99-037 Response May 23, 2000

99-037

Response May 23, 2000

REQUEST LETTER

Re: Request for an advisory opinion regarding the proper tax treatment of a transaction.

Dear NAME,

This letter is to request an advisory opinion regarding the proper tax treatment of a transaction. We are a network marketing company with distributors both in the United States and several foreign countries. In the U.S. we have two distribution centers, one in CITY, Utah and one in CITY, STATE. My question pertains primarily to the UTAH CITY location.

Occasionally we will have a distributor place an order for a number of cases of product (one or more pallets), send a trucking company (common carrier) to pick up the product at our distribution center for shipment outside the state and many times outside the country. We may not know the final destination but if shipped outside the U.S. the shipment is probably being sent to a country other than one where we are currently open for business.

My question is what is the proper tax treatment of this transaction? Is it taxable in the state of Utah or in the destination state? Typically, when we ship the product for a distributor it is taxed at its final destination. So if I send a shipment to say Los Angeles, I collect California tax at the address that it is shipped to. (In Los Angeles County that would be 8.25%)

lf you have any questions, please feel free to call me at ##### or via e-mail at

E-MAIL. I am looking forward to hearing from you on this matter. Thanks again.

NAME

RESPONSE LETTER

May 23, 2000

Dear NAME,

You have requested an advisory opinion regarding the taxability of certain sales made by your company. Specifically, you ask whether an order shipped from your CITY, Utah, distribution center is subject to Utah sales tax when the purchaser sends in a common carrier to pick up that order and deliver it outside of Utah. In this situation, we will assume that the purchaser is also the party paying the common carrier to transport the order.

Utah Admin. Rule R865-19S-44 (ARule 44") provides the circumstances that must exist before a transaction qualifies as an interstate commerce transaction and, accordingly, is not subject to Utah sales and use tax. Pertinent sections of Rule 44 include:

B. Before a sale qualifies as a sale made in interstate commerce, the following must be complied with:

1. the transaction must involve actual and physical movement of the property sold across the state line;

2. such movement must be an essential and not an incidental part of the sale;

3. the seller must be obligated by the express or unavoidable implied terms of the sale, or contract to sell, to make physical delivery of the property across a state boundary line to the buyer;

C. Where delivery is made by the seller to a common carrier for transportation to the buyer outside the state of Utah, the common carrier is deemed to be the agent of the vendor for the purposes of this section regardless of who is responsible for the payment of the freight charges.

All three subparts of section (B) must be present before a transaction is considered a sale made in interstate commerce. Subpart (3) of section (B) requires that the seller (i.e., your company) be obligated to make physical delivery across a state boundary to the buyer. Section (C) states that the common carrier to whom the seller delivers the order is deemed the agent of the vendor (i.e., your company), no matter which party is responsible for payment of the freight charges. Thus, if your company is obligated to turn the order over to a common carrier for delivery across a state boundary to the buyer, the common carrier is deemed to be acting as your company=s agent, no matter which party pays for the delivery. Accordingly, when the contract requires the common carrier to act as your agent under these circumstances, subpart (3) is satisfied because your company, through its agent, would be making the delivery across a state boundary to the buyer.

It would appear from your description of the transaction at issue that all the requirements of section (B) would be satisfied. In this case, the transaction would qualify as a sale made in interstate commerce and, accordingly, would not be subject to Utah sales and use tax. However, should other circumstances exist to indicate that any of the section (B) requirements are not met, our response would be different.