94-010
Response
June 27, 1994
Attn: XXXXX
State Tax Commission
160 East 300 South
Salt Lake City, Utah
84134
RE:
Request for Declaratory Judgements - Utah Sales/Use Taxes
Dear XXXXX
In order to help our clients better understand
and comply with Utah State sales and use tax laws, as well as, to provide them
with some measure of protection in the event of an audit, I request that you
furnish us with declaratory judgements for each the four situations described
and attached.
I realize you may require additional
information in order to make a determination, so please call me if you do. I look forward to resolving these issues as
soon as possible.
Sincerely,
XXXXX
SITUATION #1
Type of Business:
Full-service public relations and
advertising firm.
Description of Goods
and Services Provided:
The company will provide services in
advertising, media and public relations, graphics, special events coordination,
audio-visual, and collateral materials.
Areas of Concern:
Most of our questions center on the areas
of graphics and collateral materials.
The company will produce, for example, a set of brochures or
flyers. The production typically will
involve services performed within the company, as well as, contracted
services. The company may do the layout
and then send it out to be printed. The
company will bill its client a fee for the production of the brochures;
however, the bill may include a number of services, such as, consulting and
market research. Can the company pay
sales tax to the various service providers and vendors throughout the process
and then not have to charge sales tax to the client upon delivery? Otherwise,
it would appear that the bill must be broken down between its taxable and nontaxable
components. On which components of the
client's bill is sales tax assessed?
Also, if the company were to produce an
open house, grand opening, or some similar event, and it provides flowers,
printed materials, accommodations, catering, etc., again, can the company pay
the sales tax along the way or does it have to acquire these items tax-free and
then charge the client sales tax?
Hopefully you can see how very complicated
and burdensome this will be, if the company is required to determine and
separate the items that are taxable and nontaxable. Also, you should know that there are instances in which my client
may not want to put a lot of detail on her client's invoice.
We request that you furnish us with a
declaratory judgement, identifying the proper sales and use tax procedures for
a firm such as this.
SITUATION #2
Type of Business:
Sales and installation of modular
buildings.
Description of Goods
and Services Provided:
The company sells and installs modular
buildings. It also acts as a
subcontractor for other dealers in the installation of modular buildings. It should be noted that these buildings are
nonpermanent; i.e., they are very moveable.
They stand on blocks and most of the installation materials are salvaged
and reused when moved.
Areas of Concern:
When working as a subcontractor for a
dealer, my client does not pay sales tax on the materials used in the
installation process, nor does he charge sales tax to the dealer because the dealer
charges sales tax to the purchaser on the full price of the building including
the materials and labor for installation.
My client has sales tax exemption certificates in his files from the
dealers.
When my client acts as the dealer, he
handles things as described above, that is, he charges sales tax on the
building, the materials and the labor on the installation, unless the buyer is
exempt.
My client once went through a sales tax
audit and the auditors felt as though the company should be paying sales or use
tax on the installation materials.
Eventually, the auditors decided not to make any adjustments because my
client had exemption certificates in his files from the dealers and he had
charged sales tax on the installation when he had acted as the dealer. While we were pleased that no adjustments
were made, we felt that some fundamental questions were left unanswered.
We request that you furnish us with a
declaratory judgement, identifying the proper sales and use tax procedures for
a business such as this.
SITUATION #3
Type of Business:
Manufacturing.
Description of Goods
and Services Provided:
The company manufactures and sells, to the
ultimate consumer, tarps used in the trucking industry.
Areas of Concern:
My client knows that sales tax is not
charged to out of state purchasers if the merchandise is delivered, either by
my client's vehicles or by common carrier, to the out of state purchaser.
From time to time, an out of state
purchaser will have its own truck out on the road and near my client's
manufacturing facility in Salt Lake.
The purchaser will give instructions to the driver to go by and pick up
the tarp. My client wants to know if
sales tax must be charged in this instance.
The trucks we are dealing with are large, dual axle vehicles, often
weighing in excess of 26,000 pounds.
We request that you furnish us with a
declaratory judgement, identifying the proper sales tax procedures for a
situation such as this.
SITUATION #4
Type of Business:
Manufacturing.
Description of Goods
and Services Provided:
The company manufactures, sells, and
installs awnings attached to real property.
Areas of Concern:
My client has heard conflicting methods of
dealing with the sales and use tax issues involved in this type of business. Is
sales or use tax paid by my client on the materials used in the manufacturing
process?, or is sales tax charged to the end user on all or a portion of the
total sales price?
We request that you furnish us with a
declaratory judgement, identifying the proper sales and use tax procedures for
a business such as this.
Re:
Request for Declaratory Judgment -- Various Utah Sales/Use Tax Issues
Dear XXXXX:
This letter is in repose to your recent
request (copy attached) for the Tax Commission to issue declaratory judgments
on various sales and use tax issues.
Although your inquiry was framed as a
request for declaratory judgments, Tax Commission policy is to initially treat
all such inquiries as requests for advisory opinions. As such, it was referred to the Tax Commission's Auditing
Division for their analysis and recommendations. The division's recommendations are as follows:
1.
Full-service public relations and advertising firm - Administrative Rule
R865-19-65S (copy attached) indicates that a business operating as an
advertising agency should pay tax on material and taxable services it purchases
to fulfill its client's needs. This
position is predicated on the situation in which the advertising agency has a
true agency relationship with its client and is providing various services, not
merely selling tangible personal property.
In the absence of a bona fide agency relationship, your client would be
considered a retailer selling tangible personal property. As a retailer, your client would be
responsible to collect and remit the tax on its selling price of tangible
personal property. Any services which are in connection with the sales of the
tangible personal property are taxable unless specifically exempted under the
law. Charges for rental of a meeting
room and charges for placing advertising in the media are examples of such
specifically exempt charges.
2.
Sales and installation of modular buildings - The sales of modular
buildings which remain tangible personal property after installation are
taxable on the full selling price less any separately stated charge for
attachment of the personal property to the realty. Charges for the connection of the modular buildings plumbing system
to the water/sewer system of the real property is an example of charges that
could be separately stated and exempted.
See Rule R865-1958S and R865-19-78S attached. Your client would be considered the consumer of any materials
converted to realty in the process and must pay tax on such material
purchases. The past audit treatment of
your client appears to have been correct if the charges were covered by
properly executed exemption certificates, if charges for actual attachment to
the realty had not been separately stated, and if your client had not made any
conversions of tangible personal property to realty.
3.
Manufacturing and sales of tarps used in the trucking industry - Your
client's treatment of sales of merchandise delivered to out-of-state locations by
your client's vehicles or shipped out-of-state by common carriers is correct;
See attached Rule R865-19-44S.
While interstate carriers may enjoy
exemption from sales tax on purchases of vehicles used in interstate
commerce under certain circumstances, such carriers are not exempt from tax on
parts, equipment, repairs, etc. when they take delivery of such items in
Utah. The sale of tarps under these
conditions is subject to the tax.
4.
Manufacture, sales and installation of awnings to real property -
Generally, awnings become a permanent improvement to the realty, and the person
selling and installing such awnings is considered as the consumer in converting
tangible personal property to realty.
The seller/installer should pay tax on all materials purchased to use in
such jobs as indicated in Rule R865-19-58S (copy attached). Some types of exterior decoration referred
to a “awnings” may remain tangible personal property after installation because
of structure, short useful life, function or intent of the parties. The seller of such items should collect tax
on the total selling price of the awning less any separately stated charge of
attachment to the realty.
Respectfully,
Alice Shearer