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Presentation to theFinancial Administrator Development Program
Financial & Tax Policies/Processes
November 29, 2016Beth Powers, Tax Manager, Financial Analysis & Reporting
Lee Hunter, Chief Accountant, Accounting
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Agenda• Introduction• Overview of financial policies and procedures• Financial reporting and taxes• Questions
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Financial Policies and Procedures
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Policy - Purposes and goals• Provide reasonable assurance that MSU’s fiscal goals
are met• Promote efficient and effective operations• Support compliance with laws, rules, and regulations• Keep costs monitored and contained• Provide reliable financial reporting
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External factors impacting policy & other requirements
• IRS or other federal regulations and laws• Changes in treasury regulations• Changes in interpretive guidance• Federal grants and programs• New or changed reporting requirements• New or changed taxes
• State regulations and laws• New or changed taxes• Specific tax or reporting guidelines
• Other • Generally Accepted Accounting Principles (GAAP)• Governmental Accounting Standards (GASB)
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Internal factors impacting policy
• Board Actions• Policies to address MSU concerns
• New or changed reporting requirements• Enhanced cost monitoring and control
• Clarification and interpretation • Departmental requests
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New or changed policy process
Policy is identified
Policy is quantified and qualified
Policy is approved
Internal Audit is notified of policy change
Manual of Business Procedures is updated and campus notified
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Policy interpretation
• What does policy and procedure mean?• Is policy always black and white?
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Policy scenarioThree departmental staff members go out to dinner to discuss reporting for a new initiative. Alcohol has been included. How should dinner be paid?
a. Dinner should be charged to the department.b. Each person should pay for their own dinner.c. Department should pay except for alcoholic beverages.
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Taxes and Financial Reporting
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Tax considerations• UBIT• Sales and use tax• Raffles and giveaways
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UBIT test – 3 prongs
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Regularly Carried On
Trade or Business
Not Substantially
RelatedUBIT
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How can I identify UBIT?
• Are we selling goods or service?• Are they available to the General Public?• Am I marking up cost for a profit?• Is the activity unrelated to MSU’s exempt mission?• Is this activity in response to direction of being more “entrepreneurial” in order to bring in new revenue streams to the department?
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Related to what?Educational, Research & Public Service Mission
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How the funds are earned does matter
How the funds are used does not matter
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Are there exceptions/exemptions?• Passive activity (i.e. rents, royalties, interest)• Activity conducted by volunteers• Research Activity• “Convenience Exception”
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Examples
Activity Description UBIT?
Golf Course Use of golf course, driving range, and pro shop by anyone.
Advertising Advertising in Athletic programs
Wharton Center Theater production, music events
Online Sales Products (ex. T-shirts, ornaments, flags, etc.) sold online to anyone.
Athletic Events Tickets to Athletic events
Corporate Sponsorships
Company gives money to sponsor event or program
Meeting Room Rental
Catering and room rental available to anyone
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Is it advertising or acknowledgement?
Advertisement Acknowledgement
Contains qualitative or comparative language
Sponsor name, location, address, telephone numbers, web address
Endorsement, or inducement to purchase Slogans or logos that do not contain qualitative or comparative language
Pricing information or other indications of savings or value
Sponsor’s brand or trade names and product or service listing
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UBIT reminders
It is OK to engage in taxable activity
Factor tax into cost structure
It is better to receive $0.70 on a dollar than $0.00
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Collecting sales and use tax - examples• Meals (exception current enrolled students)• Books, printed materials, t-shirts, other tangible
personal property.• Equipment rental• Lodging and overnight accommodations (<30 days)• Room rental (only when overnight accommodations
are available)
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Raffles and giveaways• Raffles – There is a ‘wager’ or ‘consideration’ to be
entered. Must be licensed if total prizes for the day are greater than $100. MBP Section 49
• Giveaways – No purchase to enter. Depending on FMV of prize, may be tax reportable to winner. MBP Section 44
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Tax scenarioDepartment A allows the general public to rent out their conference and meeting rooms. Both IT and catering services will be made available to those renting the rooms. What tax concerns does the department need to be aware of?
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Transaction classification
• Income or Expense?• What object code?• Subject to tax reporting?• Subject to tax payments?• Who owes the tax?• Expense Abatement?
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Income
• Grants• Gifts• Tuition• State Allocations• Sales of goods and services
• Testing• Research services
• Royalties and Copyrights
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Identify the income• SourceResult of invoices for goods
or services?Gifts?
• Income... or• Expense reduction
What is the nature of the funds?
• Appropriate fundWhere should the income be recognized?
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Expense
• Supplies• Services• Royalties and Copyrights• Rents• Personnel
• Salaries• Benefits
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Identify the expense
What is the nature of
the expense?
Report with proper object code.
Subject to tax
reporting?
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Who are you paying?
Receiving payment Tax Form Reported On
Individual/Vendor 1099-MISC
Non-resident Alien (NRA) 1042-S
Student 1098-T
Employee W-2
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From payment to 1099-MISC
Invoice
Disbursement Voucher or Payment Request (KFS)
Year end Form 1099-MISC
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If you pay a nonresident alien…
• Were services provided? If so, where?• Services provided in the U.S. are subject to tax withholding• Taxes are paid by MSU to the government (similar to payroll)• Departments can pay the taxes (added cost to department)• Intellectual property use in the U.S. subject to tax withholding
• Royalties• Copyrights
• Tax treaties may mitigate tax withholding• U.S. or foreign tax ID required for tax treaty benefits
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Nonresident alien taxes on 1042-S
Reason for payment
Services provided in the U.S.?
Tax report?
Withhold taxes?
Purchase of goods No No No
Honoraria Yes Yes Depends – tax treaty may mitigate
Honoraria No No No
Consulting Yes Yes Depends – tax treaty may mitigate
Consulting No No No
Royalties No Yes Depends – tax treaty may mitigate
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Reminder – No TIN, no treaty
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If you pay a student (non-wage)….
The payment should go through Student Accounts if it is for the benefit of the student
(i.e. housing, student insurance, even travel)
Annual basis all payments to students are reported on a Form 1098-T
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Expense abatements…
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• Credit an expense object code• Should only be used when receiving monies for:
• Reimbursements of expenses paid in error• Overpayments• Refunds of a expenses previously incurred, and no
longer owed
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Expense abatements continued…
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Expense abatements are not:• Payment from an outside company to support half the salary cost of a faculty member working with the company• Monies from a non-MSU source supporting an upcoming conference a department is hosting• Sale of old or unused supplies a department ownsExpense abatements are:• Employee cancels attendance at a conference and company sends refund check for the conference registration• Company overcharged by $200 on an invoice for services and sends a check to MSU for the overcharge
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Contact information• Beth Powers, Tax Manager
• [email protected]; 884-4279
• Lee Hunter, Chief Accountant• [email protected]; 884-4164
• http://ctlr.msu.edu/ - additional information, forms, etc.
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