FIN 120: Sales Tax Exemption for Certain University Purchases
To provide information about the sales tax exemptions on certain university purchases
Arizona Revised Statutes § 42–5061
Arizona universities are not exempt from paying applicable sales taxes on purchases of goods within the State of Arizona. The universities also are responsible for paying use tax to the Arizona Department of Revenue for applicable purchases made from out-of-state vendors.
Some technical exemptions apply to auxiliary operations, e.g., the purchase of books by the ASU Bookstore. State statute also provides for exemption from state sales and use tax on “machinery and equipment used in research and development.” Local sales taxes still apply to purchases of machinery and equipment used in research and development.
This statutory exemption does not apply to expendable supplies; janitorial equipment and hand tools; office equipment, furniture, and supplies; tangible personal property used in selling and distributing activities; motor vehicles; shops, buildings, docks, depots, etc.; and motors and pumps used in drip irrigation systems.
The statute does not reflect a minimum capital threshold, so the exemption may be claimed on the qualifying equipment that does not meet the ASU capital threshold of $5,000. To minimize the associated administrative burden and to avoid inadvertent exemption claims for expendable supplies, an internal threshold is set at $1,000. Advantage sales-tax exempt, sub-object codes established for equipment that qualifies for the legislative sales tax exemption are:
|7325 91||Qualifying non-capital equipment|
|7810 91||Qualifying individual capital purchases|
|7810 46||Qualifying fabricated equipment|
An org manager who purchases equipment that falls within the provision of this law must code the purchase to one of the codes mentioned above. Along with the purchase request, the org manager also must provide to Purchasing and Business Services a signed Research & Development Form with a brief statement identifying the research area in which the equipment will be used and a representation that the planned use for the equipment complies with the exemption provisions of the law.
The sub-object code 7810 91 is to be used only for items costing more than $5,000, in compliance with the university capitalization policies and procedures (see FIN 308–01, “Overall Revenue Coding Structure”). All costs associated with fabricated equipment should be coded to 7810 46. Qualifying equipment that costs at least $1,000 but less than $5,000 should be coded to 7325 91.
If a subsequent sales tax audit disallows the exemption from transaction privilege taxes, the department originally ordering the equipment will be charged for the unpaid taxes.
For additional information on state sales tax, see FIN 108, “Sales Tax.”
For additional information on state and use tax, see the Purchasing and Business Services Policies and Procedures Manual—PUR 602–07, “Sales and Use Tax.”
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