96-020
Response
January 26, 1996
Request
Dear
W. Oveson:
We
would greatly appreciate your help in answering the following questions. We are a software development company and
are currently focusing on resale and exemption certificates and automating
their administration. Our goal is to
speed up the audit process for both our clients and the state. As part of our product, we would like to
provide help screens with your Department's policy on the following
issues. In addition, could you include
any current audit issues or common errors your department has encountered in
the audit of resale and exemptions certificates.
Before
answering the questions, a little background on what the software is designed
to do should help you understand the questions. The software will check to see if a certificate is “on file” for
all customers or “ship to” (drop shipments) addresses. Certificates are on file if they have been
scanned into the software and are resident there. If a certificate is not on file, regardless of whether the vendor
is registered in the state, a blank resale or exemption form is generated and
sent to the customer (a preventative measure in case nexus is later asserted).
1. Is registration for sales and use tax a
requirement in your state before you will send resale or exemption forms to a
person making sales into your state, and who wishes to collect a certificate
from their customer? If registration is
required, do you then disallow a certificate obtained from a source other than
your Department (the customer, XXXXX sales and use tax manuals, our software,
etc.) upon audit?
2. Do you allow reproduction (Xeroxing or laser
printing an image) of the certificate so that it can be sent to the customer
for completion?
3. Does your state or your Department have a
“stale” date for certificates, i.e., a time period where the certificate is no
longer effective for sales made after the date? This would be a two or three year date, which runs from the date
on the certificate, where by operation of law or policy that the certificate is
no longer in force and a new certificate must be obtained to renew the exempt
status of sales made to that customer.
4. If there is not a formal law or
Administrative policy for a stale date, do you recommend that the certificates
are periodically reobtained or are the certificates good for the life of the
client? If you recommend reobtaining the
certificates, how frequently should they be obtained?
5. Do you permit storage of certificates by
means of optical disc, microfiche, etc. provided they can be printed off and
the “signature” can be reproduced as clearly as the original?
6. With the existence of E-Mail, point-of-sales
systems, etc., would you accept a purely paperless certificate, where the
customer types his information into an on line certificate and signs with a
“Fed Ex or UPS” pen.
7. Does your state require that the seller verify
the state seller's permit number to make sure it is still valid?
8. Would your state be interested in discussing
with us a way to verify the seller's permit number on the certificates?
Thank
you for your cooperation in providing answers to these questions. We greatly appreciate your prompt
response. Please let us know If you
have any suggestions or problem areas.
We would like to work closely with the states to make this a viable
tool. Please call me at XXXXX if you
would like to discuss any of these questions or concepts. You may also fax us your response at
XXXXX. We would like to put in features
that would make your audit process smoother.
Sincerely,
XXXXX
President
XXXXX
RE:
Advisory Opinion - Automated exemption certificates
Dear
XXXXX
Thank
you for your inquiry about Utah sales and use tax exemption certificates. In response to your questions, we find as
follows:
1.
Vendor registration. Any vendor who
is required by law to collect and remit Utah sales and use tax must obtain a
Utah sales tax license and identification number. To obtain a sales tax license, the vendor must submit a completed
form TC-69 to the Tax Commission. A
copy of this form is enclosed. You may
reproduce this form as necessary.
A
vendor is required to collect Utah sales and use tax if the vendor is a Utah
vendor making sales in Utah or an outftate vendor who has an office, warehouse,
salesperson, or other presence in Utah sufficient to create nexus.
Section 59-12-107 (1) (a) (iii) of the Utah Code states,
in pertinent part:
(1) (a) Each vendor shall pay or collect and remit the
sales and use taxes imposed by this chapter if within this state the vendor:
(I) has or utilizes an office, distribution house, sales
house, warehouse, service enterprise, or other place of business;
(ii) maintains a stock of goods;
....
(iv) regularly engages in the delivery of property in
this state other than by common carrier or United States mail; or
(v) regularly engages in any activity in connection with
the leasing or servicing of property located within this state.
If
the out-of-state vendor uses an in-state sales force (including independent
contractors) to deliver the catalogs, solicit orders, or repair and maintain
the product after it is delivered to Utah, the vendor must obtain a sales tax
license and collect and remit sales and use tax on its Utah sales.
Mail-order
or direct mail retailers are not required to collect Utah use tax if they have
no physical presence in Utah, but merely accept orders via telephone, fax or
mail and deliver the property to the Utah customer by way of the US mail or
common carrier.
Exempt
purchaser registration. Qualified religious and
charitable organizations may purchase tangible personal property tax free if
the organization has a tax exemption number.
To qualify, the organization must be exempt under IRC 501 (c) 3. Religious and charitable organizations may
apply for an exemption number using form TC-160 (copy enclosed). Government entities are not required to
apply for a tax exemption number.
All
other purchasers may use their tax identification number on the exemption
certificate when purchasing tangible personal property for resale or when purchasing
gas or electricity for qualified industrial purposes. Again, form TC-69 discussed above is the application form that
the business owner must use to obtain a tax identification number.
Some
purchases qualify for exemption even if the purchaser does not have a tax
identification number. For instance, a
person does not need a tax number to purchase qualifying medical equipment tax
free. The exemption certificate, which
is discussed in more detail below, identifies the instances when the purchaser
must supply a tax number.
Exemption
Certificates. A person making a tax-exempt purchase must
sign an exemption certificate.
Currently we use two exemption certificate forms: TC-721G for use by
government entities, and form TC-721 for use by all others claiming an
exemption. The vendor may also design
its own form, if necessary, so long as it contains essentially the same
information as the Tax Commission forms, including the purchaser' s signature. Of course, in the event of an audit, the
forms must be available in readable form.
Copies
of our forms are enclosed. Your clients
are welcome to reproduce them as necessary or store them in some electronic
form. We require the purchaser to sign
the form. In a paperless system, we
accept the customer's signature made directly “on-line” using a “Fed Ex or UPS”
pen or computerized signature pad.
2. The Tax Commission does not have a policy
regarding “stale” dates for exemption certificates or tax identification. However, sales exemptions change from time
to time at the will of the legislature.
Because we continually redesign our forms to account for changes in the
sales tax law, we recommend that your client-vendors confirm the validity of
the forms each year. The Utah state
Legislature meets in January and February each year, and legislative changes
frequently take effect on the following July 1. Therefore, any changes to the forms are typically made by July 1.
3. The vendor is not required to verify the
purchaser's tax identification number on each sale. So long as the vendor
accepts an exemption certificate in good faith and with the reasonable belief
of its validity, the vendor is not liable for the purchaser' s improper use of
the exemption certificate.
Your
letter indicates that you have suggestions for verifying tax identification
numbers. As you can see, we do not require a tax exemption number for all tax
exempt purchases. However, we are
willing to review any suggestions that you have for tightening our tax
reporting, auditing and compliance efforts.
Thank
you for your interest and wish you luck with your project. Please let us know if we can be of further
assistance.
For
the Commission,
Alice
Shearer
Commissioner