Tax Compliance

California Polytechnic State University, San Luis Obispo (Cal Poly) as part of the California State University System (CSU), is an agency of the State of California (reference the California State Education Code Section 66600 et al) and, as such, is exempt from Federal Income taxes in a manner similar to IRC 501(C) Not-for-Profit organizations. The specific section of the law that provides the exemption is Title 26 United States Code, Section 115, which states, in part:

Gross income does not include…income derived from any public utility or the exercise of any essential governmental function and accruing a State or political subdivision thereof…

Cal Poly and the CSU operate similar to Not-For-Profit organizations, offering the same services as non-state 501(c) universities. However, State appropriations are the primary funding source for Cal Poly and the CSU. The IRS issues determination letters solely to qualified 501(c) corporations. Thus, since Cal Poly is an agency of the State of California and is exempt under section 115 of the Internal Revenue Code, we are not required nor are we able to obtain an IRS determination letter. Payments made to Cal Poly are not included in gross income for taxable purposes, as stated in the Internal Revenue Code and shown above.

Cal Poly's federal taxpayer identification number is 77-0209717.

Food, lodging, and transportation provided for the scholar at no cost to him/her may result in a tax liability for the scholar. The university is required to treat these types of expenses as taxable transactions and report accordingly. In order to avoid tax liability, the scholar should incur the expenses on his/her own and submit a reimbursement request. Reimbursements for these types of expenses are generally not treated as taxable if supported by appropriate receipts.

Yes. All moving and relocation reimbursements are subject to Social Security, Medicare, and Federal tax withholding. California State withholding only applies to “Non-qualified moving expenses”.

"Non-qualified moving expenses" are those costs that do not meet the Internal Revenue Service's definition of qualified expenses and are considered reportable and taxable income. The following moving and relocation expenses incurred will be considered reportable and taxable income:

• Meals connected with the move
• Pre-move house hunting trips
• Temporary living expenses
• Sales or purchase of a residence
• Leases, unexpired or new
• Storage more than 30 days after moving into residence
• Mileage reimbursement in excess of the federal moving expense mileage rate
• Moving expenses that do not meet the time or distance tests

Normally, meal allowances are not provided if your travel is for a period of fewer than 24 hours and does not include an overnight stay. However, if an exception is allowed the value of the meal allowance will be reported to Payroll Services in order to be reported and taxed on your paycheck. Please note that lunch for travel that does not include an overnight stay is not reimbursable.

Yes. Under the following two scenarios mileage is subject to tax:

• Represented employees that have a callback provision in their collective bargaining agreement are subject to income tax on their callback mileage reimbursement.
• Employees that receive a mileage reimbursement as part of their moving and relocation reimbursement may be subject to income tax.

Travel related expenses billed to the University may be subject to tax if the vendor does not provide receipts to support the expenses incurred.

Purchases of tangible goods, i.e. computers, books, uniforms etc. are subject to sales taxes. Purchases of services are generally not subject to sales or use tax.

Yes. Services that cannot be segregated from the cost of the tangible goods purchased may be subject to sales or use tax.

7.25% as of 1/1/2017. Cal Poly is not within the limits of the City of San Luis Obispo and is not subject to the City of San Luis Obispo's higher sales and use tax rate of 7.75%. If a vendor insists on charging you the City of San Luis Obispo's higher tax rate, then please have them contact Marc Benadiba, Financial Services at 805-756-5864.

Yes. If the software is downloaded directly to your computer and you receive no physical materials from the vendor then sales taxes should not be charged on the transaction. It's important to note that ANY physical materials you receive, including a manual, or copies of the software on disk, subject the entire purchase to sales taxes.

If the vendor uses their own vehicle to deliver the merchandise, then the delivery charge is subject to sales taxes. If the vendor uses UPS, FedEx, or some other 3rd party service to deliver the merchandise, then the delivery charge is not subject to sales tax.

If an out of state vendor comes to California to provide services and does not have a business presence in the state of California then any payments made to them may be subject to a 7% withholding for state income tax. A vendor is deemed to have a California presence if they have an office in California or an address where they regularly receive and check mail. Out of state vendors without a California presence will have 7% state income tax withheld from any individual payment they receive that is greater than $1,500, or any payment they receive that puts their calendar year to date payments over the $1,500.

For example; Let's assume we have an out of state vendor coming from Nevada to California to perform three service related jobs for the University and the vendor does not have a physical address in California. Assuming the vendor is paid 3 payments of $700 each for the calendar year, no taxes are withheld on the first two payments, but the third payment will have 7% withheld because the third payment puts the total for the calendar year over $1,500.

A Non-Resident Alien (NRA) is a non-U.S. citizen who has not been present in the United States for sufficient time to allow them to be taxed as a U.S. citizen. Payroll Services performs a substantial presence test in order to determine residency status for tax purposes.

As a non-U.S. citizen, Cal Poly needs to determine your residency status for tax purposes. This determination needs to be made whether you are working as an independent contractor (for example a consultant) or an employee. All non-U.S. citizens working on campus must go thru an interview in Payroll Services (805-756-2605). The interview process can be started remotely via the web so that most of the data collection is completed before you arrive on campus. If you do not complete the NRA intake process, then Cal Poly must assume that your residency status for tax purposes requires the highest amount of taxes withheld, which can be as much as 37%.

Yes. An honorarium, no matter how small the amount is still considered compensation for services rendered. As a result, the honorarium will result in tax reporting consequences that you should be aware of in advance.

Yes. If the University directly pays for food and lodging expenses on your behalf, the expenses are considered income to you and will have tax reporting or withholding consequences that you should be aware of in advance. If you pay for the food and lodging expenses yourself, then submit appropriate documentation to the University to be reimbursed, the food and lodging expenses will not create tax reporting or withholding consequences.

The Payroll Services website provides a paycheck calculator that allows you to view the net pay result of changing your tax withholdings or deductions.

If you are on direct deposit and you can make the appropriate amount available in your direct deposit checking account for reversal and reissuance, then you will only be responsible for paying back the net amount of the payroll accounts receivable. However, if you are not on direct deposit, or if you cannot make the amount of the overpayment available in your direct deposit checking account for reversal, then you will be required to pay back the gross amount of the overpayment you incorrectly received.

If you have received a payroll overpayment and you have not paid it back by 12/1, then your W-2 income will be overstated by the amount of the overpayment.

The value of employer-provided lodging will be excludable from an employee's gross income and not subject to payroll taxes only if: (1) the lodging is furnished on the business premises of the employer; (2) the lodging is furnished for the convenience of the employer; and (3) the employee must accept the lodging as a condition of employment. If the three tests are met, the value of the lodging is excludable and not subject to payroll taxes. For more information please contact the Tax Coordinator.