97-077
Response January 16, 1998
97-077
November
20,1997
Subject: Request for Ruling
Dear
Mr. Jones:
Our
client wishes to obtain a written response from the Department which concurs
with our option that it did not have nexus
with Utah and is not liable for sales and use tax on its sale of tangible
personal property to customers in the state. Our client will register
voluntarily with the department, collect and remit sales and use tax on all
future transactions which fall under
Utah
Sales and Use Tax laws and regulations.
Following
are the facts as they have been represented to COMPANY A by our client:
* The Company is a publisher of books,
periodicals and other related materials. The company is
headquartered
outside of Utah and has no office, inventory or other business location in your
state.
*
Our client has not previously been contacted by Utah.
*
The Company distributes the majority of its products through independent
distributors and a wholly owned subsidiary.
All sales to the distributors and Subsidiary are made for resale. The
transaction with the Subsidiary are treated at arm's length and it receives the
exact same terms as the independent distributors.
*
The Subsidiary is registered and remits sales and use tax in all relevant
jurisdictions, including Utah in which it does business, or maintains
documentation on exempt sales. To the best of the Company's Knowledge, the
independent distributors also collect and remit sales and use tax as required
by law.
*
The Company also sells books, periodicals and related materials through the
mails and common carriers for orders received at its headquarters via the
phones or mail. These are the only retail sales made by the company.
Solicitation of these orders is made exclusively by
direct
mail.
*
The Company is planning to merge the Subsidiary into the Company. The Company
will
then
conduct the Subsidiary's business activities. This merger will create nexus as
the sales
force
of the Subsidiary will now be employees of the Company. Therefore, the Company will be required to
register for sales and use tax in all states in which it is not currently
registered.
All
future sales will require that tax be collected and remitted unless exempt under state law.
*
The Company has not previously collected sales and use tax in your state
because it did
not
have substantial nexus as required under U.S. Supreme Court rulings to date.
The
issue raised by our client is whether a state may attempt to attribute nexus to
the Company by virtue of Subsidiary's activities. The Company and Subsidiary
are legally separate entities. The sales, at wholesale, of books and related
materials to the Subsidiary have always been conducted at arm's length. The
pricing structure between the Company and the Subsidiary has been developed
using the same arm's length transaction standard that exists between the
Company and independent distributors.
Further,
the Subsidiary's employees are not authorized to, nor do they in fact, solicit sales
on behalf of the Company, or engage in any other activities on behalf of the
Company. Based on these facts, we are of the opinion that the Subsidiary's
activities could not have been attributed to the Company for purposes of
requiring the Company to register and collect tax on its direct mail sales.
Given
the aforementioned, our client is requesting a written opinion from the
Department
concurring
in our analysis. As mentioned previously, the Company will register, collect
and
remit
tax as soon as it commences its new activities.
The
facts, as represented to the State, are the understanding of the facts as
represented to COMPANY A by our client. Such facts remain the representation of
our client, and have been offered as such to the department.
Should
you have any questions or require additional information, please contact NAME
at XXXXX or NAME at XXXXX.
Very
truly yours,
NAME
January
16, 1998
NAME
ADDRESS
CITY
STATE ZIP
Advisory
Opinion - Nexus attributable to parent corporation
Dear
NAME,
We have received your letter of
November 20, 1997, which concerns whether the Company described has had
sufficient nexus in the past to warrant collection of Utah’s sales and use
taxes.
The facts presented are as follows. The Company does not remit sales and use tax in Utah, but owns a
Subsidiary that does. The Company’s
only contact with Utah is its direct-mail sales. The Subsidiary receives the same treatment from the Company as
does the Company’s independent distributors.
No facts are supplied that would
attribute nexus to the Company because of its direct-mail sales. Nor would the
Subsidiary’s nexus with Utah necessarily result in nexus for the Company. Where there is evidence that a parent
corporation sufficiently controls or dominates a subsidiary, the corporate veil
may be pierced and the parent corporation also considered to have nexus. Among the factors that would determine
whether the parent corporation does control the subsidiary would be whether or
not the companies file unitary or separate corporate returns and whether the
companies’ books and records indicate that the parent corporation sets policies
and procedures for the subsidiary. No
evidence of such domination is presented in your letter. Assuming that the Company does not
sufficiently dominate or control the Subsidiary, the Company would not have
nexus with Utah prior to the merger.
The merger itself deserves
additional comment. Should the
Subsidiary have tax liability at the
time of the merger, Section 59-12-112 of the Utah Code Ann. places
responsibility for those taxes on the successor.
Please let us know if you have any
other questions.
For
the Commission,
Joe
B. Pacheco,
Commissioner
^^