95-063
Response
October 2, 1995
Request
XXXXX
Tax
Administration
Utah
Department of Taxation
210
North 1950 West
Salt
Lake City, UT 84134
Dear
XXXXX:
Re: Sales/Use Tax -- Private Letter Ruling
On
behalf of our client, we respectfully request a private letter ruling regarding
the taxability of various items charged by a wholesale distributor (“Company
A”) to its customers. The following are
the facts involved in this case and the issues for which we are requesting a
ruling from the state.
FACTS
Company
A is a wholesaler/distributor of grocery, dairy and frozen products. All of Company A’s customers are retailers
of these consumable products. Company A
not only provides the products, but also provides retail support services such
as marketing, training, and financial service.
In the past, the costs incurred by Company A for product acquisition,
product storage, product handling, vendor discounts and various support service
items were considered overhead costs and were included in the product selling
price. The invoices showed on line item
for the selling price of the product and a separate line item for shipping/delivery
charges. Some of their divisions do
show a separate line item for fees, which is a fixed percentage of sales
ranging from 2 percent to 5 percent.
Company
A is currently in the process of implementing a new marketing plan
(“Plan”). The intent is to provide its
customers the lowest possible cost-of-goods by (1) eliminating from the base
selling price costs for advertising, marketing of other retail support service,
(2) passing through to the retailers manufacturer discounts and (3) allowing
the retailers to choose the specific services they require.
Under
the Plan, all products will be sold F.O.B. Company A’s loading dock at its
acquisition cost plus a storage charge and a handling charge. If Company A provides the delivery service,
it also will be priced separately.
Retailers who need support services may separately purchase the amount
and type of service they require. The
retail support services which will be available to the retailers include:
advertising, marketing, retail financial service, retail technology, retail
training, retail store development, and franchise marketing programs. Under the Plan the invoices will, therefore,
be more detailed. Each of the various
charges such as acquisition cost, storage charge, handling charge, delivery
charge and the various support service costs will be separately stated on the
invoice. However, all the separate
items billed on the invoice remain components of the selling price of the
products.
ISSUES/CONTENTION
It
is our contention that since the items that are separately stated on the invoice
are merely components of the selling price of the products sold for resale, all
product sales should be exempt form sales/use tax. Resale certificates will be obtained from the retail customers. If you agree with this conclusion, please
sign below and return via facsimile to XXXXX.
Thank
you for your attention to this ruling request.
If you have any questions or need additional information, please call me
at XXXXX.
Sincerely,
XXXXX
On
behalf of the state of Utah, I agree with the contentions stated above.
By:__________________________________Date:___________________
Title:__________________________________
XXXXX
RE: Advisory Opinion - Applicability of sales
tax to items sold for resale.
We
have received your request for an advisory opinion regarding the application of
sales tax to products and services sold by your client to retailers. We find as follows:
The
Utah Sales and Use Tax Act imposes a sales tax on tangible personal property
purchased within the state and a use tax on tangible personal property
purchased outside Utah and stored, used or consumed in Utah. However, purchases of property held for
resale in the regular course of business are exempt from sales tax. Therefore, sales by your client of items
purchased for resale are exempt from sales tax upon receipt of an exemption
certificate from the retailer.
Sales
tax is due on any items of tangible personal property purchased by the retailer
for the retailer’s own consumption or for which the retailer is deemed the
final consumer. For example, if the
retailer purchases merchandise to use in advertising or displays or to give
away as a customer incentive, the retailer is the end consumer of the product
and sales tax is due. Utah Admin. Rule
R865-19S-68(A).
We
cannot comment on the taxable status of the other services offered by your
client without more detail about the transactions. We do not necessarily agree that the costs associated with the
services are merely part of the sales price of the items purchased for
resale. For instance, if the charges
for “store development” include taxable equipment leases, your client must
collect sales tax on the leases. If you
can provide use with more detail about the service transactions, we will be
happy to issue another opinion regarding their taxable status.
For
the Commission,
Alice
Shearer
Commissioner