.

    4. The nature of the business discussion or activity. If the entertainment was directly before or after a business discussion: the date, place, nature, and duration of the business discussion, and the identities of the persons who took part in both the business discussion and the entertainment activity.

    5. Occupations or other information (such as names, titles or other designations) about the recipients that show the business relationship to you.

    6. Evidence that proves an employee was present.

For more information, please review IRS Publication 463-Travel, Entertainment, Gift and Car Expenses.

I never provided names and business purposes for gifts given to third parties, is this something new?

No. The same rules for entertainment expenses apply to gifts. IRS Publication 463-Travel, Entertainment, Gift and Car Expenses requires the following information for gift expenses:

    1. The cost of the gift.

    2. Date of the gift.

    3. Description of the gift.

    4. Business purpose for the expense or the business benefit gained or expected to be gained.

    5. Occupations or other information (such as names, titles or other designations) about the recipients that shows their business relationship to you.

For more information, please review IRS Publication 463-Travel, Entertainment, Gift and Car Expenses.

Why am I limited to $25 for gifts?

According to IRS Publication 463-Travel, Entertainment, Gift and Car Expenses, gifts are limited to no more than $25 per person per calendar year. However, any item that might be considered either a gift or entertainment generally will be considered entertainment. For more information, please review IRS Publication 463-Travel, Entertainment, Gift and Car Expenses.