REQUEST LETTER

 

 

01-009

Response May 18, 2001

 

COMPANY

ADDRESS

 

We are writing on behalf of our client, hereinafter referred to as COMPANY to request an advisory opinion regarding the issue identified below. We are aware that the Utah State Tax Commission (the Commission") recently published an advisory opinion that indicated that the Commission is currently evaluating the issue as stated, and anticipates providing further guidance on the issue to taxpayers in the future. Utah State Tax Commission Advisory Opinion 99-024 (May12, 1999). As we are unaware of any further guidance published by the Commission on the issue, we respectfully request your consideration of the issue at this time. As part of our request, we have included the factual background and our analysis of the issue.

 

ISSUE:

 

Is a Single Member Limited Liability Company (hereinafter referred to as "SMLLC") a "person" for purposes of Chapter 12 of Title 59 of the Utah Code Ann. ("UCA").

 

CONCLUSION:

 

A SMLLC is a "person" as defined in UCA § 59-12-102(19). The statute, in pertinent part, defines a person as an "individual, firm, partnership, joint venture, association, corporation, estate, trust, business trust, receiver, [or] syndicate . . or any group or combination acting as a unit." UCA § 59, 12-102(19). While this definition of' person" does not specifically refer to a limited liability company or a SMLLC, the statute writers intended to include all separate legal entities existing at the time of the enactment of Title 59, Chapter 12 of the UCA, (1933) in its definition of a person," including by inference a SMLLC. The Utah Limited Liability Company Act (Title 48, chapter 2b of the UCA) was enacted by law in 1991. These statutes provide that a limited liability company is separate and distinct from its owners, and is recognized in all respects as a separate legal entity. As a separate legal entity, a SMLLC is a 'person" for Utah sales and use tax purposes.

 

Based upon the facts as stated and upon our analysis, as a “person," a SMLLC must collect and remit sales and use tax on taxable sales or lease transactions, including taxable transactions with affiliated entities.

 

BACKGROUND:

 

Company X is considering the formation of a wholly owned subsidiary, COMPANY. COMPANY will be organized as a SMLLC, and will elect to be treated as disregarded entity for federal income tax purposes under

Treasury Regulation Section 301.7701-1 through 301.7701-3. COMPANY will have a Federal Employer

Identification Number separate from its parent and brother/sister corporations ("affiliated

corporations"). COMPANY will register to do business in Utah.

 

The operations of COMPANY will consist of purchasing tangible personal property for resale and then selling or leasing the property to its customers. COMPANY will collect and remit the applicable state sales tax on the taxable sales or leases of tangible personal property to its customers, including sales to affiliated corporations. To the best of our knowledge the issues involved in this request are not subject to an existing audit, protest, appeal, or litigation concerning our client.

 

ANALYSIS:

 

In support of our conclusion in this matter we submit the following for your consideration:

 

While Chapter 12 of Title 59 of the UCA does not specifically address the classification of a SMLLC for sales and use tax purposes, through other pertinent sections found in Chapter 12 and other areas of the UCA, one can infer that a SMLLC will be treated as a separate entity or "person."

 

UCA § 59-12-102(19) provides, in pertinent part:

 

"Person" includes any individual, firm, partnership, joint venture, association, corporation, estate, trust, business trust, receiver, syndicate, this state, any county, city, municipality, district or other local governmental entity of the state or any group or combination acting as a unit.

 

Chapter 12 was enacted by into law in 1933. Based on legislative history, the definition of "person" under this Chapter has not been amended since enactment in 1933. Through the definition of "person" cited above, the statute writers attempt to include all types of entities existing at the time of enactment, including, individuals, corporations or any group or combination acting as a unit. Because limited liability companies did not exist as an entity type at the time of the enactment of Chapter 12, limited liability companies were not directly referred to in the definition of "person." However, one can infer that the definition of "person" under UCA 59-12-102(19) includes limited liability companies, SMLLCs, S corporations and other legal entity types acting as individuals, corporations or groups or combinations acting as a unit.

 

The statutes governing the formation and organization of limited liability companies, including SMLLCs, were enacted into law in 1991 and are found under the Utah Limited Liability Company Act, Title 48 Chapter 2b of the UCA. The Utah Limited Liability Company Act states that a "person" means an individual, general partnership, limited partnership, limited liability company, limited association, domestic or foreign trust, estate, association, or corporation. UCA §48-2b-102(6). Under this statute, a SMLLC is included as a "person." In addition, the clear intent of the Utah Limited Liability Company Act is to establish that a limited liability company is separate and distinct from its member or members, managers or employees.

 

Specifically, UCA § 48-2b-109(1) provides, in pertinent part, that:

 

neither the members, the managers, nor the employees of a limited liability company are personally liable under a judgment, decree, or order of a court, or in any other manner, for a debt, obligation, or liability of the limited liability company.

 

In addition, UCA § 48-2b-l 19 provides that the limited liability company is required to maintain separate records from its members; and, UCA § 48-2b-113 provides that any process against a limited liability company is served to the limited liability company in accordance with Title 16, Chapter 10a, Utah Revised Business Corporation Act, as if the company were a corporation, and not to the individual member or members.

 

Based on the facts and the analysis, COMPANY, a SMLLC, should be recognized as a separate legal entity and be included as a "person' under UCA Title 59, Chapter 12. While COMPANY should be considered a "person, COMPANY should also be classified as a "vendor" under Chapter 12 of Title 59 of the UCA.

 

UCA § 59-12-102(33) provides, in pertinent part,

 

(a) Vendor means:

 

(i) any person receiving any payment or consideration upon a sale of tangible personal property. . . and

 

(ii) any person who engages in regular or systematic solicitation of a consumer market . . .

 

UCA §59-12-107 provides, in pertinent part that each vendor is to collect and remit sales tax if the vendor regularly engages in any activity in connection with the leasing or servicing of property located within the state. Therefore, as a vendor, COMPANY should be required to collect and remit sales and use tax on the sale and/or lease of tangible personal property to end users.

 

SUMMARY:

 

In summary, we request that the Commission rule that a SMLLC be considered a "person' under Title 59 Chapter 12 of the UCA. Based on you r ruling in this manner, COMPANY would be considered a "person" under Title 59, Chapter 12 of the UCA, and as a “person” be required to collect and remit sales and use tax on taxable transactions with its customers, including transaction is with affiliated entities.

 

Should you be inclined to rule to the contrary on this matter, we request the opportunity to meet with you and further discuss the issue. Your cooperation in this matter is very much appreciated.

 

Sincerely yours,

 

NAME

Manager State and Local Tax

 

RESPONSE LETTER

 

DATE

 

NAME

ADDRESS

 

RE: Advisory Opinion – Single Member Limited Liability Company (SMLLC)

 

Dear NAME,

 

We have received your request for an advisory opinion concerning your client, an SMLLC, and whether such an entity is considered a “person” under Utah’s Sales and Use Tax Act (Title 59, Chapter12 of the Utah Code). For purposes of this chapter, a “person” is defined in Utah Code Ann. §59-12-102(19) and:

 

includes any individual, firm, partnership, joint venture, association, corporation, estate, trust, business trust, receiver, syndicate, this state, any county, city, municipality, district, or other local governmental entity of the state, or any group or combination acting as a unit.

 

While the list of entities in this definition does not specifically include an SMLLC, the Tax Commission does not view the definition limited only to the listed entities. The Utah Supreme Court has previously addressed whether the definition of “person” for purposes of Utah’s sales tax should be broadly or narrowly interpreted in Bird & Jex Co. v. Anderson Motor Co., 92 Utah 493, 498, 69 P.2d 510 (1937).[1] The definition of “person” that the Court considered (as found in Section 5 of the Emergency Revenue Act of 1933 (chapter 63), as amended by the Second Special Session of the Legislature in 1933, c. 20) was similar to the present law and read:

 

The term 'person' includes any individual, firm, copartnership, joint adventure, corporation, estate or trust, or any group or combination acting as a unit and the plural as well as the singular number unless the intention to give a more limited meaning is disclosed by the context.

 

At issue for the Court was whether a receiver authorized to conduct the business of the motor company was a “person,” even though the statute that did not include “receiver” among the entities listed as such. The Court concluded that receivers, trustees, executors, and others in fiduciary capacities were included in the definition, stating that “[f]ar from an exclusive definition, a broad, general, inclusive, and all-embracing definition was intended.” The Tax Commission believes this same reasoning applies to the current definition of “person.” Accordingly, the Tax Commission finds that your client, as an SMLLC, is considered a “person” under Title 59, Chapter 12 of the Utah Code, and, as such a “person,” is required to collect and remit sales and use tax on taxable transactions, including transactions with affiliated entities.

 

We should point out, however, that the definition of “person” under Section 59-12-102(19) applies only to the statutes found in Chapter 12 of Title 59. The term “person,” as used in other chapters of the Utah Code, may have different implications. For example, Utah Code Ann. §59-1-302(2) imposes a personal penalty, under certain circumstances, on any “person” who does not collect and remit taxes that are due. Even should the Title 59, Chapter 12 “person” that collects and remits sales and use tax be a corporation, LLC or SMLLC, the Tax Commission may conclude that a “person” for purposes of imposing the Section 59-1-302 personal penalty may include not only the corporation, LLC, SMLLC, but also an officer, member, or employee of such entities, or other responsible parties.

 

Please contact us if your have any other questions.

 

For the Commission,

 

 

 

Pam Hendrickson

Commission Chair

 

PH/KC

01-009


[1] At District Court, the Tax Commission appeared and filed a motion for rule on the receiver of Anderson Motor Co. requiring him to make sales tax returns and pay sales tax. The District Court denied the motion, and the Tax Commission appealed to the Supreme Court.