Tax laws require Kent State University to report and possibly withhold from certain payments to federal, state, and local tax authorities. This requires Kent State to determine what type of payment is being made, the tax status of the payee, the source of the transaction, and whether a tax treaty applies.
Common questions include whether a payment is a purchase of goods, a royalty for the use of intangibles or software, scholarship, wages, or a payment to an independent contractor. The reporting requirement varies based upon the tax status of the payee.
U.S. citizens, permanent residents, and nonresident aliens may be treated differently. For example, nonresident aliens receiving a scholarship from a U.S. payor for education in the U.S. may be subject to reporting and withholding in the U.S. whereas U.S. citizens and resident aliens are not. U.S. Corporations may be exempt from information reporting but foreign corporations may require reporting and withholding.
Also, the source of the transaction varies by the type of payment. The source of the transaction means where the services are rendered, where the use of the intangibles occurred, or the shipping point for product.
Finally, a tax treaty between the U.S. and the payee's country may override the regular tax reporting rules.