CHAPTER 14
FEDERAL, STATE AND LOCAL TAX REQUIREMENTS

SALES AND USE TAX ON TRANSPORTATION CHARGES
The sales tax rate for City of Visalia purchases is 7.25%.
Depending on how freight charges are billed, they may be subject to sales tax. The following charges for freight are not taxable:

• Separately stated charges, direct delivery to purchaser by U.S. mail, independent contractor or common carrier and actual freight charges are borne by the purchaser. These charges could be either FOB Destination or FOB Shipping Point as long as transportation costs are not fixed and are the responsibility of the purchaser and are explicitly separate from the cost of goods purchased.
• "Delivered Price", but transportation charges are separately stated, shipment is directed to purchaser, and transportation occurs after the seller completes physical delivery per contract requirements, i.e., FOB Shipping Point.
• Delivered by seller’s own facilities, but transportation charges are separately stated, shipment is directly to purchaser and transportation occurs after title has passed to the purchaser per an explicit written agreement between seller and purchaser, i.e. FOB Shipping Point.
  The following charges are taxable:
• Transportation charges are not separately set forth in the purchase order, contract for sale or invoice.
• Transportation charges which are "incoming freight" such as shipment to the retailer, to the retailer’s agent or the retailer’s representative.
• Delivered price which is also FOB Destination.
• Transportation by seller’s own facilities without any explicit written agreement regarding when title passes.
• Transportation by seller’s own facilities with FOB Destination terms.

LIABILITY FOR SALES AND USE TAX
Sales tax is a liability of the seller and is paid for the privilege to sell tangible personal property at retail within the State of California. Sellers who conduct business within California, i.e. have employees, offices, stores or warehouses in California must register with the State of California Department of Revenue to collect sales tax.

Sellers may add sales tax to the selling price or include it in the selling price; either way, the amount must be remitted to the State by the seller. The buyer is not liable to the State for uncollected sales tax unless the buyer caused the seller to erroneously believe the buyer was exempt from paying sales tax.

Use tax is an excise tax imposed upon the purchaser of goods for storage, use or consumption of goods in California. The City pays use tax directly to the State of California in lieu of paying sales tax whenever it buys tangible personal property from an out-of-state vendor who is not registered to collect California sales tax or whenever an in-state vendor does not charge the proper sales tax rate. Use tax is a liability of the buyer and not of the seller.

ITEMS EXEMPT FROM SALES AND USE TAX
Generally, the following items are not taxable. However, frequent changes by the State of California, as a result of court cases, can cause additions or deletions in the list.

• Labor on repairs when stated separately.
• Installation labor.
• Parts covered by a maintenance agreement.
• Purchases for resale.
• Professional services.
• Transportation, shipping and freight charges from common carriers when itemized separately from the purchase price.
• Advertising.
• Purchases of property to be resold to the United States Government.
• Subscriptions to newspapers, newsletters and other periodicals when they are published at stated intervals of at least four times per year but not more than sixty times per year.
• Software downloaded via modem to the City’s computer system.

MINIMIZING SALES AND USE TAX
Sometimes knowledge of tax laws will allow the City to reduce the amount of sales or use tax which is due and payable. For example, if lubricants are purchased in barrels and the empty barrels are returned to the vendor for credit, tax is only paid on the contents of the barrels and not on the purchase price of the barrels.
Since tax laws are revised frequently, when in doubt as to whether an item is taxable or not, contact the State of California Franchise Tax Board

SHOWING SALES AND USE TAX ON PURCHASE ORDERS
Purchase orders must specify any applicable state and local taxes or the use tax unless the items are for resale.

If the items on the purchase order are for resale, the City’s seller’s permit number should be shown on the purchase order.

FEDERAL EXCISE TAXES
The City does not pay Federal Excise Taxes (F.E.T.).