96-089
Response
May 23, 1996
Request
XXXXX
Utah
State Tax Commission
Advisory
Opinion Letters
210
North 1950 West
Salt
Lake City. Utah 84134
Re:
XXXXX
Utah State Sales Tax Applicability
to the XXXXX
Dear
XXXXX
Our
client XXXXX opened its duty free store on April 3, 1996 in the XXXXX Concourse
of the Salt Lake City, International Airport. XXXXX currently hold the lease
contract with Salt Lake City to operate the gifts shops in the Salt Lake City
International Airport. The increased number of direct International flights
originating in Salt Lake City has prompted XXXXX to open the Duty Free Store.
We would like the Utah State Tax Commission to issue a written Advisory Opinion
letter on two types of sales that are made through the Duty Free Store to
determine if either type of sale is subject to the Utah State Sales Tax.
Sale type #l “In Bond Sales” XXXXX purchase certain foreign goods such as
tobacco, alcohol, perfumes, and jewelry without paying any United States Import
duties or Foreign Government Export Duties. These purchases are allowed duty
free status because they must comply with the rigid U.S. Customs Service,
Office of Cargo Enforcement and Facilitation rules and regulations. It is our
understanding that these U. S. Custom laws preempt state laws in this area. I
have attached a letter from XXXXX, Executive Director of the Salt lake City
International Airport Authority to the Utah Alcoholic Beverage Control
Commission (UABCC). I would like you in particular to refer to the first
paragraph of Exhibit #3. I feel the Sales tax issue is very similar to the
UABCC issue. The UABCC has ruled that sales in the Duty Free Store are outside
of the scope of their jurisdiction. You may call XXXXX at the UABCC to verify
this fact.
XXXXX
must keep detail records of sales and inventory controls on these “In Bond”
items. Any shortage discrepancies will lose their duty free status and XXXXX
will then be responsible for all import and export duties. I had solicited help
from XXXXX, Assistant City Attorney for Salt Lake City in this matter. Her
letter to me as well as her summary of research are attached as Exhibits # 1, 4
and 5. I was concerned that if you were to read Utah State Tax Commission rule
R865-19S-44 (attached Exhibit #6) the “In Bond” items would be subject to the
Utah State Sales Tax. I would like you to read the second sentence of the
second paragraph of Exhibit #1. All “In Bond” sales are delivered straight from
the Duty Free Store to the aircraft which has a direct destination outside of
the United States. The buyer is not permitted to take custody of the items
until they have arrived at the foreign destination. Again the handling and
delivery of the “In Bond” sales are under the control of the Duty Free Store
until it is delivered directly by Duty Free Store operator to the aircraft.
I
believe the research on exhibits #4 and 5 will support the preemption of state
law. I believe the “In Bond” sales should be exempt from the Utah Sales Tax.
XXXXX offered her assistance should we need any clarification or additional
help.
Sale type #2 “Tax Paid Sales” The “Tax Paid” sales are almost identical to the “In
Bond” sales except for one issue. A small duty is paid on some items that are
purchased by the Duty Free Store. This duty is paid because the duty is
insignificant when you compare it to the high duties which are levied on
certain goods such as tobacco and alcoholic products. The procedural handling
of these items is identical to the “In Bond” items in that they are inventoried
with the same controls. These “Tax Paid” items are segregated from all other
merchandise sold at all of the other gifts stores at the airport. The items
once paid for in the Duty Free Store are delivered directly to the aircraft by
the Duty Free Store operator just as the “In Bond” items are.
These
“Tax Paid” sales very closely resemble the mail order sales that XXXXX makes
through its regular stores at the airport. The mail order sales are purchased
tax free and sold tax free because they are sent by a common carrier such as
XXXXX to an out-of-state destination. These mail order sales have been exempt
from the Utah State Sales tax and this procedure has been validated by the
Audit division of the Utah State Tax Commission on recent sales tax audits.
In
closing I feel that both the “In Bond” sales and the “Tax Paid” sales are
exempt from the Utah State Sales Tax. If you have some reservations on issuing
an Advisory Opinion letter exempting both types of sales I would appreciate it
if you would contact me regarding those concerns.
Sincerely,
XXXXX
XXXXX
Advisory
Opinion - Sales from duty free store
Dear
XXXXX
We have received your request for an
opinion as to the taxability of sales made from the duty free store at the Salt
Lake Airport. We find as follows:
Sales made in interstate commerce
are not subject to tax. Utah Admin. R.
R865-19S-44. A sale qualifies as an
interstate sale if (1) the transaction involves actual and physical movement
across the state lines, (2) delivery across state lines is an unavoidable
condition of the sale, and (3) delivery is an essential, not incidental, part
of the sale. As we understand “in bond
sales,” they qualify as sales in interstate commerce. Under 19 U.S.C. 1555 (b) (3), the duty-free sales enterprise must
ensure that the merchandise it sells will be exported from the customs
territory. In the case of duty free
shops located in airports, federal law requires the merchandise to be delivered
to the departing passenger or aircraft at the point of exit. Delivery across state lines is an essential
and unavoidable condition of these sales.
With regard to “tax paid sales,”
these sales qualify as interstate sales if, as a condition of sale, the
merchandise is delivered to the departing passenger or aircraft at the point of
exit. Any other transaction which does
not require delivery of the item across state lines does not qualify as an
interstate sale. For instance, if a
departing passenger purchases a book or magazine from the gift shop before
boarding a plane, the sale is a taxable transaction. The fact that the passenger intends to remove the property from
Utah after the sale does not convert the sale to an interstate transaction.
As to mail order sales, if an item
is delivered by XXXXX to an out-of-state destination via common carrier, the
sale qualifies as an interstate sale.
If the purchaser takes possession of the merchandise in Utah, then
subsequently ships it out of state, the transaction is taxable in Utah.
Thank you for taking the time to put
together the background material that accompanied your request letter. Please let us know if we can be of further
assistance.
For the Commission,
Alice Shearer,
Commissioner