98-044
Response
July 13, 1998
REQUEST
LETTER
June
11, 1998
Re: Advisory Opinion Request
Dear
Commissioner Pacheco:
COMPANY
A hereby requests an advisory opinion as
to whether an out-of-state client (the "Company") has nexus
with the State of Utah for sales tax purposes.
FACTS
The
Company is based outside of Utah, and sells a product into Utah. The Company
owns and uses no property in Utah, maintains no employees or independent
contractors in Utah, and operates no sales outlets within the state. The
Company receives telephone orders from within the state of Utah. The Company's only physical contact
with the state is the delivery of its
products via Company trucks, which deliver goods once a month into Utah. Each
trip is
accomplished
within about 48 hours, with a single truck arriving in Utah of Wednesday
evening and leaving early Friday morning, then coming back if for a few hours on Saturday.
Deliveries
are made to individual homes, or places of business. In some circumstances, one customer will organize the orders of
several customers, and call them in. A single delivery will then be made to
that customer's location. The organizing customer receives no payment or
discount for performing the service.
Although any customer is free to resell the goods, no customer can make
representations for or bind the Company in any way.
Some
customers in Utah own very small equity interests in the Company, and have
power to vote for the Company Board of Directors, but have no other owner
relating to the Company. They receive no compensation, and are in no way
employees of the Company. These equity owners are akin to Utah stock-holders in
COMPANY B, or other mail-order companies.
The
Company sells its products nationwide, with less than 3% of its sales being made into Utah. In 1992,
when the Company began selling in Utah,
the Company advertised generally in Utah newspapers for a few
weeks, but then quit. The Company has
done no other advertising in Utah since that
time, but may run general advertisements in Utah newspapers in the
future. Sales have come through word of
mouth. The Company distributes catalogs only when customers
call
and request them. The catalogs are
distributed through the mail or the
Company truck.
The
Company has never applied for a sales tax license in Utah.
LEGAL
ANALYSIS
Under
the Commerce Clause of the United States Constitution, we believe the Company
does not have nexus with Utah for sales tax purposes. According to the United States Supreme Court, nexus means
"physical presence" and a
company must have "substantial nexus" before a state can require it
to collect sales tax.1 Importantly, in the absence of an in-state
plant, warehouse or office, the Court
has found substantial nexus only where a foreign vendor maintains local
solicitation" within the taxing State.2 The Court has also noted that the presence often
independent contractors located continuously in a state is the "furthest
extension" of nexus.3
In
a case much like the case at hand, the Supreme Court held that a Delaware
furniture company did not have nexus with Maryland where the company
made deliveries into Maryland on the company's own trucks.4 The Court did not specify in
its decision the number of annual deliveries made by the furniture
company,
but based upon some facts discussed by the Court, it can be projected there
would have been at least one delivery per month.
The
Utah State Tax Commission has also considered the nexus issue. In August of
1997, the Commission ruled that a company did not have nexus with Utah where
company sales people visited Utah an average of seven times annually, with each
visit lasting a few days, for a total 21 days a year. Company Co. v. Collection Division, 96-0126 (Utah State Tax
Commission 1997) (attached).
Based
on the Miller case and the Tax Commission decision, the Company has no
nexus with Utah. The Miller case is directly on point as the company in that
case likely made many more deliveries than the Company making this inquiry. The
Miller company also made a much larger percentage of its total sales into
Maryland than the Company makes into Utah. Furthermore, the Tax Commission ruled just nine months ago
that a company having sales people in Utah seven times annually for a few days
had no nexus. The Company has one driver in Utah only twelve times annually for
a few days each time, and deliveries require much less customer contact and
activity than sales activities.
Based
on this authority, we respectfully request a Commission advisory opinion
affirming that the Company has no nexus with Utah for sales tax purposes.
1 See Quill Corp V. North Dakota,
504 U.S. 298 (1992). The Court has
rejected a "slightest presence" test. See National Geographic Society
V. California Bd. of Equalization, 430
U.S.
551(1977).
2 Scripto, 362 U.S. at 211 (emphasis
added); see also National Bellas Hess,
386 U.S. at
757;
National Geographic, 430 U.S. at 557; Miller Bros. Co. V. Maryland, 347 U.S. 340, 346
(1954).
3 See Quill, 504 U.S. at 306;
Standard Pressed Steel, Scripto, Inc. v
Carson, 36; U.S.
207
(1960).
4 Miller Bros., 347 U.S. at 340.
Sincerely
NAME
July
13, 1998
NAME
ADDRESS
CITY,
STATE ZIP
RE: Advisory
Opinion - Sales Tax Nexus with Utah
Dear
NAME,
We have received your request for an
advisory opinion as to whether sales tax nexus with Utah should be applied to
an out-of-state company (“The Company”), which makes its own deliveries into
Utah. Insufficient facts are present
for us to determine if The Company’s customers who are “free to resell the
goods” delivered to them are agents or representatives of The Company for sales
tax nexus purposes. Should they be, The
Company would be subject to sales tax nexus with Utah. Thus, for this opinion only, we will assume
that your analysis is correct when you state that The Company owns and uses no
property, maintains no employees or independent contractors (agents or
representatives), and operates no sales outlets in Utah. Should actual facts prove otherwise, this
opinion would need to be modified to reflect those facts.
Nevertheless, there may be other
contacts that will establish sales tax nexus other than those above that we
assume do not exist. In your letter,
you state that The Company’s contacts with Utah consist of receiving telephone
orders from within Utah, then delivering its products once a month into Utah
using The Company’s trucks. Each
delivery cycle lasts approximately two days, with deliveries made to the home
or business of the customer.
Additionally, Utah customers receive, upon request only, The Company’s
catalogs either through the mail or from the Company truck. While no advertising occurs in Utah at this
time, it has in the past and may in the future.
We also understand through telephone
inquiry with you that 24 separate deliveries are made in Utah each month during
the two days that The Company’s delivery truck is present in Utah. This would result in 288 separate deliveries
per year. You also indicate that The
Company’s gross revenue associated with the Utah deliveries is approximately
$250,000 per year.
From these facts, we find that The
Company makes a substantial number of deliveries into the state and that this contact
enables The Company to generate sales in Utah and to establish and maintain a
market in Utah. The number of
deliveries and total amount of revenue they represent are significant and
sufficient to create substantial nexus with Utah for sales tax purposes to meet
the requirements of the Commerce Clause.
Thus, The Company does have nexus with Utah for sales tax purposes.
Please contact us if you have any
other questions.
For
the Commission,
Joe
B. Pacheco
Commissioner
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