Response
August 12, 1992
August
12, 1992
XXXXX
Re:
Drop Shipment Sales
Dear
XXXXX:
Your
request for an advisory opinion on the taxability of third party drop shipment
sales into Utah was referred to the Auditing Division for their analysis. It is
the division staff recommendation that:
1.
The seller corporation is not required to bill Utah tax on a sale, for resale,
to an out-of-state purchaser even though the seller corporation drop ships
product to a third party in Utah.
2.
The seller corporation should accept an exemption certificate from the
out-of-state purchaser containing the out-of-state resale number.
3.
Utah law does not provide for "direct pay" permits.
4.
The seller corporation should not bill the out-of-state resale purchaser sales
tax. The in-state third party is responsible to report and pay use tax directly
to the Tax Commission.
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.
To
arrange for Americans with Disabilities Act accommodations, please contact the
Tax Commission at (801) 530-6920, (801) 530-6077 or TDD (801) 530-6269 allowing
three working days notice.
For
the Commission,
Joe
B. Pacheco
Commissioner
XXXXX
Managing
Auditor
State
Tax Commission
160
East Third South
5th
Floor
Salt
Lake City, UT 84134
Per
our conversation, I am faxing a copy of the letter sent on March 10, 1992. If
you could respond at your earliest convenience, it would be greatly
appreciated. Please fax a response to me at XXXXX or mail it to the address
below.
Thank
you so much for your assistance in this matter. If you require any further
information please feel free to contact me at XXXXX Ext. XXXXX. Thank you again
and I look forward to your reply.
Sincerely,
XXXXX
Research
Tax Analyst
XXXXX.
is a publisher of information related to sales and use taxes. Recently, there have
been numerous questions and concerns related to the issue of drop shipments.
In
that regard, we have summarized those issues into several questions pertaining
to drop shipment transactions. We would appreciate your department's position
as to the applicability of tax and the proper documentation that is required.
FACTS
Seller
The
Seller Corporation is registered to collect sales and use taxes in your state.
The Seller Corporation accepts orders from out-of-state purchasers.
Out
of State Purchaser
The
out-of state purchasers have no nexus in your state and are not registered to
collect your state's sales or use tax.
They
place orders with the Seller Corporation in your state and direct the Seller
Corporation to ship the items purchased to a Third Party Corporation located in
your state.
Third
Party
The
Third Party Corporation is registered in your state to collect sales and use
taxes.
The
Third Party Corporation receives the goods shipped by the Seller Corporation
(as directed by the out-of-state Purchaser Corporation).
Billing
Procedures
The
Seller Corporation bills the out-of-state Purchaser Corporation for the price
of the goods that were delivered in-state to the Third Party Corporation.
The
out-of-state Purchaser Corporation (who resells the items purchased from Seller
Corporation) subsequently bills the Third Party Corporation for the price of
the goods.
QUESTIONS
The
following questions deal with the acceptability of documentation necessary to support
an exempt sales transaction where the Seller Corporation is selling goods to an
out-of-state purchaser but delivering the property to an in-state third party
tax explained above).
1)
Is the Seller Corporation responsible for billing your state's sales tax on
goods sold to an out-of-state purchaser but delivered to an in-state third
party?
2)
Can the Seller corporation accept a valid resale exemption certificate from the
out-of-state Purchaser Corporation?
The exemption certificate provided by the Purchaser Corporation is from
the Purchaser Corporation's home state.
3)
Can the Seller Corporation accept a valid Direct Pay Certificate from the
out-of-state Purchaser Corporation? The direct pay certificate provided by the
Purchaser Corporation is from the Purchaser Corporation's home state.
4)
If the Seller Corporation does bill the Purchaser Corporation your state's
sales tax when the goods are delivered to the Third Party, must the Third Party
Corporation also self-accrue use tax on the same goods when the Purchaser
Corporation subsequently bills the Third Party Corporation for these items?
We
appreciate your time and effort in providing information that will be used to
clarify this difficult transaction.
Very
truly yours,