University and other nonprofit presses may be subject to a number of taxes, such as state and local sales or use taxes, Canadian Goods and Services Tax (GST), and/or Unrelated Business In come Tax (UBIT). The following is a general summary of the taxes and how your press may have to comply with them. Since the situation of each press is unique, this information should serve as a guide. The appropriate legal and accounting people at individual institutions should be consulted for specifics on compliance with all applicable tax laws and regulations.
A tax is generally imposed on vendors or retailers and is calculated on the seller's gross receipts on retail sales. Although the tax is imposed on the seller, the retailer or the seller acts as a collection agent and collects the tax from the purchaser.
Sales and Use Taxes -- State and Local Governments
States imposing a sales tax also impose a "use tax" on merchandise bought outside the state. The use tax protects sellers within the state from competition from tax-exempt out-of-state retailers. States and localities use tax revenues to support infrastructure and services from which, they argue, out-of-state vendors benefit. The out-of-state retailer collects the tax, due to the impracticality of the state collecting it from individual purchasers.
Whether or not a seller must collect a use tax depends on some difficult-to-define level of activity within the state. The Supreme Court has said in various rulings that a "nexus" must be established between the seller and the state before the jurisdiction's taxing authority can be imposed. Practically, "sufficient nexus" means that the seller maintains some kind of physical presence in the state. Whether "physical presence" is one salesperson, a retail store, a quality controller at an out-of-state printing plant, or employees appearing in the state to exhibit at one (or five) trade shows during a year has not been made clear by the courts.
Quill Use Tax Case
A recent case before the Supreme Court, Quill Corporation v. North Dakota (May 1992), was closely watched by direct marketers and mail-order firms. The Court's ruling reaffirmed the unconstitutionality of a state's right to levy taxes on sales by out-of-state vendors who communicate with customers by mail, while it emphasized the administrative burdens of remitting taxes to the various jurisdictions. But as state and local governments become more aggressive in their attempts to generate revenue, the issue of mail-order taxation will probably rise again. In fact, the Supreme Court's decision may have moved the debate from the judicial to the political arena and opened the door to more litigation and possible legislation from Congress.
In January 1991, the Canadian government imposed the Goods and Services Tax (7 percent) on the sale of most goods in Canada. The tax replaced the federal sales tax and was imposed to standardize the taxation of residents and nonresidents. Every nonresident business selling in Canada must register for the GST unless it is a small supplier with sales of less than $30,000 (in Canadian currency).
Paying the Tax. Upon registration, businesses are advised of their filing frequency, which can be on a monthly, quarterly, or annual basis. Thereafter, businesses must calculate both GST collected on sales and GST paid on purchases during the reporting period. Registrants can claim a credit for the GST paid on purchases made of goods and services subject to the tax.
Revenue Canada requires that all packages entering the country be stamped with a GST registration number, accompanied by an invoice showing the price charged to the purchaser.
"Doing Business in Canada--A Guide for Non- Residents" is a publication providing additional information about GST; it may be obtained upon request by writing: Revenue Canada, Customs and Excise, Distribution Center, Connaught Building, Ottawa, Ontario, Canada, K1A 0L5.
Nonprofit organizations may be subject to the Unrelated Business Income Tax if they engage in business not directly related to their tax-exempt purpose. Taxable business activity must be carried on in a regular manner and must be "substantially" unrelated to the charitable or educational purpose on which the organization's exempt status is based.
Government organizations and agencies are exempt, as are universities and colleges that are part of a government or political entity.
Examples of income earned by university presses that have been deemed to be reportable unrelated business income include revenue from journal advertising and mailing list rentals. Each press should check with its university's legal office to determine if it must report such income on the university's information return. Costs and expenses incurred to produce unrelated income are deductible from the gross amounts for tax purposes. UBIT is subject to corporate taxes unless the organization is a trust. Quarterly payments of taxes must be made on Form 990-T.
Again, UBIT is a gray area of taxation, and presses should seek help from tax and legal professionals with questions about the possible taxation of income derived from sources outside the sale of publications or subsidiary rights.