REQUEST LETTER
02-035
NAME
ADDRESS
PHONE
FAX
Dear NAME:
Pursuant to Utah Administrative Procedures, Rule R861-1A-34, we respectfully request a private letter ruling for our client, Company A, on a Utah sales tax nexus issue.
Company A is a retailer located in STATE. They are engaged in the business of selling sporting goods. Currently, these products can be purchased via their internet website, by visiting one of their stores located in STATE, or by mail order through their product catalog.
In an effort to grow their business, Company A is considering a business arrangement with a company headquartered in Utah. ("Company B"). Company B is also a retailer of similar sporting goods. Their products can only be purchased via their internet website(s). With respect to this proposed business arrangement, Company B will market Company A products on their website(s). If a customer decides to purchase a product from Company B's website that is ultimately a Company A product, Company B will process, and approve the sale in Utah for Company A under the Company B name. As part of that process, Company B will invoice the customer under the Company B name and will collect all proceeds from the customer on Company A's behalf.
Once the order is received and processed by Company B, it will be sent to Company A in North Carolina for fulfillment. Upon receipt of the order from Company B, Company A will ship the product(s) directly to the customer's delivery address via common carrier. Company A will not sell the inventory to Company B. Although the specific details concerning compensation paid to Company B by Company A have not been finalized yet. Company A will pay Company B a commission for the types of sales described above. One possible scenario is that when Company B collects the sales proceeds from the customer, they will then remit that money less the agreed upon commission to Company A. Another possible payment scenario is for Company B to remit all sales proceeds to Company A and then Company A will pay Company B the agreed upon commission amount.
If the product(s) that Company A ships to the customer is/are defective, or if the customer simply wants to return the merchandise, the customer is instructed on the original packing slip to call the Company B customer service center in Utah. The customer service center representative will then instruct the customer on how to send the merchandise back to Company B.
Thank you in advance for your help resolving these issues. If you require any additional information or have any other general questions, please feel free to call me at PHONE.
Sincerely,
NAME
RESPONSE LETTER
February 6, 2003
NAME
ADDRESS
RE: Private Letter Ruling – Sales and Use Tax Nexus with Utah
Dear NAME,
We have received your request for a private letter ruling concerning a STATE company (“Company A”) that is planning to enter into a contract with a company headquartered in Utah (“Company B”). Under this contract, Company B would use its own Internet site to market Company A’s products. Company B would also process and approve the sale of Company A’s products, and then relay any approved orders to Company A in STATE to fill. Company A would ship all products sold under this contract to customers by common carrier from a site outside of Utah. All defective or returned products would be processed in Utah by Company B’s customer service center. You ask whether Company A would have sales and use tax nexus with Utah under these circumstances.
You state that Company A will not be selling its product to Company B and that the marketing arrangement will involve a commission paid by Company A to Company B. Accordingly, we find that Company B will be selling Company A’s products on behalf of Company A. Also, although you have not mentioned whether Company B will be marketing and selling the products at issue to Utah customers, we assume that it will. Based on these facts and assumptions, we would find that Company B is acting as Company A’s representative in Utah because of the extent of activities it would be conducting in Utah on Company A’s behalf. As a result, Company A 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 B maintains a website in Utah that potential customers contact to make purchases. Company B would also be taking and approving orders from customers in Utah, where nexus is at issue. Because of the similarities between Scripto and your situation, we would consider Company B to be actively engaged in Utah as a representative of Company A for the purpose of attracting, soliciting, and obtaining Utah customers. Furthermore, Company B’s activities regarding defective and returned sales appear to exceed those activities described in Scripto.
It appears, under these circumstances, that Company A’s relationship with Company B is sufficient to impose Utah’s sales and use tax laws on Company A. Utah would require Company A 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 B on its Internet website. As per your request, a copy of Utah Code Ann. §59-12-107(1)(a) is attached. This section imposes sales and use nexus on entities with certain contacts with or activities in Utah. Please contact us if you have any other questions.
For the Commission,
Marc B. Johnson
Commissioner
MBJ/KC
02-035