1ST REQUEST LETTER
02-011
NAME
COMPANY
ADDRESS
COMPANY is a metal building manufacturer with plants located throughout the United States. We are a registered retailer in the state of Utah and are required to collect sales/use tax in your state. We have acquired several customers recently that purchase buildings from us and then resell the buildings to a third party through their website on the Internet. Frequently, we are presented with the debate that since the buildings are being sold online, sales tax will not apply to the transaction. Our argument for charging applicable sales tax is that the sale between COMPANY and our customer is not online. Therefore, since we have nexus (due to having either a plant or sales representation) in the state of Utah, sales tax would be due on the transaction.
The following questions have been presented in regarding to the above situation:
So that we can better serve our customers and the state of Utah, please provide a written ruling on the above questions as soon as possible. We have several orders pending at this time that need these issued resolved before we will be able to proceed with the fabrication of the building. If possible, please fax your response to my attention at PHONE. Otherwise, please mail your response to the address above.
Sincerely
NAME
2nd REQUEST LETTER
April 25, 2002
NAME
COMPANY
ADDRESS
Ref: Request for Written Ruling
Dear NAME
COMPANY, is a metal building manufacturer and a registered retailer in the state of Utah. We are required to collect sales/use tax in your state. We have a customer that is located in Colorado that is purchasing a metal building from us. This Colorado customer has requested that we ship this building via common carrier to his customer who is located within the state of Utah and drop-ship the building at the Utah jobsite (third-party drop shipment transaction. Our Colorado customer is not registered in the state of Utah.
Will the state of Utah accept our customer's Colorado number or does Utah require anyone doing business in your state to register for sales tax? If Utah will accept the Colorado customer's number, what documentation will be required for our files to support this exemption?
Also, quite often, we have the exact same transaction as described above, but the Colorado customer will retain the common carrier, send it to our plant to pick up the building, and then deliver the building to the end-user in Utah. Does the tax liability remain the same in this transaction? If not, where does the tax liability occur?
So that we may better serve our customers and the state of Utah, please provide a written ruling on the above questions as soon as possible. You may mail your response to my attention at the mailing address shown above or e-mail to EMAIL. Thank You.
Sincerely
COMPANY
NAME
RESPONSE LETTER
July 2, 2002
NAME
COMPANY
ADDRESS
Re: Taxability of Internet sales of metal buildings and the taxability of third party drop shipments
Dear NAME,
You have sent us two letters requesting information on sales of metal buildings in Utah. According to your first letter, COMPANY is a registered retailer in the state of Utah. Your letters request information regarding the responsibility of COMPANY to collect tax on metal buildings it sells to customers in Utah and information on buildings sold to out of state customers who then request the building to be shipped directly to their customers in Utah. We will address your concerns from both letters.
First Letter.
The first letter addresses the sale of buildings to a customer in Utah that resells the buildings to another customer. COMPANY has been collecting sales tax on all of the buildings it sells in Utah, but several new customers are reselling the buildings online and do not believe COMPANY should be charging them sales tax. Each of the three questions your letter addresses will be discussed.
Question 1. The first question addresses whether COMPANY is correct in assuming it is responsible for collecting sales/use tax when it sells its metal buildings to another company (“Company A”) that resells the buildings to a final customer (“Customer 1”) through the Internet. This assumption is incorrect. COMPANY sells its merchandise to Company A that is presumably located in Utah because COMPANY is collecting Utah sales tax on the transaction. Company A then sells the building to Customer 1.
If Customer 1 were the final customer, then Company A, not COMPANY, would be responsible for collecting the sales tax. It has been found that the in-state presence of property and employees is all that is needed to establish nexus for collection of sales and use tax for a retailer. (see National Geographic Society v. California Board of Equalization, 430 U. S. 551 (1977)). Accordingly, from the facts presented in your letter, it appears that Company A has nexus with Utah and is required to obtain a Utah sales tax license, if it does not already have one, and collect and remit sales tax on all taxable sales made in Utah whether by a sales representative or online.
However, since COMPANY is registered to collect and remit Utah sales tax on sales in Utah, it must document its exempt sale to Company A. Otherwise it can be held liable for Utah sales tax on the transaction. [(Utah Code Ann. §59-12-106 (2); Utah Admin. Rule R865-19S-23, (“Rule 23”)]. 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. In the space that asks for the Utah sales tax number on the Form TC-721, Company A would put its Utah number and be responsible to collect and remit sales tax on all taxable sales made within the state whether online or by a sales representative.
Question 2. The second question addresses whether there are any bills pending before the Utah legislature that change the taxability of Internet sales transactions. All sales made by Utah companies, whether in person or through the use of the Internet, are taxed in the same manner if they are sold to Utah customers. During the previous legislative session, there were not any bills that would have altered or changed the taxation on Internet sales. Currently, there are no proposals, nor do we foresee any such changes in the taxation methods in the immediate future.
Question 3. The third question concerns whether COMPANY has Utah sales tax liability if documentation is received that any Utah sales tax, penalties and interest will be paid by Company A. Utah law does not provide for a “direct pay” permit or method of reporting sales tax on purchases from Utah suppliers. (See Tax Bulletin 2-91, copy attached). COMPANY can be held liable for all sales made to customers in Utah unless it obtains a valid Form TC-721 that shows the sale is for resale or otherwise exempt. If the proper documentation is obtained to prove that an exempt sale has been made, then the responsibility of collecting sales tax shifts from COMPANY to Company A. (Utah Code Ann. §59-12-106 (2); Rule 23) Again, COMPANY would not be responsible for collecting sales tax on the resale transactions made to Company A, but Company A would need to collect and remit all applicable Utah sales tax for sales made within Utah.
Second Letter.
Your second letter addresses whether COMPANY is required to collect sales or use tax on sales of merchandise to a Colorado 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 B”) that is located in a different state, Colorado in this instance. However, COMPANY does not ship the merchandise to Company B. Instead, it ships the merchandise directly to Company B’s customer (“Customer 2”), who is located in Utah. Company B is located outside of Utah. Because of your statement in your letter, we assume Company B does not have nexus with Utah and, thus, it is not required to be registered to collect and remit sales tax.
We also assume that Customer 2 is the final consumer. Under these circumstances, the sale from COMPANY to Company B is a sale for resale. COMPANY receives a sale for resale certificate from Company B and is not responsible to collect sales or use tax on the sales made by Company B. In addition, since Company B 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 B would be required to collect and remit Utah sales tax on this transaction. [1] COMPANY may keep on record a letter from Company B stating that Company B has no nexus with Utah for sales tax purposes under Utah Code Ann. §59-12-107 (copy attached) and that items purchased by Company B from COMPANY are intended for resale. Even if Company B did in fact have nexus with Utah, COMPANY still has no sales tax liability if it receives a properly completed exemption certificate from Company B.
In summary, COMPANY is not required to collect and remit sales tax for the sales of merchandise to Company B as long as it follows the above-mentioned requirements. COMPANY may have nexus with Utah in other transactions, but this does not impute the responsibility to collect tax on sale for resale transactions or on third party drop shipments, as described in your letter, where COMPANY is not the seller to the final customer.
Please contact us if you have any further questions.
For the Commission,
Marc B. Johnson
Commissioner
MBJ/PL
02-011
[1] However, Customer 2 would be required to directly report and pay to the Tax Commission the Utah use tax that is due on the sale.