REQUEST LETTER

02-010

NAME

ADDRESS

Re: Applicability of Utah State Sales and Use Tax to Drop Shipments

Our company is an out-of-state vendor that is licensed to do business in Utah. We have a customer located in a foreign country that purchases merchandise from us and resells the merchandise to their customers in the state of Utah. We ship the merchandise purchased by this customer directly to their Utah customers. Our billing is sent to the foreign customer who bills their own customers accordingly. The foreign customer does not have nexus in Utah and is not registered to do business in Utah.

We hereby request a ruling with regard to the tax treatment of the drop shipments made in behalf of our foreign customer. Are we required to collect sales or use tax for this foreign reseller?

Would you please respond to COMPANY, ADDRESS. If you have any questions relating to this matter, please contact me at PHONE or send an email to EMAIL ADDRESS.

RESPONSE LETTER

April 25, 2002

NAME

ADDRESS

Re: Sales and use tax on drop shipments

Dear NAME,

Your letter addresses whether COMPANY is required to collect sales or use tax on sales of merchandise to a foreign reseller when COMPANY is the party who ships the merchandise directly to the reseller’s customers in Utah.

According to your letter, COMPANY sells its merchandise to another company (“Company A”) that is located in a foreign country. However, COMPANY does not ship the merchandise to Company A. Instead, it ships the merchandise directly to Company A’s customer (“Customer B”), who is located in Utah. Both COMPANY and Company A are located outside of Utah. COMPANY is registered with Utah to collect and remit sales tax to Utah. Because of your statement in your letter, we assume Company A does not have nexus with Utah and, thus, is not required to be registered to collect and remit sales tax.

We also assume that Customer B is the final consumer. Under these circumstances, the sale from COMPANY to Company A is a sale for resale. COMPANY receives a sale for resale certificate and is not responsible to collect sales or use tax on the sales made by Company A. In addition, since Company A is not registered and appears not to have nexus with Utah in its business relationships, Utah is not able to require it to collect and remit sales and use tax. Under these circumstances neither COMPANY nor Company A would be required to collect and remit Utah sales tax on this transaction. ^[1] Even should Company A in fact have nexus with Utah, COMPANY still has no sales tax liability if it receives a properly completed exemption certificate from Company A.

To document your exempt sale to Company A, our current policy requires that you have Company A complete a Utah sales tax exemption certificate (Form TC-721, copy attached) indicating that its purchases from COMPANY are for resale. Since Company A is a foreign corporation, this should be included on the certificate and any additional information regarding the location of Company A should be attached. COMPANY should retain this document in its records as evidence of the exempt sale. However, as an alternative, COMPANY may keep on record a letter from Company A stating that Company A has no nexus with Utah for sales tax purposes under Utah Code Ann. §59-12-107 (copy attached) and that items purchased by Company A from COMPANY are intended for resale. In addition to the exemption certificate, Rule 23 also requires that you keep a copy of the sales invoice showing the name and identity of Company A.

Accordingly, COMPANY is not required to collect and remit sales for the sales of merchandise to Company A as long as it follows the above-mentioned requirements THOMPSON may have nexus with Utah in other transactions, but this nexus does not impute the responsibility to collect tax by COMPANY on sale for resale transactions or on third party drop shipments, as described in your letter, where COMPANY is not the final seller.

Please contact us if you have any further questions.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/PL

02-010