Response
June 30, 1992
June
30, 1992
XXXXX
Re:
Third Party Drop Shipments
Dear
XXXXX:
This
letter is in response to your recent request for a Tax Commission ruling to
determine the taxability of third party drop shipment sales and the
documentation the seller is required to keep.
The
Tax Commission policy is to refer such requests to the division most qualified
to analyze the request and make recommendations concerning it. As such, your
request was referred to the Tax Commission's Auditing Division for their
analysis and recommendations. The division's recommendations are as follows:
1.
The Taxpayer's sale to a wholesaler (W) is not subject to sales tax. It is a
sale for "resale."
2.
The taxpayer should have a sales tax exemption certificate from the wholesaler.
3.
Utah will accept an exemption certificate with another states' registration
number on it for third party drop shipment sales.
4.
A contract between the taxpayer and a manufacturer or distributor is not an
acceptable replacement for a sales tax exemption certificate.
5.
It does not make a difference if the third party customer is an exempt entity.
The transaction is between the taxpayer and his wholesaler (W).
Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendations. Obviously, if there are deviations from these
facts, this opinion may be negated.
If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
Notice of Appeal Rights and a copy of the Utah Taxpayer Bill of Rights are
attached.
For
the Commission,
Joe
B. Pacheco
Commissioner
Utah
State Tax Commission
XXXXX
Managing
Auditor
160
E. Third So., 5th Floor
Salt
Lake City, UT 84134
SUBJECT:
Third Party Drop-Shipments.
Gentlemen:
We
request written documentation for the proper Sales & Use Tax treatment for
the following situation, in order to exempt the sale from tax:
XXXXX(Taxpayer),
a computer printer manufacturer and wholesaler, is registered to collect tax in
your state.
Taxpayer
sold a printer to wholesaler, W (not registered nor resident in your state). Taxpayer,
upon instructions from W, shipped the printer to C, a customer of W, located in
your state. W is registered to collect tax only in its home state, which is not
your state. The sales order was accepted outside your state and shipped FOB
origin at Taxpayer’s plant located outside your state.
1)
Is the taxpayer sale to W considered a sale subject to sales tax in your state?
2)
If the taxpayer sale to W is taxable in your state, what documents are
necessary to exempt the sale from tax?
3)
If W provides a Resale Certificate with its home (or another) state
registration number on it, will your state accept the certificate?
The
nature of taxpayer's business is such that 75% of total sales are made to
either original equipment manufacturers (OEM) or distributor resellers, who
purchase taxpayer product under contract for re-sale. Is this taxpayer contract
with reseller an acceptable alternative document to exempt the sale from tax?
5)
Does it make a difference if C is an "exempt by nature" entity, such as
the Federal government?
Please
forward your written response at your earliest convenience to my attention.
Sincerely,
XXXXX
Tax
Administrator