Office of the Controller
The following Tax Guidance serves as an informational board that interprets and explains tax issues as it relates to the University. As a public institution of higher education of the state of Colorado, generally, Metropolitan State University of Denver is exempted from most federal taxes and from all Colorado State and local government sales tax. However, activities arise within the MSU Denver community that constitutes taxable events. This can include the requirement to collect sales tax on sold or rented merchandise or withhold tax on certain vendor payments. Please click on the following tax categories to see a complete list of explanations, policies and forms. Continuous updates will be presented. For further assistance, please contact the Compliance Officer.
While the IRS website has many Publications and instructions, students may find these particularly helpful:
- IRS Tax Information for Domestic Students
- IRS Tax Information for International Students
- Tax Benefits for Educaiton
- Federal Income Tax Guide
How can I find out if my country has a tax treaty for scholarship income with the United States?
A list of treaty countries can be found in IRS Publication 901. Not all treaties are the same, so we suggest that you review your country's treaty.
What portion of my scholarship award may be considered taxable?
U.S. tax law divides scholarships received into two parts. Scholarship that is used for tuition is not taxable, but scholarship that is used for living expenses is taxable. Expenses that are considered tuition include all tuition and fees required for enrollment, books, fees, supplies, and equipment for courses of instruction. Additional amounts, such as amounts provided for room and board or for travel expenses, are taxable.
The IRS encourages everyone to use the Withholding Calculator to perform a quick “paycheck checkup.” This is even more important this year because of recent changes to the tax law for 2018.
The Calculator helps you identify your tax withholding to make sure you have the right amount of tax withheld from your paycheck at work.
Do foreign students need to file a United States Income Tax return?
You only need to file if you have income that is subject to tax, such as wages, tips, scholarships that exceed tuition and required fees, dividends, etc. The tax return you must file is Form 1040NR, the Federal Tax Return for Nonresidents. If you have any earned income, your tax return is due by April 15; otherwise the filing deadline is June 15. If you owe more tax than was withheld, you must pay it by the appropriate date. If more tax than you owe has been withheld, you should file a return to claim a refund for the excess amount that was withheld.
The Tax Cuts and Jobs Act, passed in December 2017, affects policies and procedures for the University and its employees in a number of ways, including in the following areas:
Employees have had the option of paying for their University parking before taxes or after taxes. With the new tax code changes, employee pre-tax parking benefits will incur a tax liability for the University.
- Parking deductions for employees will transition from pre-tax to post-tax.
- No action is required by the employee.
Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income. For most organizations, unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization's exemption.
Why is it Important to MSU Denver?
If we incur unrelated business taxable income, we need to make quarterly estimated tax payments on that income during the fiscal year.
If you are unsure if the activity is subject to UBIT, please complete the UBIT Questionnaire:
With the Suspension of Exclusion for Qualified Moving Expense Reimbursement, and the Suspension of Deduction for Moving Expenses, all employee moving expenses paid by the university are now taxable. This applies whether the university is reimbursing employees or paying moving companies directly on their behalf.
If the recipient of the payment is an employee, all amounts will be reported on the individual’s Form W-2, boxes 1, 3, and 5. If the recipient is a non-employee, all amounts will be reported on a Form 1099-MISC.
What is a sale?
A sale is the exchange of a good or service for something of value. A sale occurs when a buyer first takes title or possession of an item or when a taxable service is performed.
What is a gift?
A gift is the transfer of money or goods without compensation. They do not constitute a sale and should be deposited with the Foundation. See MSU Denver Foundation’s Gift Acceptance Policy for further explanation.
A sale is not a gift and should be deposited with the University.
**See Determination of Proper Classification of Revenue as Sales or Charitable Gifts for further clarification.**
What is a refundable deposit?
Refundable deposits are funds placed in trust in exchange for use of a good. This does not constitute a sale.
Goods: any type of property than can be moved, touched or felt. (Excludes real estate)
Rental: a fixed amount of money paid for the use of a good. Rentals of goods are a taxable event.
Service: work done for others as an occupation such as catering, information reporting, teaching, etc.
Taxable Service: service that is taxable when performed include, but are not limited to informational service, entertainment service, catering service, cover charges, entrance fees and mandatory tips and gratuities.
Fair Market Value: is an estimate of the market value of a property substantiated with current market information what a knowledgeable, willing, and unpressured buyer would pay to a seller.
Examples of a sale:
- A department sells flowers to raise money for additional departmental activities. A sale has occurred. Sales tax should be collected and the funds deposited with the University. The deposit should be the full amount of the sale (gross sales), not net of expenses.
- A club buys t-shirts for its members and then is reimbursed by its members has produced a sale. Sales tax should be collected on each T-shirt.
- A conference requires a registration fee for attendance, a sale of all food, goods and rentals has occurred. The University’s sales tax exemption becomes void in the city of Denver when a conference requires a registration fee for attendance. Therefore, all taxable services, goods, and rentals purchased (t-shirts, books, pens, catering etc.) for the event, are taxable.
- When a good or service is auctioned for fundraising, a sale has transpired. Sales tax is to be collected on the lesser of the purchase price or fair market value.
- The rental of a computer for a fee is a sale. Sales tax is to be collected.
Sales tax is a tax charged when a buyer purchases or rents tangible personal property or certain taxable services. Sales tax is imposed upon the sale price which applies to both profitable and unprofitable transactions. For auction items, sales tax is charged on the lesser of the sales price or the fair market value.
- Tangible personal property is everything other than real estate that can be touched or moved. Examples include computers, furniture, food, beverages, publications, t-shirts, books, pens, etc.
Taxable services include informational and entertainment services, catering services, lodging services, telecommunication services and energy producing services and delivery charges.
A fundraiser is a process of gathering voluntary contributions of money or other resources for a particular purpose.
Many times, the process of fundraising, can create a taxable event. This takes place anytime a personal tangible property is sold to a buyer. Some examples are a bake sale, selling art work or having a banquet with a registration fee.
When this happens, sales tax should be collected from the buyer at the time of purchase.
A required donation sale is a taxable event. Sales tax is to be reported on the deposit transmittal form.
A Sales Record Form should be completed for each sales event. By entering the sales price and quantity sold, the spreadsheet will calculate the proper taxes. Otherwise, to calculate sales tax on a sale item:
Sales Price × Sales Tax Rate = Sales Tax
A Deposit Transmittal Form needs to be completed for each deposit. Use your departmental FOAP for sales and the appropriate Locn code as marked on the Transmittal Form:
TXTANG = Tax for tangible item
TXFOOD = Tax for food/beverages
TXEQRT = Tax for equipment rental
Separate the collection of sales tax between city and state into the appropriate tax liability accounts as follows:
890025-your ORG-2901 = State of Colorado sales tax liability
890025-your ORG-2902 = City and County of Denver
890025-your ORG-2903 = City of Northglenn
890025-your ORG-2902 = City of Greenwood Village
890025-your ORG-2903 = City of Aurora
Note: Program codes are not required for tax deposits.
**Submit Sales Record Form, Deposit Transmittal, Payment, and any other supporting documentation to the Cashiering Office SSB 140**
Food for Home Consumption
Such as butter braids, raw cookie dough, pizza dough or any other food product that must be made at home in order to consume.
Such as volunteering of time, membership fees, dues.
Only when this is a pure gift without any expectation of an item in return. An example may be a collection jar for donations without the exchange of something of value.
Offering an area for rent without the additional rental of items for a separate fee such as computers, printers etc.
Tournaments and Other Events
When there is no registration fee, then giveaways such as t-shirts, tangible prizes and food/beverages are not taxable if purchased with Student Activities’ pro-card. Conversely, if there is a registration fee, but there is no purchase of any tangible items and/or food/beverages, then no sales tax is required.
Why is MSU Denver tax exempt?
MSU Denver is tax exempt, because we are a government agency. We are not a 501©(3) Charitable Organization
What does it mean to be tax exempt?
MSU Denver is exempt from paying sales tax on purchases for the institution ‐ if purchased and paid for directly by the institution, i.e. MSU Denver check or university‐issued credit card. You may NOT claim sales tax exemption if you personally pay for your purchase by any method.
What is sales tax?
Sales tax is imposed on the purchase price of retail sales, leases, or rentals of tangible personal property and certain taxable services that are purchases or performed in Denver or are delivered to, stored, or used in Denver.
Why do I need to collect sales tax, if we are tax exempt?
We are tax exempt from paying sales tax. We are NOT tax exempt from collecting sales tax. By state law, we must collect sales tax at the time of sale.
What do I do with the sales tax I collect?
The sales tax you collect belongs to the state and/or the city. For this reason, we have set up liability accounts where the tax portion will be deposited. The Sales Record form on our website automatically calculates the sales tax for you and your deposit is automatically divided up into the proper accounts. You must complete and submit a deposit transmittal form, Sales Record Form and deposit of your funds to the Cashiering Office SSB 150.
How much sales tax do I collect?
Current Sales Tax Rates on located below.
When do I collect sales tax?
Almost everything you sell or rent out will require the collection of sales tax. Make sure to have the appropriate Sales Record Form. Sales records are also required for non‐taxable sales. If reportable sales tax is not collected for remittance to the taxing authorities, your department will accrue penalties and interest which may exceed the original sales tax amount.
Should sales tax be collected on bake sales?
Yes. Sales tax is imposed on all retail tangible personal products.
Should tax be collected on items that are sold at auctions and fundraisers?
Yes. Organizations which make retail sales of tangible personal property for fundraising purposes are required to collect sales tax. Den topic # 36. Tax should be collected on the lesser of the sales price or the fair market value.
We want to sell t-shirts for profit by purchasing them from a wholesaler, do we have to pay sales tax.
Yes. If the wholesaler has nexus. The university does not have a resale certification. In addition, sales tax is to be collected from each individual sale.
Are rentals subject to sales tax?
Yes. Rental of tangible personal property is subject to sales tax.
Is a faxing service taxable?
No. Faxing services are exempted from sales tax.
Do we need to pay sales tax for catering services?
Catering services remain tax exempted as long as the event is in accordance to our exempt purpose and we are NOT charging a registration fee, ticket or any other involuntary contribution. Otherwise, sales tax is to be paid at a rate of 4% to the City and County of Denver or use tax if not separately stated on invoice.
Are gifts and awards used for a conference taxable?
Gift/awards remain tax exempted as long as the event is in accordance to our exempt purpose and we are NOT charging a registration fee, ticket or any other involuntary contribution. Otherwise, sales tax is to be paid at a rate of 3.65% to the City and County of Denver or use tax if not separately stated on invoice.
Is there sales tax for career testing? (Applicant takes test then comes in for consultation and pays)
No. This is a nontaxable service.
We have paid lodging for an interviewee. Is this taxable?
No. The University is exempted from sales tax when used within our exempted purposes.
Do raffle tickets require sales tax collection?
No, they are not taxable. However, MSU Denver is not licensed to conduct raffles. It is strongly prohibited.
A student club is collecting a $75 deposit, for an upcoming seminar/convention. This will be used to defray the cost of hotel/airline ticket, although it is not the full amount. Is this $75 taxable?
No. Since the travel is paid directly by the University, and the students are not paying and then being reimbursed, these purchases are tax exempt.
Are information services taxable?
Yes. Information services include the furnishing of information of any kind, which has been collected, compiled, or analyzed by the seller and which is made available through electromagnetic waves. The tax is imposed on the purchase price or charge for access, use, or receipt of such information or the rights to access, use, or receive such information. The result is that such information is taxable whether it is accessed, used, or received electronically or in hard copy, such as in books, publications, or reports. Information services do not include producing custom research for a specific client that creates information that was previously not in existence.
A student club is interested in holding a raffle. Is that allowed?
No. The University is not approved to hold raffles.
Can we include sales tax in the purchase price?
No. Sales tax is required to be separately stated.
Can we get sales tax exemption in the state of Kentucky?
Yes - the Kentucky Sales Tax Exemption is on our webpage.
Can we get sales tax exemption in the state of Georgia?
No - the state of Georgia does not allow colleges/universities outside their own state to be exempt from sales and use tax on their purchases. OCGA 48-8-3(9): 48-8-30.
We want to sell items for fundraising purpose, do we have to pay sales tax to buy the items?
Yes. The University does not have a resale certification. Sales tax needs to be paid at the time of purchase and then at the time of sale. If you do not pay sales tax at the time of purchase, it is subject to use tax.
If we have an event with a registration fee and pay for the hotel for the speaker, will our tax exemption still apply?
Yes. As long as MSU Denver is paying for the lodging with the school's funds directly, the transaction would not be subject to Lodger's tax since the speaker is not reimbursing the school and is not paying for it first and then reimbursing the school.
If our department sells a product on the university website and ships the item outside the Denver area, are we required to collect sales tax?
Yes. Items shipped in the state of Colorado will require state sales tax collection. Items shipped in Denver, to Northglenn, Greenwood Village or Aurora will require the appropriate city, county and state tax.
If our department sells a product on the university website and ships the item outside the state of Colorado, are we required to collect sales tax.
No. Unless shipping to the state of Washington and Indiana. Contact the Tax Accountant for the current sales tax rates in these areas.
If our department sales used equipment are we required to collect sales tax.
Yes. Sales tax is imposed on the purchase price of retail sales, leases, or rentals of tangible personal property in Denver or are delivered to, stored, or used in Denver.
If we sell used equipment from our department and the buyer sends a carrier to pickup the goods, do we need to collect sales tax.
If the buyer hires the carrier to pick up in Denver, the carrier is acting as their agent, thus the transaction occurs in Denver and sales tax should be collected.
What is nexus?
Nexus is having a sufficient physical presence in a taxing jurisdiction that will determine whether an out-of-state business selling products is liable for collecting local tax.
We are doing business with a non-proft. They hold a state sales tax exemption certificate but not a Denver Sales tax exemption letter. Do have to collect city taxes from this non-profit?
Yes. Denver’s ordinance provides an exemption from the sales tax on sales to religious or charitable corporations when purchased for their regular religious or charitable functions or activities (Article II, Section 53-26 (2)). Exemptions issued by either the IRS or State of Colorado will not automatically qualify the organization for exemption from City of Denver taxes. For a charitable non-profit corporation to qualify for a Denver exemption, it must meet the specific criteria and be issued a Denver Sales Tax Exemption Letter.
What is use tax?
Use tax is imposed upon the privilege of using, storing, distributing, or consuming within the City, tangible personal property and certain services purchased at retail, when there has been no previous payment of a legally imposed sales or use tax. Notification of use tax obligations would need to be forwarded to the Tax Accountant.
If we have an event with a registration fee and serve liquor, is state sales tax required?
Yes. State and city sales tax is to be remitted for the price of each bottle served with an open bar at an event with a registration fee. If a cash bar is served, sales tax may be imputed on the per glass price with the appropriate tax submitted to the state and city.
If we re-sell tickets to the general public would there be sales tax?
Tickets sold in Denver that provide "entrance only" to an event are not taxable unless to a specific Denver owned or leased facility. Some of these facilities include the Coliseum, Botanic Gardens, Performing Arts Complex, Boettcher Concert Hall, CO Convention Center, and Red Rocks Amphitheater.
Last updated July 2015
Metropolitan State University of Denver
Sales Tax Policy
The purpose of this policy is to define guidelines and to ensure that MSU Denver complies with sales tax regulations for the State of Colorado, City and County of Denver, and Special Districts as well as areas of nexus.
It is the policy of the University to ensure we remain compliant with all applicable tax laws and regulations.
This document should be read in conjunction with the policy dated April 30, 2015 entitled Determination of Proper Classification of Revenue as Sales or Charitable Gifts. MSU Denver Foundation is a separate legal entity and may be subject to different sales tax regulations. Please contact the Foundation at 303-556-5220 for further clarification.
Nexus: Having satisfactory physical presence whereby the local taxing jurisdiction can impose its taxes on sales. Nexus is created if MSU Denver maintains a temporary or permanent presence of people or property in a particular area.
Sales Tax: A transactional tax charged when a buyer purchases tangible personal property or certain taxable services. Sales tax is levied upon the transaction itself which applies to both profitable and unprofitable transactions. Tax is charged on the sales price.
Tangible personal property: Personal property that can be felt or touched. Examples include food and beverages, publications, t-shirts, mugs, pens, books, etc.
Taxable services: Informational and entertainment services, catering services, lodging services, telecommunication services and energy producing services such as commercial gas and electrical service, steam, telephone and transportation charges.
1. When to Collect Sales Tax:
The following list provides assistance in determining whether or not a sale is subject to sales tax:
- Whenever the University sells or rents tangible personal property or provides a taxable service, the sale, rent or service is subject to sales tax requirements. It is the practice of MSU Denver to assume that the item or product being sold or rented is taxable, unless specifically excluded by statute.
- When there is a “reimbursement” that exchanges personal tangible property for money, a sale has occurred and sales tax is to be collected. For example, a department or student club that purchases items to be “reimbursed” by its employees or club members has generated a sale and sales tax is to be collected.
- The sale of used equipment requires the collection of sales tax.
- Sales of tangible personal property sold through vending machines or honor boxes are subject to sales tax.
- Required donations which entitle the donor to receive tangible personal property are taxable. The total consideration paid is the taxable amount of the sale.
- Auctioned items are subject to sales tax. Tax should be collected on the lesser of the sales price or the fair market value of the auctioned good.
- Sales tax can be waived for a customer only if the customer provides a copy of their current tax exempt certificates, both for the State of Colorado and the City and County of Denver. Invoices and payments must match the entity name on each exemption certificate/letter. The burden of proof for the exemption is on the person affirming the claim of exemption. Copies of exemption certificates/letters must be obtained by the department making the sale, and remitted with the deposit transmittal to the Cashiering Office or the Foundation Office, as applicable.
Sales of most services are not taxable. However, if a sale involves both goods and services - such as a service call that involves charges for both parts and labor - the parts (tangible property) are taxable but the labor (service) is not. The sale should separately state the labor from individual parts. Failure to do so can cause the entire amount of the sale to be taxable.
The University’s Revenue Policy should be followed when implementing new departmental revenue streams.
2. When to Pay Sales Tax:
- The University is exempt from paying sales tax on purchases for its own departments. However, we are not exempted from paying sales tax to other states unless we have applied and been approved. See Sales Tax Exemption by States for further information.
- Sales tax must be paid when purchasing items for the purpose of reselling or fundraising.
- For events that require a registration fee such as banquets, fundraisers, educational seminars or conferences, then catering, lodging, equipment rental, and all tangible personal property used for the event becomes taxable in the City and County of Denver.
Using personal funds and expecting a reimbursement will require the buyer to pay the appropriate sales tax. The University’s sales tax exemption may not be used in conjunction with personal funds. The University will not reimburse paid sales tax. Reimbursing the University for personal items or accidental personal purchases is strictly prohibited. Requests for refunds from vendors are required.
Determining How Much Sales Tax to Charge
The amount of sales tax charged depends upon the following factors:
- The type of item being sold and
- The tax rate in effect at the time of the sale and
- Where the sale takes place., i.e., where the buyer takes ownership of the product
Items frequently sold on the Auraria campus and which sales tax rate to apply. Click the title link to download the Product and Tax Rate table.
Note: This is not an all-inclusive list of items to be taxed. It is a descriptive sample. Contact the Tax Account (6-6879) or email@example.com if you have any questions about whether or not a sale is taxable.
3.2. Date of Sale and Tax Rate
The current sales tax rates are available on the Office of the Controller, Accounting Services website. Sales Tax rates are subject to change during both January and July of each year.
3.3. Location of Sale and Tax Rate
The sales tax rate charged depends upon where the customer takes possession of the goods or point of delivery, if shipped. Please see Point of Delivery Sales Tax Rate for further information.
Items for Special Attention
4.1. Catering Services
Catering service is a taxable service in the State of Colorado and the City and County of Denver. Therefore, when a registration fee is required for admittance into an event, MSU Denver’s sales tax exemption becomes null and void. State and city sales tax must be paid on catering, food, beverages, lodging, equipment rentals or any other taxable items used for the event.
4.2. Non-Taxable Food Sales
Certain types of food sales are not taxable. These include:
- Food purchased for human consumption at home. Examples include raw cookie dough, butter braids, cereal, fruits, and vegetables.
- Seeds and plants which produce food for human consumption.
- Food purchased with food stamps or WIC vouchers. However, the University is not authorized to accept this form of payment.
Operational Aspects of Sales Tax
5.1. Displaying the Sales Tax License
MSU Denver, Aurora, Greenwood Village and Northglenn each have their own State of Colorado Sales Tax License and City Sales Tax License. Sales Tax licenses are required to be posted in a conspicuous place.
The Accounting Services office obtains and renews all Sales tax licenses. Individual departments are prohibited from getting their own or renewing existing licenses. If you believe additional licenses are necessary contact the Compliance Officer (6-6879).
5.2. Remitting Sales Tax
Accounting Services and the Foundation staff are responsible for their respective remittance of the Sales Tax return. Individual departments must not submit their own.
5.3. Charging Sales Tax
Sales tax should be charged as a separate line item at the time of the sale. This is the preferred practice at MSU Denver. Alternately, a conspicuous sign should be displayed that shows the price of each item and separately states the amount of tax for each item offered for sale. In a limited number of circumstances, it may be permissible to impute sales tax after the fact. Work with the Tax accountant to determine the most appropriate method for your operation.
5.4. Recording Sales Tax
Sale tax collected should be deposited in the University tax liability accounts by the last day of the month in which the sale took place. The appropriate FOAPALs are used to record the liability:
890025-your ORG-2901: State of Colorado,
890025-your ORG-2902: Denver
890025-your ORG-2903: Northglenn
890025-your ORG-2904: Greenwood Village
890025-your ORG-2905: Aurora
DO NOT DEPOSIT SALES TAX INTO YOUR DEPARTMENTAL FOAPAL!
A copy of each Sales Record Report on which sales tax was collected must be submitted to the Cashiering Office with the deposit transmittal for audit support. If a buyer is claiming sales tax exemption, then a copy of the sales tax exemption/letter must be submitted with the deposit transmittal to the Cashiering Office. Funds classified as charitable transactions are not to be deposited through the Cashiering Office. These proceeds are to be deposited with the University Advancement Services Office for the Foundation.
To print policy:
Metropolitan State University of Denver
Determination of Proper Classification of Revenue as Sales or Charitable Gifts
The purpose of this summary is to clarify and simplify the classification of revenue and to ensure consistent and proper treatment of charitable and non-charitable transactions. The correct classification and processing of sales and charitable transactions is essential for accurate financial reporting by Metropolitan State University and its Foundation.
Auction: sale of gifts-in-kind at a specific time and place to the highest bidder.
Charitable Transaction: a gift or donation that is any item of value given to the Foundation by a donor, who typically expects nothing in return. Gifts can be cash or noncash, checks, credit cards, securities, real property or personal property.
Donor: One who contributes something, such as money, to a program, charity or public institution.
Donation: a gift to a program or a particular cause for charitable reasons by the donor.
Gift: the transfer of money or goods without compensation.
Gifts-in-kind: A donation of non-cash property.
Sale: the exchange of a good or service for something of value.
The Foundation: MSU Denver Foundation, Inc. is a not-for-profit organization established to support the University’s mission through private gifts and donations.
Charitable transactions and sales should be analyzed for proper classification. Revenue generating activities that do not constitute a donation or gift, but rather a sale, should be deposited with the University in the appropriate departmental fund. Revenue that is generated using state owned facilities, equipment and/or resources are considered state funds and not a gift or donation, thus, such funds are to be deposited with the University in the appropriate departmental fund.
Charitable transactions such as donations given to support the University’s mission should be deposited with the Foundation. Proceeds from the sale of gifts-in-kind to the Foundation will be deposited with the Foundation unless those items previously were transferred to the University. Income from auctioned events, to further the mission of the University, is to be deposited with the Foundation. All gifts received through student clubs may remain with the University. All other gifts should be deposited with the Foundation unless otherwise designated by the Foundation.
Funds received by the Foundation that do not relate to the mission of the organization can jeopardize the Foundations’ tax exempt status. Guidelines for donations are provided in the Foundation’s Gift Acceptance Policy.
A Form W-9 is used to request the taxpayer identification number (TIN) of a U.S. person (including a resident alien) and to request certain certifications and claims for exemption. This form is also used to substantiate US status. Formal entities will supply an employer identification number (EIN). For federal purposes, a U.S. person includes but is not limited to:
- An individual who is a U.S. citizen or U.S. resident alien,
- A partnership, corporation, company, or association created or organized in the United States or under the laws of the United States,
- Any estate (other than a foreign estate), or
- A domestic trust (as defined in Regulations section 301.7701-7).
Form W-9 is used to obtain the payee's correct name and TIN. For individuals, the TIN is generally a social security number (SSN).
A flat 28% withholding tax is required in the following situations:
- A TIN is not provided in the required manner.
- The IRS provides notification that the TIN is incorrect.
- The IRS provides notification to withhold taxes on interest and dividends due to underreporting.
- The payee fails to certify "not subject to backup withholding."
Form 1099-MISC, Miscellaneous Income – this form is filed on a calendar year basis to the IRS and to the payee of proceeds in excess of $ 600. This includes payments for rents, attorneys, independent services, prizes, awards and any amount withheld as backup withholding tax. The annual due date is January 31.
The Internal Revenue Service (IRS) requires that when services are provided inside the U.S, taxes must be withheld from payments made to foreign vendors unless the income is exempt under the guide of a tax treaty between the foreign vendor's country and the U.S. The appropriate IRS form must be completed and verified as valid.
A Form W-8 or 8233 are used to obtain a taxpayer identification number and to request certain tax treaty claims for exemptions. These forms are also used to certify foreign status. The following lists are the various forms mentioned:
- Form 8233 – request this form when a foreign independent contractor for services performed in the U.S. is claiming a tax treaty exemption. This form must be submitted to the IRS for review 10 days prior to payment.
- W-8 BEN– request this form from any foreign individual. If the foreign TIN is not provided, you must obtain the individual payee’s date of birth on line 8 in order to treat the form as valid. The TIN will begin with 999 and the fourth digit will be a 7 or an 8 (999-7/8x-xxxx)
- W-8BEN-E – request this form from any foreign entity, including partnerships. The following sections are required: Part 1 #(1),(4),(5),(6), Part XIV and Part XXIX review and signature. If payment is for services performed in the US, and the organization is requesting exemption from withholding tax, the previous mentioned sections are required along with Part 1 (8) TIN and Part III.
- W-8ECI – request this form from any foreign person or entity (except partnerships) that claims the income is effectively connected with the conduct of a trade or business in the U.S. A U.S. TIN is required. This number will begin with 98(98-xxxxxxx). No withholding is required on such income.
- W-8EXP - request this form from any foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U.S. possession.
- W-8IMY - request this form from any person that is an intermediary or a nonqualified intermediary, including certain U.S. branches or territory financial institutions, a withholding foreign partnership, a withholding foreign trust, or a flow-through entity.
Form 1042S – this form is filed for each U.S sourced payment paid to a foreign person. It is based on a calendar year and filed to the IRS and the foreign person by March 15 annually.