REQUEST LETTER

 

03-016

 

NAME

ADDRESS

 

Please review the questions below and provide instructions at your earliest convenience.

 

Business structure:

COMPANY currently owns one retail location in CITY. Soon another store will be opened in CITY. Other than shopping at the store, our customers can also order online and pick up at the store, or they can choose to have the products shipped directly to their home. The website is WEB ADDRESS, which is owned and managed by OTHER STATE COMPANY, a separate legal entity incorporated in OTHER STATE. If the customer wants to have the products shipped out to STATE, they will be shipped from OTHER STATE by WEB ADDRESS. Both the STATE Corporation and the OTHER STATE Corporation are owned by a holding company in 2^ND OTHER STATE.

 

Questions:

1.                  Since COMPANY and OTHER COMPANY are two separate legal entities; will the retail store in STATE be recognized as a OTHER STATE nexus?

2.                  If the answer is NO, then all online sales from WEB ADDRESS to Utah’s customers will be non-taxable?

3.                  If the answer is YES, then the online sales by WEB ADDRESS will charge Utah customers sales tax based on the shipping point? To report the sales tax charged by WEB ADDRESS, should we include it in the existing seller’s account in the Utah retail store, or a separate account and sales tax return are needed? In addition, is the freight charge from OTHER STATE to Utah a taxable or a non-taxable item?

 

Should you need any clarification, please email me at PERSONAL WEB ADDRESS or call

PHONE. Thank you for your assistance in this matter.

 

 

RESPONSE LETTER

 

NAME

ADDRESS

 

RE: Private Letter Ruling Request – Sales and Use Tax Nexus for Internet Company

 

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 OTHER STATE corporation and shipped directly to Utah customers. This OTHER STATE corporation, OTHER COMPANY, maintains an Internet website through which customers purchase products. Utah customers have the ability to choose direct delivery or to pick up their purchases at stores owned by COMPANY (COMPANY”), which is a separate legal entity. Based on these circumstances, we offer the following guidance.

 

Nexus for OTHER COMPANY. COMPANY and OTHER COMPANY are separate legal entities. COMPANY is a Utah corporation with a store in Utah and must collect sales tax on its Utah sales in accordance with UCA §59-12-107(1)(a). At issue is whether OTHER COMPANY, a OTHER STATE corporation, has sufficient nexus with Utah for sales and use purposes to require it to collect sales tax on its Utah sales. Although OTHER COMPANY customers purchase their products online, they have the option to have the products shipped to their home addresses or they may pick the items up at COMPANY store in Utah. OTHER COMPANY may not own the store in Utah, but it does use it for the benefit of establishing and maintaining its market in Utah. Because OTHER COMPANY maintains a sales house or stock of goods in Utah, pursuant to Section 59-12-107, it establishes nexus with Utah for sales and use tax purposes. Accordingly, OTHER COMPANY is responsible for collecting and remitting sales tax on its Utah sales.

 

Collection and Remittance of Sales Tax. OTHER COMPANY also asks several questions about how to collect and remit sales tax on its Utah taxable sales. From the information provided, we assume that OTHER COMPANY will make two types of sales. The first involves OTHER COMPANY shipping products from OTHER STATE to the customer’s Utah address by common carrier. Pursuant to Utah Admin. Rule R865-12L-6, the point of sale for such items is based on the address to which the item is shipped. In addition, the sales taxes on such sales should be reported on Schedule B/D of Tax Commission Form TC-71M or TC-71V. The second type of sale involves those where the customer picks up the products from the COMPANY store. In accordance with Rule R965-12L-5, the point of sale for these sales is the location of the store. Taxes collected on such sales should not be reported on Schedule B/D, but should be separately reported on Schedule A of Form TC-71M or TC-71V.

 

You also ask whether OTHER COMPANY will need to apply for a separate sales tax number or whether OTHER COMPANY and can combine their sales for reporting purposes. The Tax Commission currently does not allow separate legal entities to file a combined return. Therefore, OTHER will need to apply for a separate sales tax license and report its sales separately from those made by OTHER COMPANY.

 

Lastly, you ask whether sales tax should be collected on freight charges imposed by OTHER COMPANY when shipping its products to Utah customers. Utah Admin. Rule R865-19S-71 provides that shipping charges are exempt from taxation when:

 

1) Shipment takes place by means of common carrier;

2) Charges are segregated and listed separately;

3) Charges reflect the actual cost of shipping the particular tangible personal property by common carrier; and

4) Shipment of the tangible personal property takes place after passage of title.

 

Shipping charges that meet the above criteria are exempt from taxation. Any other shipping or delivery charges are considered to be part of the taxable purchase price and are, thus, taxable themselves.

 

If you have any further questions, please feel free to contact us again.

 

For the Commission,

 

 

 

Marc B. Johnson

Commissioner

 

MBJ/KC

03-016