SALT LAKE CITY -- A legislative audit shows the Weber State University Bookstore's failure to charge sales tax on electronic products cost the state approximately $167,353 in lost sales tax revenue for one year, and similar practices at other state schools could be costing the state as much as $1.16 million a year.
The audit findings were outlined Monday as part of a legislative audit subcommittee review. The audit focused on potential sales tax abuses by University of Utah, Utah State University and Weber State in competing with the private sector and how their tax-exempt status translated into products generating sales tax. A Board of Regents guideline, R555, places limitations on the extent to which a public institution can compete with the private sector.
All state schools currently sell textbooks tax free, but their computer practices are inconsistent. WSU reportedly stopped charging sales tax on computers, iPads, calculators and flash drives in January 2010, saying the equipment is considered to be instructional material, according to the audit.
WSU's approach to not charge sales tax is in line with tax advice from the Utah Tax Commission. WSU, the University of Utah and USU all have 501C3 status, granted to religious and charitable organizations. The audit says tax commission officials said the university's mission-based activities could be interpreted broadly -- meaning many items sold by the universities would enjoy tax-exempt status.
Dr. Gregory Stauffer, associate commissioner of finance and planning for the Board of Regents, said he hopes the regents will revisit their existing policy before December and clarify the standard.
WSU's sales tax collection was included in the audit at the behest of an Ogden-area business that claimed the university was selling Apple computers to the public and not charging tax. The audit did not, however, find any instances where that took place at the school.
The major focus of the audit is the sales of goods and services to the public from the University of Utah's new Red Zone stores and on campus sales to the general public at Rice-Eccles Stadium at U of U, the University Inn in Logan, the University Conference Center also at USU and the University Guest House and Conference Center on the U of U campus.
David Gibson, auditor, said it was clear from an examination of the Red Zone stores and their growth that the U of U is in violation of the spirit of the Regents' policy. Besides selling off campus, he said, it is clear the stores market to the general public and compete with the private sector. He said revenues at the university's three stores, including one in Layton, are now more than $2 million a year.
Gordon Wilson, assistant vice president of auxiliary services for the U of U, said he believes the university meets the spirit of the Regents' guidelines. He called the stores part of the school's community outreach to alumni and fans. He said the dollars generated help the university be more self-supporting.
"The university felt, in the spirit of joining the PAC 12, that we had a niche within our market. We have our name, our product. We want to get to our fan base. Our fan base said we want this product but can't find it. We want it 12 months a year," Wilson said.
House Speaker Rebecca Lockhart wondered why schools like the University of Utah, WSU and USU were given 501c3 status. Dixie State and Snow College are the only higher education institutions in the Beehive State that do not have 501c3 status.
Stauffer said the tax status allows the schools to construct new facilities without taxes.
The audit's findings will be forwarded to other legislative committees for potential review during the interim period.