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


 

 

January 9, 1996

 

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