96-043

Response March 8, 1996

Request

February 22, 1996

Re: Sales/Use Tax on Drop Shipments

XXXXX (“XXXXX”) has been referring to a copy of “Third-party Drop Shipment Survey” compiled by the Institute of Property Taxation for clarification on drop shipments. As the survey was prepared in 1990, XXXXX would like to update this survey to ensure compliance with current state statues and kindly asks for your assistance in this matter.

XXXXX is a manufacturer of industrial sewing machines. We utilize a network of distributors located across the country. In many situations, XXXXX drop ships to the Distributor's customer as requested. The merchandise is sent XXXXX from XXXXX's manufacturing plant in XXXXX, Illinois and drop shipped to our Distributor's customer (usually an apparel manufacturer) in Utah. This distributor is located out of the state of Utah and is not registered to do business in Utah. Accordingly, the survey indicates that XXXXX is not liable to collect and remit this sales/use tax provided XXXXX has a copy of the distributor's home state resale certificate.

Would you kindly confirm Utah's current status concerning drop shipments citing the specific law and attaching a copy for our reference. If there are any questions, please call the undersigned at XXXXX.

Thank you for your time and assistance in this matter.

Sincerely,

XXXXX

March 8, 1996

XXXXX

RE: Advisory Opinion Utah Sales Tax

Dear XXXXX,

We have received your request for an opinion regarding your company's obligation to collect and remit sales or use tax on the products that it delivers to Utah customers. We offer the following guidance:

An out-of-state vendor is required to collect Utah sales and use tax if the vendor has an office, warehouse, inventory, 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.

From the facts in your letter, it appears that your company does not accept payment directly from the Utah customer, but sells the machine to an out-of-state distributor for resale. The distributor, in turn, accepts the customer's order and payment. If that is the case, the distributor is required to collect and remit sales tax if the distributor has sufficient nexus with the state as outlined above.

Please contact us again if you have further question.

For the Commission,

Alice Shearer

Commissioner