97-004
Response
January 16, 1997
Re:
Request for Ruling
Dear
Mr. XXXXX:
Company
A is writing on behalf of one of our clients who wishes to remain unnamed at
this time. The client wants to determine what, if any, obligations it has
for collecting Utah sales and use tax. The facts concerning our client's
activities follows. We would appreciate a written response based on the facts
as presented below.
FACTS:
Company
A is a manufacturer located in State. Company A has no physical locations such
as offices or warehouses in Utah; it maintains no inventory or stock of goods
in Utah; it does not lease tangible personal property in Utah; it does not
deliver its goods into Utah other than by common carrier; it has no personnel
in Utah, and it does not regularly solicit orders from customers in Utah
through a sales force. Company A
does send product catalogs by U.S. mail to independent distributors located
in Utah.
Company
A conducts its business largely through independent distributors and
construction contractors. It is important to note here that the independent
distributors and construction contractors work with multiple parties and that
Company A represents a very small portion of their business. On rare occasions, Company A will receive an
order directly from the end user or consumer.
Company A is contacted in Texas or at one of its regional offices (not
located in Utah) where orders are placed with Company A for its product. Company A invoices the distributor or
construction contractor directly for their orders. In this situation, construction contractors would be viewed as
vendors/retailers because Company A's product does not become incorporated into
real property. It retains its identity
as tangible personal property. Company
A will invoice the end user or customer only if it is working directly with
them. As indicated above, this occurs infrequently. Company A accepts valid resale certificates from the distributors
and construction contractors. Company A
ships its product directly to the end user or final consumer's location via
common carrier in all cases. The shipping terms are F.O.B. shipping point,
XXXXX. In some cases, the distributor or construction contractor is responsible
for installing Company A's product. In
most cases, Company A will arrange for an independent third party to install
its product. The installer will bill
Company A for its services.
Company
A's product comes with a manufacturer's warranty for a period of 15 months from
the shipping date or 12 months from the start up date, whichever occurs first.
The end user or final consumer in all cases will call Company A directly if
they are experiencing a problem with Company A's product. Company A's Product Support Group works with
the customer over the telephone to identify the problem. If the problem is identified, Company A will
send the required replacement part to the customer. The customer is required to send the broken part back to Company
A in STATE. If the customer does not
know how to install the replacement part, Company A will have an independent
third party install the replacement part.
The installer will bill Company A for its services. Company A will send an independent third
party to evaluate the problem if Company A is unable to help the customer over
the telephone. Once the independent third party has determined the problem, it
will call Company A to determine if the broken part is covered under the
warranty. If the item is covered under
warranty, the independent third party will repair the broken part and bill
Company A for its services. Company A
will also replace any parts used by the repairman in completing their
service. If the item is not covered
under the warranty, the customer will have to make its own arrangements for
repair. Please note that Company A
represents a very small portion of business for the independent installers and
repairmen.
QUESTION
1:
Would
Company A be responsible for collecting sales or use tax from its sales to the
end user or consumer when the end user or consumer orders directly from Company
A?
QUESTION
2:
Does
Company A have nexus with the State of Utah for sales and use tax such that it
would be required to collect use taxes?
QUESTION
3:
Are
installation services taxable in Utah? If yes, who is responsible for the tax
in this situation?
QUESTION
4:
Are
repair parts consumed by a repairman under a manufacturer's original warranty
subject to Utah use tax? If yes, who is responsible for the tax in this
situation?
QUESTION
5:
Is
repair labor performed by a repairman under a manufacturer's original warranty
subject to Utah sales or use tax? If yes, who is responsible for the tax in
this situation?
QUESTION
6:
Would
Company A be responsible for collecting use tax from its sales to construction
contractors if Company A's product were incorporated into real property or
would the construction contractor be liable for accruing and remitting the use
tax?
Please
provide explanations and the corresponding statutory support for your
conclusions. If you have any questions, please call me at ######. Your quick
response is greatly appreciated. Thank you.
Sincerely,
XXXXX
Director,
Research and Planning
NAME
ADDRESS
CITY,
ST, ZIP
Advisory
Opinion - Sales/use tax nexus
Dear
XXXXX,
We have received your request for sales
and use tax information pertaining to a manufacturer who sells its products to
customers in Utah. The answers to the
questions posed in your letter depend upon whether Company A has nexus in Utah,
so we begin by describing our nexus requirements.
Sales or 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 nexus in
Utah. Utah Code Section 59-12-107 (5)
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.
Company A has nexus in Utah under
(v) above because Company A uses an in-state agent to install or service the
equipment. Although you describe the
installer or service provider as an independent third party, that party is
operating under contract to and on behalf of Company A. The agent’s nexus creates nexus for Company
A. Therefore, Company A must collect
and remit tax on its taxable sales in Utah.
In response to your questions, we
offer the following:
1. Because Company A has nexus in Utah, it
must collect and remit use tax on its sales to end users in Utah. When Company A sells to a third party for
resale, the third party is considered the vendor. Company A must request an exemption certificate from the third
party. The third party vendor must
collect and remit tax on its resale of the item.
2. Company A has nexus for sales tax
purposes. Incidentally, Company A may
also be subject to Utah’s corporate income tax provisions. If you have questions about corporate tax, please
let us know.
3. Installation may or may not be taxable
in Utah, depending upon the nature of the installation. When tangible personal property is installed
in connection with real property, the installation labor is not taxable. In other words, if the item is affixed to
real property, the installation labor is exempt, even if the item is not
technically converted to real property.
If the item is not installed in connection with real property,
installation charges are taxable. Non-
taxable charges must be separately stated on the invoice or receipt.
The vendor is responsible for
collecting and remitting the tax on taxable installations.
4. With regard to parts replaced under
warranty, a warranty is considered a prepayment for any parts used for warranty
service. Services provided to the
customer at no charge are not taxable. However, if the customer purchases an
extended warranty contract, the charge for the warranty contract is taxable at
the time of sale.
You have described a situation in
which Company A provides parts to the service provider at no charge. There is no charge on this transaction
between Company A and the service provider.
5. Regarding labor to make repairs under
warranty, we assume that there is no additional charge to the customer. In that case, there is no tax on the repair
labor.
6. If Company A sells an item to a
contractor who, in turn, incorporates it into real property, the contractor is
considered the final consumer, and the transaction is not a resale
transaction. The transaction between
Company A and the contractor is taxable.
Because Company A has nexus in Utah, it is responsible for collecting
and remitting the tax.
Enclosed is a copy of a publication
describing nexus requirements and a form that Company A can use to apply for a
Utah sales tax license. Please let us
know if you have additional questions.
For
the Commission,
XXXXX,
Commissioner