98-050
Response
August 5, 1998
June
18, 1998
RULING
REQUEST
Dear
Sir or Madam:
Our
client, COMPANY A, respectfully requests a taxability ruling from the State of
UT on the following items.
Facts
COMPANY
A is a multilevel marketer of nutraceutical products and dietary supplements
based in CITY, STATE.
COMPANY
A scientifically addresses nutritional support from two distinct approaches.
The first is the need for a general diet plan that addresses an individual's need
for recommended amounts of proteins, fats, and carbohydrates and the
appropriate supplements to support those genetic requirements. This is accomplished through COMPANY A's
proprietary program of Metabolic Profiling. The second approach centers around
plant synthesized molecules that are
not found in our diets, but have been shown to have dynamic impact on our
ability to achieve optimal health.
COMPANY A has developed naturally occurring, plant-derived
carbohydrate-based products. COMPANY
A's products are designed to use nutrients working through normal physiology to
maintain optimal health through improved nutrition.
Many
of COMPANY A's products include the XXXXX complex (patent pending) which is
designed to support cellular communication through a dietary supplement of
monosaccharides
needed
for glycoconjugate synthesis.
As
a multilevel marketer, COMPANY A products are distributed through independent
distributors. The distributors are not considered to be employees by COMPANY A
and are referred to as "Associates".
Each
Associate purchases a promotional pack from COMPANY A as a selling aid usually
at the
beginning
of their distributorship. There are five (5) different levels of promotional
packs. Each
pack
contains at least one of COMPANY A's products that the distributors will be
marketing as well as a brief description of each product. In addition, various marketing and corporate
literature is enclosed in the pack.
Issue
Are
the following promotional packs subject to tax in the State of UT?
1. PACK ##### or PACK #####, Price $29.00 -- Includes the following:
Promotional materials include PRODUCT with
product tray, Welcome Letter, Welcome
Audio Tape, XXXXX Audio, NAME Technology Audio, COMPANY A Tomorrow Newsprint, Double-Fold
Product Brochure, Introducing COMPANY A Video, Forms Masters w/Policies and
Procedures, COMPANY A Magazine, Texas
National News Reprint, Metabolic Profile Survey with Product Selection
Guide, Wholesale Purchases Privileges, Laws and Regulations audio, and
Compensation Plan Brochure.
2. PACK #####, Price $49.00 -- Includes
the following:
One (1) product of choice, retail value of
$35.00 to $49.00 (excluding XXXXX
Bulk); Promotional materials include PRODUCT with product tray, Welcome Letter, Welcome Audio Tape, XXXXX
Audio, NAME Technology Audio, COMPANY A
Tomorrow Newsprint, Double-Fold Product Brochure,
Introducing COMPANY A Video, Forms
Masters w/Policies and Procedures, COMPANY A Magazine, Texas National News Reprint,
Metabolic Profile Survey with Product Selection Guide, Wholesale Purchases Privileges, Laws and
Regulations audio, and Compensation Plan Brochure.
3. PACK #####, Price $229.00 or PACK #####, Price $200.00 -- Includes the following:
Product with retail value of $230.00: 1 XXXX
#####,1 XXXXX #####, 1 XXXXX #####,
XXXXX #####,1 XXXXX #####, and 1 XXXXX #####
Promotional materials include those in PACK
plus: Business Planner with 30 Day
Calendar & Master Training Insert, Compensation Plan Video, Downline Request Order Form, Master Associate
Training Certificate, COMPANY A Made Easy
Workbook; Training - includes half-day training seminar.
4. PACK
#####, Price $339.00 -- Includes the
following:
Product with retail value of $347.00: 1 XXXXX
#####, 1 XXXXX #####, 1 XXXXX #####, 1 xxxxx #####, 1 XXXXX #####, 1 XXXXX
#####, 1 XXXXX #####, 1 XXXXX #####, and 1 XXXXX #####;
Promotional materials include All-Star
Training Materials, Archive Binder with
1 year Calendar, and Presentation Guide; Training - includes full day Advanced All-Star Training.
5. XXXXX & XXXXX #####, Price $568.00 -- (Combination of ##### XXXXX and #####
XXXXX Packs) - Includes the following:
Product with retail value of$567.0O: 1 XXXXX
#####, XXXXX #####, 1 XXXXX #####, 1 XXXXX #####, 2 XXXXX #####, 2 XXXXX #####,
1 XXXXX #####, 1 XXXXX #####, 1 XXXXX
#####, 1 XXXXX #####, and 2 XXXXX #####;
Promotional materials include materials
listed under XXXXX Pack plus:
Business Planner with 30 Day Calendar & Master Associate Training Insert,
Compensation Plan Video, All-Star Training Materials, Archive Binder with 1
year Calendar, Downline Request Order
Form, Master Associate Training Certificate, Presentation Guide, and COMPANY A Made
Easy Workbook; Training - includes half-day Master Associate Training and full
day Advanced All-Star Training.
6. XXXXX Pack #####, Price $1,000.00
-- Includes the following:
Product with retail value of $1,013.00: 2
XXXXX #####, 3 XXXXX #####, 3 XXXXX
#####, 2 XXXXX #####, 4 XXXXX #####, 4 XXXXX #####, 2 XXXXX #####, 2 XXXXX
#####, 1 XXXXX #####, 2 XXXXX #####, and 2 XXXXX #####;
Promotional materials include materials
listed under XXXXX Pack plus:
Business Planner with 30 Day Calendar & Master Training Insert,
Compensation Plan Video, All-Star
Training Materials, Archive Binder with 1 year Calendar, Downline Request Order Form, Master Associate
Training Certificate, Presentation Guide, and COMPANY A Made Easy Workbook;
Training - includes half-day Training Seminar and full day Advanced Training and Manual; Recruiting
Materials - 5 Introducing COMPANY A Videos, 20 Welcome Audios, 20 COMPANY A
Tomorrow Newsprints, 20 COMPANY A Magazines, 20 Double-Fold Product Brochures, 2- Texas National New Reprints,
and 20 Metabolic Profile Brochures.
Your
prompt written response will be greatly appreciated. If you have any questions or would like more
information, please do not hesitate to call me at #####.
Very
truly yours,
NAME
June
18, 1998
State
Tax Commission
210
N 1950 W
Salt
Lake City, UT 84134
RULING
REQUEST
Dear
Sir or Madam:
Our
client,COMPANY A, respectfully requests a taxability ruling on the various
products they produce. Descriptions of the products are provided below.
Facts
COMPANY
A is a multilevel marketer of dietary supplements based in STATE. COMPANY A markets dietary supplements that
scientifically address nutritional support from two distinct approaches. The
first is the need for a general diet
plan that addresses an individual's need for recommended amounts of
proteins, fats, and carbohydrates, and
the appropriate supplements to support those genetic requirements. This is accomplished through COMPANY A's
proprietary program of Metabolic Profiling.
The second approach centers around plant synthesized molecules that are
not found in our diets, but have been shown to have dynamic impact on our
ability to achieve optimal health.
COMPANY A has developed naturally occurring, plant-derived,
carbohydrate-based products. COMPANY A's products are designed to use
nutrients working through normal physiology to maintain optimal health through
improved nutrition.
Many
of COMPANY A's products include the XXXXX complex (patent pending), a newly
formulated carbohydrate complex, designed to support cellular communication
through a dietary supplement of monosaccharides (simple sugars) needed for glycoconjugate synthesis.
Product
Groups
1. The following products have been
designed to support cellular communication through
a
dietary supplement of monosaccharides (simple sugars). Good
communication between cells is necessary (1) for proper gland and
organ function, (2) for proper system
function, for example, the body's natural defense system, endocrine system, etc., and (3) optimal health.
A. XXXXX #####– Dietary supplement
in capsule form designed to help
provide
monosaccharides
used in glycoconjugate synthesis.
B. XXXXX
#####– Dietary supplement in bulk powdered form designed to help
provide
monosaccharides used in glycoconjugate synthesis.
C. XXXXX ##### Classic Formula
-COMPANY A's proprietary blend of XXXXX
complex and soy lecithin in capsule form designed to support cellular
communication through a dietary supplement of monosaccharides needed for
glycoconjugate synthesis.
2. The following product has been designed
to help support the body's endocrine system's natural production and balance of
hormones. A well-functioning endocrine system (1) helps support the body's
efficient burning of fat, (2) helps
support the body's natural recovery from physical and/or emotional stress, and
(3) works in harmony with the body's immune system.
D. XXXXX #####– Dietary supplement
with melatonin in tablet form designed
to support the body's functions of rest and recuperation.
3. The following products have been
designed as a food matrix of vitamins
and minerals
and
formulated to support a body's metabolic profile (I) for better absorption, bioavailability and
utilization of the nutrients, (2) for more individualized nutritional support,
and (3) designed to support optimal structure and function of all glands and organs.
E. XXXXX #####-- Metabolically
formulated dietary supplements in tablet form specifically formulated to
address genetic nutritional requirement of one of three general metabolic
categories. These general metabolic categories, based on levels of fats, proteins, and carbohydrates, are
determined by an individual's dietary
needs.
F. XXXXX ##### -- Metabolically
formulated dietary supplements in tablet form
specifically
formulated to address genetic nutritional requirement of one of three general
metabolic categories. These general metabolic categories, based on levels of
fats, proteins, and carbohydrates, are determined by an individual's dietary
needs.
G. XXXXX ##### -- Metabolically
formulated dietary supplements in tablet form specifically formulated to
address genetic nutritional requirement of one of three general metabolic
categories. These general metabolic categories, based on levels of fats, proteins, and carbohydrates, are
determined by an individual's dietary needs.
4 The following product has been
designed to help support the body's natural defense
system.
A strong immune system helps the body (1) build resistance to diseases, (2)
recover when ill or run down, and (3) support other bodily functions.
H. XXXXX #####-- Glyconutritional
dietary supplement in caplet form
designed
to promote proper colon ecology and function.
5. The following products have been
designed to help support athletic performance by
providing
nutrients to (1) support the body's natural physiology prior to a workout or athletic event, (2)
supplement and aid the body's natural energy
production during a workout or athletic
event, and (3) support the body's natural recovery process after a workout or athletic event.
I. XXXXX #####-- Preworkout sports dietary supplement
formulated to provide the fuel and
biochemicals necessary for the body to maximize its production of energy.
XXXXX is sold in a box of individual use packets and is designed to be mixed with water before
human consumption.
J. XXXXX #####– XXXXX ##### sold
in bulk form.
6. The following product has been designed
as a carbohydrate dietary supplement that provides a full day's supply of vitamins
and minerals. This product is more of a food product than a dietary supplement
based on its form and ingredients.
K. XXXXX -- A carbohydrate dietary
supplement in breakfast bar form that contains all natural ingredients
including date paste, honey granola
(rolled oats, honey, soy or canola oil, oat bran, vanilla), rice syrup,
dried cranberries (cranberries, apple
juice) XXXXX (fruit juice, natural
grain dextrins), dried apricots (suiphated), wheat bran, rice crisps,
Solnuts, rolled oats, pear juice
concentrate, soy protein nuggets, flax seed natural raspberry flavor, cashew butter, XXXXX complex (patent
pending) (naturally occurring plant
polysaccharides,
including
freeze-dried aloe vera gel extract - XXXXX),
dioscorea (wild am 10:1), Phyt-Aloc (flash-dried: broccoli, brussels sprout, cabbage, cauliflower, garlic, kale, onion,
tomato, turnip, papaya and pineapple),
isolated soy protein, calcium caseinate, citric acid, natural vegetable glycerin.
We
respectfully request written confirmation that the above products would or would not be subject to
tax according to the Laws and Regulations of the State of UT. We have enclosed copies of each product label that
shows the individual ingredients. If
you have any questions or would like more information, please do not hesitate to call me at #####.
Very
truly yours,
NAME
Enclosures
cc:
NAME, COMPANY
August
5, 1998
NAME
ADDRESS
CITY,
STATE ZIP
RE: Advisory
Opinion - Sales Tax on COMPANY A’s Products and Promotional Packs
Dear
NAME,
We have received your two requests
for an advisory opinion concerning the taxability of both products and
promotional packs sold by COMPANY A (“COMPANY A”), a multilevel marketer. Your first request describes six different
promotional packs sold by COMPANY A and asks if each is subject to sales tax in
Utah. The answer is yes. Utah Code Ann. §59-12-103(1)(a) imposes a
sales tax on the amount paid or charged for the sale of tangible personal
property within Utah. Your second
request describes a number of individual products produced by COMPANY A that
will be sold in Utah and asks if each is subject to sales tax. The answer again is yes, due to the same
legal authority quoted above.
Please let us take this opportunity
to point out that, absent an agreement to the contrary, sales tax is generally charged on that
transaction where the product is bought by its ultimate consumer. Thus, tax is due on any transaction where
COMPANY A makes a sale to the ultimate consumer of the product, whether that
product is the promotional pack or one of its individual products. However, for products bought from COMPANY A
to be resold, the purchaser may buy these products tax free upon receiving a
Utah sales tax license and issuing COMPANY A an exemption certificate at the
time the purchases are made. Then,
COMPANY A’s “associate,” as a purchaser for resale, would collect sales tax
upon his or her transaction with the ultimate consumer of the product.
However, as mentioned above, COMPANY
A may instead enter into a voluntary multilevel marketing agreement with the
Tax Commission and its associates.
Under this type of agreement, the associates would not be required to
get a sales tax number and collect sales tax on the products they buy for
resale. Instead, COMPANY A could
collect tax on all products sold to its associates, including the ones sold for
resale. Should COMPANY A be interested
in pursuing such an agreement, please have them contact NAME at #####.
Please contact us if you have any
other questions.
For
the Commission,
Joe
B. Pacheco, CPA
Commissioner
^^