REQUEST LETTER
00-034
Response March 5, 2001
Subject: COMPANY
Nexus Issue
Dear NAME,
We were referred to you by NAME to request an advisory opinion from the State of Utah as to whether or not the NAME will be subject to income tax within the Sate of Utah because of Nexus.
The facts and circumstances are as follows:
1) Company Name: COMPANY
State of Incorporation: NAME
Date of Incorporation: DATE
EIN: ######
Fiscal Year End: DATE
Address: ADDRESS
ADDRESS
STATE
Contact Person: NAME
PHONE
2) The company is not a parent or subsidiary of any other corporation.
3) The company has not had any income previously within the State of Utah.
4) The principal business activities of the Company to be conducted within the State of Utah is to solicit advertising from Utah businesses to be displayed in a free advertising publication distributed within the state.
5) The company has not and does not plan on participating in trade shows or seminars in Utah.
6) The company will have employees on the Company's payroll that normally perform services in a state other than Utah , but will occasionally or temporarily work in Utah.
7) The company will have 3 traveling sales representatives soliciting advertising within Utah, as well as other states.
8) While in Utah, the Company's employees/representatives will:
a) Not sell products and/or services.
b) Not supervise or manage activities or employees and/or other company representation.
c) Not engage in any collection activity of any kind.
d) Not handle complaints of Utah customers.
e) Not conduct lectures or offer training.
f) Not investigate, recommend or appoint potential Utah dealers, agents or distributors to the company.
g) Not use their Utah homes for any business activities.
h) Not perform any engineering functions.
I) Only solicit orders for the sale of advertising.
j) Secure deposits on the advertising contracts.
k) Not personally deliver company products or move company products between points in Utah.
l) Sign contracts that bind the Company.
9) The Company will advertise in publications within Utah.
10) The Company will not have a Utah telephone number.
11) The Company does not hold title to any property or placed a lien on any property located in Utah.
12) The Company will not conduct any banking activities in Utah.
13) The Company does not engage in any franchise operations in Utah.
Please review the information above. Should you require any further information in your conclusion as to whether or not the COMPANY would be subject to Utah income taxes, please contact either NAME or myself.
Yours very truly,
NAME
RESPONSE LETTER
DATE
RE: Income Tax Nexus - Sale of Advertising in and Distribution of Free Publications in Utah
Dear Mr. NAME,
You have requested an advisory opinion on whether the COMPANY. (the ACompany@) has nexus with Utah for income tax purposes. Specifically, you inquire whether nexus exists if the Company solicits the sale of advertising in Utah to be displayed in a free publication distributed in Utah.
You have listed a number of facts and circumstances surrounding the Company=s activities in Utah. To establish nexus with Utah, these activities must be significantly associated with the Company=s ability to establish and maintain a market in Utah for its product. As the Company will regularly or systematically send employees into Utah to solicit advertising orders, enter into contracts with Utah advertisers, and distribute its free publication in Utah to Utah residents, we find that the contacts with Utah are sufficient to establish nexus. Accordingly, the Company is subject to Utah=s franchise tax for the privilege of doing business in Utah. See Utah Ann. Code '59-7-104(1).
As many of the Company=s activities in Utah involve soliciting, we should address why Public Law 86-272 (AP.L. 86-272) does not afford the Company immunity from income tax nexus under these circumstances. P.L. 86-272 is a federal law restricting a state from imposing income tax on a company whose only business activity in that state is to solicit orders for sales of tangible personal property, where the orders are sent outside the state for approval or rejection and are filled by shipment or delivery from a point outside the state. While in Utah, the Company=s representatives sign contracts that bind the Company and secure deposits on these contracts. Either of these activities negates any immunity that would otherwise be provided under P.L. 86-272. In addition, P.L. 86-272 protection is limited to soliciting the sale of tangible personal property. As the Company is engaged in Utah in soliciting the sale of advertising, not tangible personal property, P.L. 86-272 immunity does not apply.
Although you did not inquire about sales and use tax, we point out that distributing your publication free of charge in Utah may result in sales and use tax liability. Tax is due on either the production or acquisition cost of any publication that is freely distributed, unless that publication is a newspaper as defined in Utah Admin. Rule R865-19S-65 (copy enclosed).
Please contact us if you have any other questions.
For the Commission,
Marc B. Johnson
Commissioner
MBJ/KC
00-034