Does an out-of-state internet retailer create Utah sales tax nexus by letting customers pick up online orders at an affiliated Utah store, and if so, how does it collect and report the tax?

Plain-English summary

A Utah retail store had a related internet-sales operation: a separate corporation, incorporated in another state and commonly owned through the same holding company, ran the website. Customers could buy online and either have the goods shipped from out of state, or pick them up at the Utah store. Because the website company and the Utah store were technically two different legal entities, the taxpayer asked whether the website company had to collect Utah sales tax at all — and if so, how.

The Commission ruled that the website company does have Utah nexus, even though it's a separate corporation from the Utah store and doesn't own that store. The key fact was that the website company used the Utah store — as a pickup point for its online orders — to establish and maintain its market in the state. That counts as maintaining a "sales house or stock of goods" in Utah under § 59-12-107, which is enough for nexus regardless of common ownership or the corporate-separateness argument.

Because nexus applies, the website company must collect and remit tax on all its Utah sales, but it can't just fold that into the Utah store's existing account — the two are separate legal entities, so Utah doesn't allow combined filing, and the website company needs its own sales tax license and its own return. The two types of sales are sourced (and reported) differently: goods shipped by common carrier from out of state source to the customer's Utah delivery address (Schedule B/D of Form TC-71M/TC-71V), while goods picked up at the store source to the store's location (Schedule A). Freight charges on the shipped sales are taxable unless they meet all four conditions of the shipping-charge exemption: common-carrier shipment, separately stated and listed charges, charges that reflect the actual shipping cost, and shipment occurring after title passes to the buyer.

What this means for you

Multi-entity retail/ecommerce groups

Splitting your brick-and-mortar and online sales into separate legal entities under common ownership does not, by itself, avoid nexus for the online entity if it relies on the physical store for any part of its market — including something as simple as letting customers pick up online orders there. If your online arm uses an affiliated store's location for pickup, expect the online entity to need its own Utah sales tax registration.

Ecommerce businesses handling "buy online, pick up in store" (BOPIS)

Sourcing differs by fulfillment method: ship-to-customer sales source to the delivery address, while in-store pickup sales source to the store's location — track both correctly on separate schedules of your return, and don't assume one blanket sourcing rule covers your whole online order flow.

Businesses charging separate freight/shipping fees

To keep a shipping charge out of the taxable sales price, all four boxes must be checked: common carrier, separately stated on the invoice, charge reflects actual shipping cost (not a markup), and the shipment happens after title passes. Missing any one of those makes the whole freight charge taxable.

Common questions

Q: Does being a separate legal entity from the physical store protect an online seller from nexus?
A: Not by itself. If the online seller uses the store — even one it doesn't own — to build or maintain its Utah market (here, as a pickup point), that's enough to create nexus under § 59-12-107's "sales house or stock of goods" test.

Q: Can the affiliated companies file one combined Utah sales tax return?
A: No. The Commission does not allow separate legal entities to file combined returns; each needs its own sales tax license and reports its own sales.

Q: Are shipping charges always taxable?
A: No, but the exemption is narrow — it only applies if the shipment is by common carrier, the charge is separately stated, the charge reflects actual shipping cost, and shipment happens after title passes. Any charge that fails one of those tests is fully taxable.

Citations and references

Statutes and rules:

• Utah Code Ann. § 59-12-107(1)(a) (retailer's collection duty)
• Utah Code Ann. § 59-12-107 (nexus via a sales house or stock of goods in Utah)
• Utah Admin. Rule R865-12L-6 (point of sale — common-carrier shipments source to delivery address)
• Utah Admin. Rule R865-12L-5 (point of sale — in-store pickup sources to store location)
• Utah Admin. Rule R865-19S-71 (four-part test for the shipping-charge exemption)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/03-016.html

Original ruling text

REQUEST LETTER

03-016

NAME

ADDRESS

Please review the questions below and provide instructions at your earliest convenience.

Business structure:

COMPANY currently owns one
retail location in CITY. Soon another
store will be opened in CITY. Other
than shopping at the store, our customers can also order online and pick up at
the store, or they can choose to have the products shipped directly to their
home. The website is WEB ADDRESS, which
is owned and managed by OTHER STATE COMPANY, a separate legal entity
incorporated in OTHER STATE. If the
customer wants to have the products shipped out to STATE, they will be shipped
from OTHER STATE by WEB ADDRESS. Both
the STATE Corporation and the OTHER STATE Corporation are owned by a holding
company in 2ND OTHER STATE.

Questions:

1. Since COMPANY and OTHER COMPANY are two separate legal entities; will the retail store in STATE be recognized as a OTHER STATE nexus?

2. If the answer is NO, then all online sales from WEB ADDRESS to Utah�s customers will be non-taxable?

3. If the answer is YES, then the online sales by WEB ADDRESS will charge Utah customers sales tax based on the shipping point? To report the sales tax charged by WEB ADDRESS, should we include it in the existing seller�s account in the Utah retail store, or a separate account and sales tax return are needed? In addition, is the freight charge from OTHER STATE to Utah a taxable or a non-taxable item?

Should you need any clarification, please email me at PERSONAL WEB ADDRESS or call

PHONE. Thank you for your assistance in this matter.

RESPONSE LETTER

NAME

ADDRESS

RE: Private Letter Ruling Request � Sales and Use Tax Nexus for Internet Company

Dear NAME,

We have received your request for a private letter ruling concerning sales tax and nexus issues arising out of Internet sales made by a OTHER STATE corporation and shipped directly to Utah customers. This OTHER STATE corporation, OTHER COMPANY, maintains an Internet website through which customers purchase products. Utah customers have the ability to choose direct delivery or to pick up their purchases at stores owned by COMPANY (COMPANY�), which is a separate legal entity. Based on these circumstances, we offer the following guidance.

Nexus for OTHER COMPANY. COMPANY and OTHER COMPANY are separate legal entities. COMPANY is a Utah corporation with a store
in Utah and must collect sales tax on its Utah sales in accordance with UCA
�59-12-107(1)(a). At issue is whether
OTHER COMPANY, a OTHER STATE corporation, has sufficient nexus with Utah for sales
and use purposes to require it to collect sales tax on its Utah sales. Although OTHER COMPANY customers purchase
their products online, they have the option to have the products shipped to
their home addresses or they may pick the items up at COMPANY store in
Utah. OTHER COMPANY may not own the
store in Utah, but it does use it for the benefit of establishing and
maintaining its market in Utah. Because
OTHER COMPANY maintains a sales house or stock of goods in Utah, pursuant to
Section 59-12-107, it establishes nexus with Utah for sales and use tax
purposes. Accordingly, OTHER COMPANY is
responsible for collecting and remitting sales tax on its Utah sales.

Collection
and Remittance of Sales Tax. OTHER COMPANY also asks several questions
about how to collect and remit sales tax on its Utah taxable sales. From the information provided, we assume
that OTHER COMPANY will make two types of sales. The first involves OTHER COMPANY shipping products from OTHER
STATE to the customer�s Utah address by common carrier. Pursuant to Utah Admin. Rule R865-12L-6, the
point of sale for such items is based on the address to which the item is
shipped. In addition, the sales taxes
on such sales should be reported on Schedule B/D of Tax Commission Form TC-71M
or TC-71V. The second type of sale
involves those where the customer picks up the products from the COMPANY
store. In accordance with Rule
R965-12L-5, the point of sale for these sales is the location of the
store. Taxes collected on such sales
should not be reported on Schedule B/D, but should be separately reported on
Schedule A of Form TC-71M or TC-71V.

You also ask whether OTHER COMPANY will need to apply for a separate sales tax number or whether OTHER COMPANY and can combine their sales for reporting purposes. The Tax Commission currently does not allow separate legal entities to file a combined return. Therefore, OTHER will need to apply for a separate sales tax license and report its sales separately from those made by OTHER COMPANY.

Lastly, you ask whether sales tax should be collected on freight charges imposed by OTHER COMPANY when shipping its products to Utah customers. Utah Admin. Rule R865-19S-71 provides that shipping charges are exempt from taxation when:

1) Shipment takes place by means of common carrier;

2) Charges are segregated and listed separately;

3) Charges reflect the actual cost of shipping the particular tangible personal property by common carrier; and

4) Shipment of the tangible personal property takes place after passage of title.

Shipping charges that meet the above criteria are exempt from taxation. Any other shipping or delivery charges are considered to be part of the taxable purchase price and are, thus, taxable themselves.

If you have any further questions, please feel free to contact us again.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/KC

03-016