REQUEST LETTER

 

02-027

Response 1/14/03

 

NAME

ADDRESS

PHONE

FAX

 

Re: Utah Tax Law Pertaining to NEXUS and paying Sales Tax

 

I represent a client who is a Nevada "C" corporation but is headquartered in Utah. This company has a nexus-related tax questions with the State of Utah which need clarification.

 

This company in Utah (I will call it company "A") owns an internet website in which they sell products to retail consumers throughout the United States and internationally online. Company "A" takes the retail customer's orders online. Company "A" collects all funds from customers and assumes all risks in the transactions.

 

All of the products listed in and sold on the company "A" website come from a distributor (company "B") who is based in STATE. All of the products that company "A" sells are physically located in the company "B" warehouse in STATE.

 

All of the company "B" products sold by company "A" are then shipped directly by and from the company "B" warehouse in STATE to the homes of the retail consumers who bought the products from company "A". None of the products sold by company "A" first come to Utah from company "B" before they go to the retail consumer's home.

 

It is the understanding of both company "A" and company "B" that company "B" is not required by Utah sales tax law to collect or pay Utah sales tax on any of these sales made by company "A". It is also the understanding of company "A" that they are not required by pay Utah sales tax on items they sell exclusively on the internet that are then shipped from out of the state of Utah to the buyers, whether those items are shipped to customers in Utah or to customers in any other state from outside of Utah, such as from STATE. However, because the two corporations are about to enter into a long-term business relationship, we would greatly appreciate your formal opinion on this NEXUS matter. That is, would either corporation "A" or "B" have any responsibility to collect and remit Utah sales tax under the circumstances described above?

 

If you need any further information in evaluating these issues, please do not hesitate to call. I look forward to your quick response, in as much as the two corporations are in a holding patterns and are wanting to be compliant with state laws with respect to these nexus issues.

 

 

 

RESPONSE LETTER

 

January 14, 2003

 

NAME

ADDRESS

 

RE: Private Letter Ruling – Nexus Issues Arising out of Internet Sales

 

Dear NAME,

 

We have received your request for a private letter ruling concerning sales tax and nexus issues arising out of Internet sales made by a Nevada corporation that is headquartered in Utah (“Company A”). Company A owns an Internet website on which it sells products to customers throughout the United States. Once an order is received through the Internet website, the information is relayed to Company B, a company based in STATE, which ships the products directly to the customer. You have asked, under these circumstances, whether Company B must collect and remit Utah sales tax on Company A’s sales of these products.

 

It is unclear from the facts as stated whether Company A is considered the seller of the products, or whether Company B is the seller and Company A is acting as its representative. Before discussing each possibility, however, we will first offer some general sales tax guidance. All Utah sales made by a company with sales and use tax nexus with Utah are taxed in the same manner, whether the sale is made in person or through the use of the Internet. In addition, while the sale of tangible personal property is taxable in Utah, property purchased for resale in Utah is exempt from taxation if the original seller documents the exempt sale. Utah Code Ann. §§59-12-103(1)(a); 59-12-104(26); Utah Admin. Rule R865-19S-23.

 

Scenario 1: Company A is the Seller. As Company A is headquartered in Utah, we would assume it to have nexus with Utah for sales and use tax purposes because of the presence of property and employees in Utah. (see National Geographic Society v. California Board of Equalization, 430 U. S. 551 (1977)). Accordingly, if Company A is the seller of the products at issue, it must collect and remit sales tax on its sales of items shipped or delivered to Utah locations.

 

With proper documentation, the sale of products from Company B to Company A would be exempt from taxation under the resale exemption, whether or not Company B had nexus with Utah. Company B would not incur sales tax nexus with Utah if its only contacts with Utah were its sales of products to Company A for resale and shipping the products directly to Company A’s Utah customers at Company A’s request.

 

Scenario 2: Company B is the Seller. If Company B is the entity selling the products to the Internet customers, Company B’s Utah tax liabilities are different than in Scenario 1. Based on Company A’s activities in Utah on Company B’s behalf, we would find Company A is acting as Company B’s representative in Utah. As a result, Company B would have sales tax nexus with Utah. In Scripto v. Carson, 362 U.S. 207 (1960), the Supreme Court found that a company that hired 10 sales representatives or brokers on a commission basis had sales and use nexus in the state where the brokers were located. In that case, the brokers were supplied catalogs, samples, and advertising materials and were actively engaged in soliciting customers from the state where the brokers were located. In your situation, Company A maintains a website in Utah that potential customers contact to make purchases. Company A would also be taking orders from customers in Utah, where nexus is at issue. Because of these similarities, we would consider Company A to be actively engaged in Utah as a representative of Company B for the purpose of attracting, soliciting, and obtaining Utah customers. Accordingly, it would appear, under these circumstances, that Company B’s relationship with Company A is sufficient to impose Utah’s sales and use tax laws on Company B.

 

Under Scenario 2, Utah would require Company B to obtain a Utah sales tax license and collect and remit sales tax on all taxable sales shipped or delivered to Utah locations, including those sales made by Company A on its Internet website.

 

In summary, either Company A or Company B should collect and remit sales tax to Utah on its Utah sales, depending on which of the two scenarios above apply to the companies’ circumstances. Please contact us if you have any other questions.

 

 

For the Commission,

 

 

 

Marc B. Johnson

Commissioner

 

 

02-027