96-002
Response
January 9, 1996
Request
December
26, 1995
Dear
sirs,
As
editor of XXXXX, an Internet web page on issues affecting the software
industry, and in my work with various software organizations I am frequently
asked about sales and use taxes on electronically received products. Consequently I am undertaking a project to
collect, and make available on the Internet, information on sales and use tax
handling in each state as it affects electronic commerce. This project is of particular importance in
view of U.S. XXXXX recent statements encouraging the FTC to crack down on
mail-order companies which do not fully inform their customers about taxes due
on mail-order sales.
I
have separated the questions into two parts.
Part one deals with questions which should be easily answered, whereas
part two may require some additional time to complete. I would appreciate a quick response to part
one and a timely response to part two.
In particular, please respond separately to the two parts if part two
will take additional time.
Part
One
For
this part we assume that Customer C has purchased via mail, phone, or online
service an item which is delivered to C by common carrier, and that no sales
taxes were charged.
Questions:
I-1)
Are use taxes due from the customer to your state?
I-2)
What is the proper procedure for C to remit payment of use taxes to your state
if C is an individual? Please include
the following information: form, date due, payee, remittance address.
I-3)
What is the proper procedure for C to remit payment of use taxes to your state
if C is a business? Please include the
following information: form, date due, payee, remittance address.
I-4)
Can payment be submitted electronically?
If yes, how? If no, does your
state have any current plans to allow electronic payment in the future?
I-5)
Can payment be made by credit card? If
so, how?
Part
Two
In
this part we ask that you consider the following situation: Customer C visits,
via the Internet or other online service, Provider P's web site, which is not
located in your state. After
electronically transferring payment to P, C then transfers to C's own computer
the electronic product. P is unaware
that C is located in your state. P has
no other contact with your state.
Questions:
II-1)
Assuming that P does not collect sales taxes from C, are use taxes owed by C to
your state for the electronic products obtained by C from P's web site?
II-2)
If additional factors are required to answer question II-1, what are those
factors?
II-3)
Does the nature of the product determine whether or not use taxes are due? (Note that all products are electronically
delivered.) If yes, please indicate
which products use taxes are due for:
Software,
custom
Software,
noncustom (“off-the-shelf”)
An
issue of a newspaper in electronic form
An
issue of a magazine in electronic form
A
report or book in electronic form
A
music recording in electronic form
A
movie or film in electronic form
A
photograph or other artwork in electronic form
Other,
(please specify)
II-4)
Given that this is the only contact that P has with your state, does P have any
responsibility for the collection of sales taxes on sales to customer C? If yes, please indicate under which law or
regulation this duty arises.
II-5)
Finally, please provide us with statutes, regulations, or cases which affect
these questions in your state. Also
please indicate if your office or state has issued any recent rulings or
regulations which would affect this issue, or if any changes are pending.
If
possible, we would prefer to receive your response via e-mail to: XXXXX. An E-mail version of this letter is
available by requesting it from me at the same e-mail address.
Otherwise,
return via mail to:
XXXXX
Or
return via fax to:
XXXXX
If
you have questions, please call XXXXX.
Sincerely,
XXXXX
Editor
XXXXX
RE:
Advisory Opinion
Dear
XXXXX,
We
have received your request for sales tax information pertaining to purchases
via the Internet or other electronic access.
We are, of course, happy to respond to taxpayer questions. However, we are concerned about your making
representations to your customers about Utah sales and use tax law based solely
on the questions posed in your letter.
Our sales and use tax laws are complex, and the emerging technology
surrounding online access services has complicated it even more. In fact, the Utah State Legislature has
commissioned a lengthy study to determine how Utah sales and use tax will apply
to satellite, wire and compute related purchases. That study is underway, and it may impact sales tax statutes in
the future.
Having
cautioned you as to the limitations of this reply, we offer the following
guidance on issues presented in your letter:
Part
I: We assume that “C” is a Utah customer making purchases from either an
in-state or out- of-state vendor.
1
. Use tax is a tax on the storage, use or consumption of tangible personal
property in Utah. When tangible personal property is sold in interstate
commerce for use or consumption in this state, the sale is subject to Utah use
tax. Although use tax is the liability
of the purchaser, the retail vendor is responsible for collecting and remitting
the tax to the State of Utah if the vendor has an office, warehouse,
salesperson, or other substantial nexus with Utah. In that case, the vendor must obtain a sales tax number from the
Utah State Tax Commission and report and remit the sales tax at least
quarterly.
2.
If C is an individual who does not have a tax number, C must report the use tax
on the line provided on C's income tax form.
3.
If C is a Utah resident or Utah company with a sales tax number, the tax that C
owes is generally reported along with tax C has collected on C's sales tax
returns.
If
the sales tax liability for the previous year was less that $50,000, the tax
must be reported quarterly. If the tax
liability was $50,000 or more for the previous year, the tax must be reported
monthly. If the tax liability is
$96,000 or more for the previous year, the payment must be made by electronic
transfer.
4.
Vendors who are not required to remit sales taxes to the Tax Commission by EFT
may voluntarily do so by contacting the Tax Commission not less than 30 days
before the beginning of a new fiscal year.
Vendors who make this election, however, are subject to the same
requirements and penalties as those who are required to remit sales taxes by
EFT. The election to remit sales taxes
by EFT is effective for the following fiscal year and every fiscal year
thereafter unless the Tax Commission receives written notification not less
than 30 days prior to the commencement of a fiscal year that the vendor no
longer elects to remit sales taxes by EFT. The revocation will become effective
in the fiscal year following notification.
Vendors
who are required to remit sales taxes to the Tax Commission by EFT and those
who request EFT status must file an EFT agreement with the Tax Commission. The agreement form will be sent to vendors
required to remit sales taxes by EFT.
Those who request EFT status must contact the Tax Commission to obtain
the form.
Generally,
a vendor's EFT payment shall be remitted by an XXXXX transaction through the
XXXXX (XXXXX) system CCD application. Under
this procedure, the vendor will contact the third party with whom the state
contracts and authorize that third party to initiate the debit to the vendor's
account. Subsequent to initiating the
debit, the third party will process the transaction through XXXXX and submit
the appropriate records to the Tax Commission for the identification of all EFT
payments.
In
those instances where a vendor's organization bylaws prohibit third-party
access to its bank account, the vendor may remit its payment by ACH-credit with
tax payment addendum transaction through NACHA's CCD+ application. Under this procedure, the vendor will
contact its bank, authorizing it to initiate the debit to the vendor's account
and contact the third party to provide the necessary information for the Tax
Commission. Subsequent to initiating
the debit, the bank will process the transaction through NACHA.
In
certain unusual circumstances, an EFT may be accomplished by XXXXX, transfer of
funds from an account at the Tax Commission's bank to the Tax Commission's
account, or cash deposit into the Tax Commission's bank account. Use of these procedures, however, is limited
and must be approved beforehand by the Tax Commission.
5
. Utah currently does not allow payment of tax by credit card. However, the topic is under discussion.
Part
II: A Utah customer purchases a product which is delivered via online access
from an out- of-state vendor.
1,
2. Generally, if the product is taxable if delivered in a tangible form, we
will probably consider it taxable if delivered electronically. However, the Commission has not yet had
occasion to rule on sales of this nature outside of sales of software.
3.
In Utah, the tax status of software purchases depends upon whether the
purchaser is buying software or programming services. The sale of “canned” or “non-custom” software is considered
taxable whether it is purchased off the
shelf or over the Internet. Custom
software is not taxable because the purchaser is buying the services of the
programmer to design the software program and the program itself is incidental
to the programmer's services.
Sales
of newspapers and newspaper subscriptions are not subject to sales tax whether
delivered electronically or otherwise.
The Commission has not formally ruled on the other electronic purchases
on your list.
See
response to Part I questions.
Utah
Administrative Rule R865-19S-92 governing software purchases is enclosed.
If
you have other questions, please let us know.
For
the Commission,
Alice
Shearer
Commissioner