REQUEST LETTER

01-016

Response 05/04/01

RE: Secondary Sales

Dear TP REP:

I really appreciated the information. However, the collection approach outlined presents some interesting questions. It makes perfect sense if the supposition is that the price allocated for tickets in such a package deal is at " face value" or is in fact actually paid. However, I think that there are some interesting dynamics that might, and I would submit, do arise. I would appreciated your insights in these cases:

1. The tickets are purchased at a face amount but then resold at a significant markup by the packager. I realize that what is a cost associated with a service v. the price of the ticket may be an accounting exercise. But for the sake of argument let's assume that the markup is clearly stated. If the sales tax is only collected on the initial purchase hasn't the enhanced value of the final sale been lost? In fact, should the transaction actually have been one done with a resale exemption?

2. Let us assume that the initial seller is an exempt entity (a 501(c)(3) organization such as the COMPANY. If a tour packager buys a block of tickets from the COMPANY there will be no sales tax paid at all on this transaction. However, the tour packager, which in my example is a private, tax-paying entity with nexus in Utah, then resells the tickets as part of a tour package. If the only method of collection is at the initial sales (with the exempt organization) then no sales tax would have been paid at all. This in spite of the fact that the final consumer sale clearly involves a taxable transaction - since neither the tour packager nor the final consumer is tax exempt.

I would appreciate your insights. Thanks.

NAME

RESPONSE LETTER

DATE

NAME

ADDRESS

RE: Advisory Opinion – Sale of Tickets on the Secondary Market

Dear NAME,

We have received your inquiry concerning the application of sales tax on tickets sold on the secondary market. Tickets are usually evidence of sales of admissions, which are taxable under Utah Code Ann. §59-12-103(1)(f). When a ticket is purchased on the secondary market, the final consumer purchases the ticket from a secondary seller, not from the ticket’s original seller. The Commission’s policy is to collect sales tax on the price charged by the original seller and not to impose sales tax on any additional price charged by the secondary seller. You indicate that you believe this policy should be changed so that sales tax is collected on the entire price charged by the secondary seller.

As to your first question, sound theoretical arguments can be made that the secondary seller should buy the ticket tax-free under the resale exemption and collect sales tax on the total amount the final consumer is charged. However, in the secondary market, the Commission believes that there are two objects of the transaction: 1) the ticket; and 2) significant services provided by locating the ticket, purchasing it, and making it available for sale. Under these specific circumstances, we believe it equitable to separate the nontaxable sale of the services from the taxable sale of the ticket. For this reason, the secondary seller is considered to “consume” the ticket when providing his or her nontaxable service. Accordingly, the secondary seller must pay sales tax on the taxable item or service consumed, which requires the original ticket seller to collect and remit sales tax on the amount the original seller charged.

This approach solves two practical problems. First, we believe the appropriate sourcing for an admission is the location of the entertainment venue. Thus, a tax of admission tickets to an PLACE event should be CITY local tax rate, while tickets to a PLACE B event should carry CITY tax rate, regardless of the fact that both tickets were purchased in a single transaction in another county (or even a CITY) ticket outlet. Compliance and administration are established by having each venue account for its own tax. Second, there may be situations where the reseller does not have nexus with the state and we could not require collection. Sales tax collection sourced at the venue location ensures that all admissions, including purchases by an out-of-state reseller, are subject to the same tax. Although the “mark-up” on the admissions escape tax, we believe our approach ensures appropriate revenue for the cities and towns concerned.

Your second question concerns a secondary seller who purchases the ticket from an entity that is entitled to sell tickets for admissions tax-free, such as the COMPANY. Under our policy, the secondary seller consumes the ticket in providing the nontaxable service. Accordingly, if the original seller is entitled to sell the ticket tax-free, there is no tax liability on the sale of the ticket to the secondary seller. Utah Code Ann. §59-12-104(51) exempts COMPANY from collecting sales tax on tickets for admission to the EVENT if the amounts charged for the tickets are established by COMPANY. Accordingly, if a secondary seller purchases a ticket from COMPANY under these circumstances, the sale would be tax-free. However, while it has no impact on COMPANY exemption from imposing sales tax on these ticket sales, we are aware that COMPANY will accrue an amount equal to the sales tax it would have collected except for the Subsection 104(51) exemption. The accrued funds are to be used for public safety purposes. This agreement by COMPANY will ensure that local governments will not be unduly prejudiced by the Commission’s approach.

Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/KC

01-016