Does an out-of-state gift-code issuer (or its affiliated online retailers) have to register to collect Utah sales tax just because unrelated third-party retail stores in Utah sell its gift codes to consumers?
Apply this to your situation
This page answers the general question as of 2013. Ezel answers yours, under current Utah tax law, with citations.
Plain-English summary
An out-of-state gift-code issuer sells codes that can be redeemed for goods/services at various "Internet Retailers," including two affiliated online retailers. The codes are sold directly to consumers online, and also through independent wholesalers who resell them to unrelated brick-and-mortar stores (some located in Utah) or straight to consumers at those stores. None of the gift-code issuer, its affiliated retailers, or their affiliate the marketplace operator have any office, employees, or property in Utah.
This is a follow-up to an earlier ruling, PLR 09-024 (2010), for the same client — the company came back because Utah's "affiliate nexus" statute (§ 59-12-107) was substantially rewritten effective July 1, 2012, and the company wanted confirmation the new law didn't change the answer. The Commission confirmed all four original conclusions still hold:
- Gift codes aren't a taxable sale at all. A gift code is an intangible right to acquire goods or services — a cash equivalent — not tangible personal property and not a taxable service, so Utah sales tax doesn't apply to the sale of the code itself (tax applies later, if at all, when the code is redeemed for a taxable item).
- The gift-code issuer doesn't have to register to collect Utah sales tax. It has no physical presence in Utah (failing the constitutional Quill physical-presence test) and no "attributional nexus" under Tyler Pipe either, because the Utah-based wholesalers and retail stores that actually sell the codes act for their own benefit, not as the issuer's market-building representatives.
- The affiliated Internet retailers don't have to register either — same physical-presence and attributional-nexus analysis, plus a specific look at the rewritten affiliate-nexus statute: it only pulls in an out-of-state seller if an in-state "related seller" (one meeting an ownership threshold AND selling similar products under a similar name, or using its Utah location to promote the out-of-state seller) is present. The unrelated Utah retail stores, wholesalers, and processor don't have the required ownership relationship with the affiliated retailers, so no affiliate nexus is created.
- Selling directly to Utah retail stores instead of through wholesalers wouldn't change any of this — the retail stores' own Utah presence still isn't attributed back to the out-of-state issuer or its affiliates.
What this means for you
Gift card and gift code companies
If your product is a code/credit redeemable for goods elsewhere (rather than the goods themselves), Utah generally treats the sale of that code as a nontaxable transfer of an intangible right — tax, if any, attaches later at redemption for a taxable item, not at the point you sell the code.
Out-of-state online retailers selling through unrelated Utah wholesalers or stores
Having your product distributed through unrelated third-party stores or wholesalers in Utah does not, by itself, create a Utah sales-tax collection duty — nexus turns on physical presence or on a genuine ownership relationship with an in-state "related seller," not on any commercial relationship with independent Utah businesses. This is fact-sensitive: if your Utah retail partner were commonly owned with you and sold similar products under a similar name, or promoted your business from its Utah location, the analysis would flip.
Accountants and multistate sellers
This ruling is a useful post-2012 companion to PLR 09-024 — it walks through Utah's rewritten affiliate-nexus statute (§ 59-12-107(2)(b), effective July 1, 2012) element by element and confirms it didn't expand nexus to reach genuinely unrelated in-state resellers. Note this predates South Dakota v. Wayfair (2018) and Utah's later economic-nexus statute (see PLR 21-001 in this collection) — an out-of-state seller with no physical or affiliate presence today could still owe Utah tax purely on sales volume under current law, something this 2013 ruling doesn't address.
Common questions
Q: Is selling a gift card or gift code a taxable sale in Utah?
A: No. Utah treats a gift code as an intangible right to acquire goods, not tangible personal property or a taxable service, so the sale of the code itself isn't taxed.
Q: Does selling through independent Utah retailers create a Utah tax collection duty for an out-of-state seller?
A: Not by itself. Nexus requires either the seller's own physical presence in Utah, or a genuine ownership-based "related seller" relationship with an in-state entity that meets specific statutory tests — an arm's-length commercial relationship with unrelated Utah stores or wholesalers doesn't qualify.
Q: Is this analysis still current law?
A: Only partly — the nexus analysis here predates Wayfair (2018) and Utah's economic-nexus statute, which can create a collection duty based on sales volume alone regardless of physical or affiliate presence. Consult a current tax professional.
Q: Does this ruling apply to my company?
A: Not automatically — it's a private letter ruling binding only on the Commission for the taxpayer and facts described, though other taxpayers may cite it for persuasive weight if closely similar. Consult a Utah tax professional about your own facts.
Citations and references
Statutes:
- Utah Code Ann. § 59-12-103(1)(a) (sales tax imposed on tangible personal property)
- Utah Code Ann. § 59-12-102 (definitions — tangible personal property, seller)
- Utah Code Ann. § 59-12-107 (seller registration/collection duties, incl. 2012-revised affiliate nexus rules)
Cases:
- Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) (four-part Commerce Clause test)
- Quill Corp. v. North Dakota, 504 U.S. 298 (1992) (physical-presence nexus standard)
- National Bellas Hess v. Department of Revenue, 386 U.S. 753 (1967) (bright-line physical presence)
- Tyler Pipe Industries, Inc. v. Dept. of Revenue, 483 U.S. 232 (1987) (attributional/market-maintenance nexus)
Prior ruling relied on:
- Utah PLR 09-024 (March 15, 2010) (gift codes are nontaxable intangible rights)
Source
- Landing page: https://tax.utah.gov/commission/rulings/
- Original PDF: https://files.tax.utah.gov/tax/commission/ruling/12-010.pdf
Original ruling text
FINAL PRIVATE LETTER RULING
REQUEST LETTER
12-010
September 27, 2012
Mr. Marc B. Johnson
Commissioner
Utah State Tax Commission
210 North 1950 West
Salt Lake City, UT 84134
Re: Request for a Private Letter Ruling
Dear Mr. Johnson:
COMPANY submits this Request for a Private Letter Ruling pursuant to Utah
Admin. R. R861-1A-34 on behalf of its client, respectfully requesting a ruling on whether
certain affiliated out-of-state companies are required to register to collect and remit Utah
sales and use tax as a result of specified activities conducted by third parties in Utah. On
October 28, 2009, COMPANY submitted a Request for a Private Letter Ruling (attached
hereto as Attachment 1) for the same client involving substantially similar facts to those
described below. On March 15, 2010, the Utah State Tax Commission (the
“Commission”) responded by issuing Private Letter Ruling 09-024 (attached hereto as
Attachment 2), which was consistent with the ruling requested by COMPANY. As a
result of a change in Utah law regarding sales and use tax registration and collection
requirements effective July 1, 2012, COMPANY’s respectfully requests confirmation that
the new law does not change its client’s Utah sales and use tax registration and collection
obligation.
I. Facts
This ruling request relates to the sale and distribution of gift codes to consumers
located in Utah. The gift codes may be redeemed to purchase goods and services from
retailers who sell over the Internet.
“Gift Code Issuer” sells gift codes directly to consumers over the Internet.
Consumers purchasing gift codes over the Internet may choose to receive the gift code by
e-mail, by printing a gift certificate on their printer, or by receiving a tangible gift card
via mail.
Gift Code Issuer also sells gift codes to unrelated, third party wholesalers
(“Wholesalers”). Wholesalers that purchase the gift codes sell them to brick-and-mortar
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retail establishments (“Retail Establishments”) for resale or sell the gift codes directly to
consumers, who will purchase the gift codes while at Retail Establishment locations. Gift
codes sold to consumers at Retail Establishments are transferred to the consumer using a
tangible gift card. The Retail Establishments owned by unrelated third parties are located
in numerous states, including Utah.
Gift cards used to transfer the gift codes are imprinted with the name of an
Internet marketplace (“Internet Marketplace”). The Internet Marketplace is operated by
“Website Operator,” an affiliate of Gift Code Issuer. The Internet Marketplace provides a
virtual marketplace where consumers may purchase tangible personal property and
services from various “Internet Retailers.”
Two of the Internet Retailers are affiliated with Gift Code Issuer and Website
Operator (“Affiliate Internet Retailers”). Affiliate Internet Retailers sell services and
tangible personal property to consumers via the Internet. All tangible personal property
sold by the Affiliate Internet Retailers is delivered to consumers via common carrier.
The Internet Marketplace also includes numerous Internet Retailers that are not
related to Gift Code Issuer, Website Operator or the Affiliate Internet Retailers.
Consumers may use the value contained in the gift codes to purchase goods and services
from either Affiliate Retailers or unrelated Internet Retailers via the Internet Marketplace.
These retailers are located throughout the United States. When the gift code is
redeemed, the Website Operator generates a receivable to collect the amount of the
redemption from Gift Code Issuer, and generates a payable to pay the amount of the
redemption to the Internet Retailer. These redemption terms are the same whether the
Internet Retailer is an Affiliate Internet Retailer or an unrelated, third party Internet
Retailer.
Gift Code Issuer contracts with an independent, third party (“Processor”) to
arrange for the production of tangible gift cards to transfer gift codes sold at Retail
Establishment locations. The tangible gift cards are distributed to the Retail
Establishments by the Wholesalers. The tangible gift card is provided for the benefit of
the party selling the gift code to the consumer as the card provides a physical medium to
transfer the gift code. Gift Code Issuer does not own or have title to the tangible gift card
at any point in time, nor does the tangible gift card have value independent from the gift
code.
Gift codes are sold to consumers using alternative methods. When a consumer
seeks to purchase a gift code at a Retail Establishment, Gift Code Issuer sells the gift
code to the Wholesaler. The Wholesaler sells the gift code to the Retail Establishment
(who sells it to the consumer). Alternatively, the Wholesaler may sell the gift code to the
consumer directly, and provide the Retail Establishment a commission. Gift Code Issuer
retains title to the gift code until these sale transactions take place.
The gift code does not have any value until the gift code is activated with a
specific dollar value. Once a gift code is sold, the Retail Establishment commences the
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activation of the purchased gift code using electronic equipment that is owned by the
Retail Establishment and connected to the Wholesaler’s network. The Retail
Establishment transmits to the Wholesaler the information necessary to activate the gift
code. The Wholesaler then transmits this information to Processor, and Processor
transmits this information to Gift Code Issuer. Gift Code Issuer pays Processor a
processing and fixed card fee at the time of activation.
Under the proposed transactions (“Proposed Transactions”), Wholesalers sell gift
codes to Retail Establishments located in Utah or directly to Utah consumers at Retail
Establishment locations. Gift Code Issuer and Affiliate Internet Retailers are not
physically present in Utah, as none of these entities have offices, employees, tangible
personal property or real property located within the state.
Issues
1. Are sales of gift codes to Utah residents subject to Utah’s sales and use
tax?
2. Is Gift Code Issuer required to register to collect and remit Utah sales and
use tax?
3. Are the Affiliate Internet Retailers required to register to collect and remit
Utah sales and use tax on their separate sales of tangible personal property
to consumers located in Utah?
4. Would the above conclusions change if Gift Code Issuer sold the gift
codes directly to Retail Establishments located in Utah?
Legal Framework for Analysis
U.S. Constitution
Federal constitutional limitations as well as limitations imposed by federal law are
the foundation for state taxation. The Commerce Clause limits the states from levying a
tax on income that is unduly burdensome on interstate commerce. The U.S. Supreme
Court has held that a tax on interstate commerce is permissible under the Commerce
Clause if the tax is: (1) applied to an activity with substantial connection (nexus) to the
state; (2) is fairly apportioned; (3) does not discriminate against interstate commerce; and
(4) is fairly related to the services provided by the taxing state. Complete Auto Transit,
Inc. v. Brady, 430 U.S. 274 (1977). The Due Process Clause also prevents a state from
taxing a business unless the business has some connection with the taxing state. There
must be a definite link or minimum connection between the in-state activities of the
taxpayer and the state before the state may impose its tax.
In its analysis of sales and use tax nexus, the U.S. Supreme Court has emphasized
that physical presence is required in order to create Commerce Clause substantial nexus.
In Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the U.S. Supreme Court held that
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the Commerce Clause bars a state from imposing a use tax collection duty on an out-of-
state seller with no physical presence in the state. Thus, the “bright-line” physical
presence standard first established by the Supreme Court in National Bellas Hess v.
Department of Revenue, 386 U.S. 753 (1967), was reaffirmed by the Court in Quill and
continues to govern today.
The Supreme Court has also held that “the crucial factor governing nexus is
whether the activities performed in this state on behalf of the taxpayer are significantly
associated with the taxpayer’s ability to establish and maintain a market in this state for
the sales.” Tyler Pipe Industries, Inc. v. Dept. of Revenue, 483 U.S. 232 (1987) (internal
quotes omitted). Thus, when considering “attributional nexus” fact patterns, the state is
bound to consider both the substantial nexus – i.e., physical presence – of an entity’s
representative, as well as whether the presence of said representative is specifically
directed to “establishing and maintaining a market” in the state for the sales at issue.
Utah’s Sales and Use Tax
Imposition of Tax
Utah imposes its sales and use tax upon sales of tangible personal property sold,
used or consumed within the state. Utah Code § 59-12-103(1)(a). “Tangible personal
property” is generally defined as personal property that may be seen, weighed, measured,
felt, touched or is in any manner perceptible to the senses, and includes electricity, water,
gas, steam or prewritten computer software. Utah Code § 59-12-102(113). Tangible
personal property does not include sales of products made electronically within its
definition; however, Utah does impose tax upon charges for products that are sold
electronically if such products would have been subject to tax if sold by other means. Id.
In addition, Utah subjects charges for telecommunication services, admission fees, repairs
to tangible personal property and various other services to tax (collectively referred to
here as “taxable services”). Utah Code § 59-12-103(b).
With respect to the sale of gift codes, the Commission has issued guidance which
provides that the sale of a gift code is not subject to Utah’s sales and use tax because the
gift code is an “intangible right to acquire goods.” Utah Private Letter Ruling 09-024,
March 15, 2010. The Commissioner further provided that “the transfer of those same
rights electronically would also be excluded from the Utah sales tax.” Id.
Registration and Collection Requirement
Utah imposes a sales tax on sellers meeting certain statutory requirements. Utah
Code § 59-12-107. A “seller” is a person that makes a sale, lease or rental of tangible
personal property, a product transferred electronically or a service. Utah Code § 59-12-
102(110). Sellers are required to register to collect and remit sales and use tax if the seller
has or utilizes:
(a) an office;
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(b) distribution house;
(c) sales house;
(d) warehouse;
(e) service enterprise; or
(f) place of business.
Utah Code § 59-12-107(2)(a)(i).
In addition, a seller is required to register to collect and remit sales and use tax if
the seller engages in any of the following activities:
(a) Maintains a stock of goods within the state;
(b) Regularly solicits orders in the state, unless the seller’s only
activity is:
(i) advertising or solicitation by:
(aa) direct mail;
(bb) electronic mail;
(cc) the internet;
(dd) telecommunications service; or
(ee) or another similar means;
(c) Regularly engages in the delivery of property in the state by means
other than common carrier or U.S. Mail; or
(d) Regularly engages in an activity directly related to the leasing or
servicing of property located within the state.
Utah Code § 59-12-107(2)(a)(ii)-(v).
a. Affiliate Nexus
Effective July 1, 2012, Utah tax law requires that a seller register to collect and
remit sales and use tax if the seller holds a substantial ownership interest in, or is owned
in whole or in substantial part by, a related seller; and either:
(1) the seller sells the same or a substantially similar line of products
as the related seller and does so under the same or a substantially similar
business name; or
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(2) the place of business described in Subsection (2)(a)(i) of section
59-12-107 of the related seller or an in state employee of the related seller
is used to advertise, promote, or facilitate sales by the seller to a purchaser.
Utah Code § 59-12-107(2)(b). Under the new law, “related seller” is defined as a seller
that:
(1) has a place of business described in Subsection (2)(a)(i) of section
59-12-107; and
(2) delivers tangible personal property, a service, or a product
transferred electronically that is sold by a seller that does not have place of
business in the Utah and to a purchaser in Utah.
Utah Code § 59-12-107(2)(b) (collectively provisions are referenced as “Affiliate
Nexus Statute”). Further, “ownership” means direct ownership or indirect ownership
through a parent, subsidiary, or affiliate. Utah Code § 59-12-107(1)(a). “Substantial
ownership interest” means an means an [sic] ownership interest in a business entity if that
ownership interest is greater than the degree of ownership of equity interest specified in
15 U.S.C. Sec. 78p,1 with respect to a person other than a director or an officer.
Analysis
Gift Codes Do Not Constitute Tangible Personal Property or Services Subject to
Utah Sales and Use Tax
Gift codes provide consumers with the right to acquire tangible personal property
or services from Internet Retailers. Thus, the gift codes are intangible rights that represent
a form of payment and function as a cash equivalent. Gift codes are not tangible personal
property under Utah’s definition because gift codes cannot be seen, weighed, measured,
felt or touched, and are not perceptible to the senses in any manner. Nor are gift codes
included among the services Utah has specified as subject to sales and use tax. Because
gift codes are cash equivalents rather than tangible personal property or taxable services,
the sale of gift codes is not subject to Utah’s sales and use tax.
Gift Code Issuer is Not Required to Register to Collect Utah Sales and Use Tax
Constitutional Limitations
Gift Code Issuer is not required to register for and collect Utah sales and use tax
as a result [of] its sale of gift codes to Wholesalers because Gift Code Issuer will not have
a physical presence in the state. Gift Code Issuer sells gift codes, which are intangible
rights to purchase property from Internet Retailers, and engages in its business from
facilities located wholly outside Utah. Gift Code Issuer does not have any offices or
employees in Utah, nor does Gift Code Issuer own real or tangible personal property
1
The ownership of equity interest specified in 15 U.S.C. Sec. 78p is 10 percent of any class of any equity
security.
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located within the state. Therefore, Gift Code Issuer will not satisfy Quill’s physical
presence nexus standard.
Gift Code Issuer has not established attributional nexus with Utah because no
representatives will be performing market-related activities in Utah on Gift Code Issuer’s
behalf. As discussed above, Gift Code Issuer sells gift codes to Wholesalers for resale;
Wholesalers then resell the gift codes to Retail Establishments or directly to consumers at
Retail Establishments. The activities that are performed by Wholesalers and Retail
Establishments in Utah will be for the benefit of those entities and not for Gift Code
Issuer’s benefit. Thus, Gift Code Issuer does not have nexus with Utah by virtue of
others’ Utah activities.
Utah Law
Gift Code Issuer is not a “seller” required to register and collect Utah sales and
use tax.
As a preliminary matter, Gift Code Issuer is not a “seller” under Utah law. Gift
Code Issuer does not sell, lease or rent tangible personal property, products transferred
electronically, or services that are subject to Utah tax. Rather, Gift Code Issuer sells gift
codes, which are intangible rights that are not subject to Utah sales and use tax.
Moreover, even if Gift Code Issuer was a “seller,” Gift Code Issuer is not required
to register to collect sales and use tax in Utah because Gift Code Issuer does not conduct
the requisite activities within the state. Gift Code Issuer engages in business from
facilities wholly outside of Utah. Gift Code Issuer does not maintain an office,
distribution house, sales house, warehouse, service enterprise or similar place of business
within Utah, nor does Gift Code Issuer maintain a stock of goods within the state. Gift
Code Issuer does not regularly engage in the delivery of property in Utah by means other
than common carrier or U.S. Mail. Gift Code Issuer does not lease or service property
located within Utah.
Moreover, Gift Code Issuer is not required to register to collect Utah sales and use
tax under Utah’s affiliate nexus provisions because it does not have an affiliated entity
present in the state that meets the requisite ownership requirements and meets the
definition of “related seller.” None of Gift Code Issuer’s affiliated entities have a location
in Utah and deliver taxable products or services on its behalf. Additionally, none of Gift
Card Issuer’s affiliated entities have both a substantially similar line of products and
business name. Finally, no Utah business location of an entity affiliated with Gift Code
Issuer is used to advertise, promote, or facilitate sales by Gift Code Issuer.
Thus, Gift Code Issuer is not required to register to collect sales and use tax in
Utah.
Affiliate Internet Retailers are not Required to Register and Collect Utah Sales and
Use Tax
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Constitutional Limitations
Affiliate Internet Retailers also are not required to register and collect Utah sales
and use tax based upon U.S. Constitutional principles. Affiliate Internet Retailers are
Internet sellers of tangible personal property and services, and engage in business from
facilities located wholly outside Utah. All deliveries of tangible personal property to Utah
consumers will continue to be made into the state via common carrier. Affiliate Internet
Retailers do not have any offices or employees in Utah, nor do they own real or tangible
personal property located in the state. Therefore, Affiliate Internet Retailers do not have
physical presence in Utah based upon the standard set forth in Quill.
Affiliate Internet Retailers also lack nexus with Utah based upon the attributional
nexus standard established in Tyler Pipe because no other entity is performing market-
related activities in Utah on behalf of Affiliate Internet Retailers. Gift codes are sold to
Utah consumers at Retail Establishments. Consumers are not required to redeem the gift
codes from within Utah but rather may redeem them from any state. Moreover,
consumers may redeem the gift codes for goods and services with any Internet Retailer in
the Internet Marketplace, and the terms of redemption are the same whether the consumer
purchases property or services from a related or unrelated Internet Retailer. Finally, as
discussed above, all of the activities performed by Wholesalers and the Retail
Establishments in Utah are not performed for the benefit of those entities’ own sales of
gift codes within the state. For each of these reasons, Affiliate Internet Retailers do not
have nexus with Utah.
Utah Law
Affiliate Internet Retailers are not required to register to collect sales and use tax
under Utah law because they do not conduct the requisite activities within the state.
Affiliate Internet Retailers engage in business from facilities wholly outside of
Utah. They do not maintain an office, distribution house, sales house, warehouse, service
enterprise or similar place of business within Utah, nor do they maintain a stock of goods
within the state. Affiliate Internet Retailers do not regularly engage in the delivery of
property in Utah by means other than common carrier or U.S. Mail. Affiliate Internet
Retailers do not lease or service property located within Utah.
Moreover, Affiliate Internet Retailers are not required to register to collect Utah
sales and use tax under Utah’s Affiliate Nexus Statute Retailers. Utah’s Affiliate Nexus
Statute requires the in-state entity and the out-of-state entity be “related sellers” (which
definition has several components) and additionally meet one of two statutory tests - (1)
the out-of-state seller sells the same or a substantially similar line of products as the
related seller and does so under the same or a substantially similar business name; or (2)
the related seller’s place of business or its in-state employee is used to advertise, promote
or facilitate sales for the out-of-state seller to purchasers.
Affiliate Internet Retailers do not have an affiliated entity that meets the requisite
ownership requirements and meets the definition of “related seller.” None of Affiliate
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Internet Retailers’ affiliated entities have a location in Utah and deliver taxable products
or services for Affiliate Internet Retailers which do not have a Utah location. Regardless,
even if Gift Card Issuer or any Affiliate Internet Retailers did meet the definition of
“related seller” neither have both a substantially similar line of products and business
name. Nor is a Utah business location of Gift Card Issuer or an Affiliate Internet Retailer
used to advertise, promote, or facilitate sales of any other Affiliate Internet Retailer.
Thus, Affiliate Internet Retailers are not required to register to collect sales and use tax
under Utah law.
The Aforementioned Conclusions Will Not Change if Gift Code Issuer Sells Directly
to Retail Establishments Located In Utah
In the event that Gift Code Issuer sells gift codes directly to Utah Retail
Establishments for resale to consumers within the state (rather than to Wholesalers), the
aforementioned conclusions will not change. The direct sale of gift codes to Retail
Establishments will not cause Gift Code Issuer or Affiliate Internet Retailers to have a
physical presence in the state, as they will continue to engage in business from facilities
located outside of Utah, and will not have any offices, employees or property in Utah.
Moreover, the activities performed by Retail Establishments in Utah will inure to the
benefit of the Retail Establishments. Retail Establishments will not be performing
market-related activities on Gift Code Issuers or Affiliate Internet Retailer’s behalf.
Similarly, Gift Code Issuer’s direct sales to Retail Establishments will not create a Utah
statutory registration and collection responsibility.
Conclusions
1. Gift Code Issuer is not subject to Utah’s sales and use tax registration and
collection responsibilities as a result of its sale of gift codes to
Wholesalers. This conclusion will not change if Gift Code Issuer sells gift
codes directly to Retail Establishments.
2. Affiliate Internet Retailers are not subject to Utah’s sales and use tax
registration and collection responsibilities. This conclusion will not
change as a result of Gift Code Issuer’s sale of gift codes to Wholesalers
and Retail Establishments.
*
In advance of the issuance of a response to this request for a ruling, we
respectfully request that the Tax Commission contact us to discuss any facts or questions
that may arise. Please feel free to contact NAME at PHONE NUMBER if you have any
questions.
Very truly yours,
NAME
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RESPONSE LETTER
February 8, 2013
NAME, TITLE
COMPANY
ADDRESS
Re: Private Letter Ruling Request—Sales Taxation Implications of Sales of Gift Codes
Dear NAME:
You have submitted a request for a Private Letter Ruling (“PLR”) on behalf of your
client, requesting a ruling on whether certain affiliated out-of-state companies are
required to register to collect and remit Utah sales and use tax on the sale and distribution
of gift codes to consumers located in Utah. Previously, we had answered your questions
through PLR 09-024 issued on March 15, 2010, available online at
http://tax.utah.gov/commission/ruling/09-024.pdf. However, you now seek additional
guidance because some of the law applied in PLR 09-024 has changed. We understand
the facts to be as follows:
I. Facts
You stated that you request this PLR for the same client under substantially similar facts
as your prior PLR request. In PLR 09-024 we stated the facts as follows:
"Gift Code Issuer" sells gift codes directly to consumers over the Internet.
The gift codes may be redeemed to purchase goods and services from
retailers who sell over the Internet. Consumers purchasing gift codes may
choose to receive the gift code by e-mail, by printing a gift certificate on
their printer, or by receiving a tangible gift card via mail.
Gift Code Issuer also sells gift codes to unrelated, third party wholesalers
("Wholesalers"). Wholesalers sell the gift codes to brick-and-mortar retail
establishments ("Retail Establishments") for resale. Wholesalers also sell
the gift codes directly to consumers, who will purchase the gift codes
while at Retail Establishment locations. The Retail Establishment receives
a commission from Wholesalers on such sales. Gift codes sold to
consumers at Retail Establishments are transferred to the consumer using a
tangible gift card. The Retail Establishments are located in numerous
states, not including Utah.
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Gift cards used to transfer the gift codes are imprinted with the name of an
Internet marketplace ("Internet Marketplace"). The Internet Marketplace is
operated by "Website Operator," an affiliate of Gift Code Issuer. The
Internet Marketplace provides a virtual marketplace where consumers may
purchase tangible personal property and services from various "Internet
Retailers."
Two of the Internet Retailers are affiliated with Gift Code Issuer and
Website Operator ("Affiliate Internet Retailers"). Affiliate Internet
Retailers sell services and tangible personal property to consumers via the
Internet. The Affiliate Internet Retailers engage in business from facilities
located wholly outside Utah. The will not have any offices or employees
in Utah, nor will they own real or tangible personal property located in the
state. All tangible personal property sold by the Affiliate Internet Retailers
is delivered to consumers via common carrier.
The Internet Marketplace also includes numerous Internet Retailers that
are not related to Gift Code Issuer, Website Operator or the Affiliate
Internet Retailers. Consumers may use the value contained in the gift
codes to purchase goods and services from either Affiliate Retailers or
unrelated Internet Retailers via the Internet Marketplace. These retailers
are located throughout the United States. When the gift code is redeemed,
the Website Operator generates a receivable to collect the amount of the
redemption from Gift Code Issuer, and generates a payable to pay the
amount of the redemption to the Internet Retailer. These redemption terms
are the same whether the Internet Retailer is an Affiliate Internet Retailer
or an unrelated, third party Internet Retailer.
Gift Code Issuer contracts with an independent, third party ("Processor")
to arrange for the production of tangible gift cards to transfer gift codes
sold at Retail Establishment locations. The tangible gift cards are
distributed to the Retail Establishments by the Wholesalers. The tangible
gift card is provided for the benefit of the party selling the gift code to the
consumer as the card provides a physical medium to transfer the gift code.
Gift Code Issuer does not own or have title to the tangible gift card at any
point in time, nor does the tangible gift card have value independent from
the gift code.
Gift codes are sold to consumers using alternative methods. When a
consumer seeks to purchase a gift code at a Retail Establishment, Gift
Code Issuer sells the gift code to the Wholesaler. The Wholesaler sells the
gift code to the Retail Establishment (who sells it to the consumer).
Alternatively, the Wholesaler may sell the gift code to the consumer
directly, and provide the Retail Establishment a commission. Gift Code
Issuer retains title to the gift code until these sale transactions take place.
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The gift code does not have any value until the gift code is activated with
a specific dollar value. Once a gift code is sold, the Retail Establishment
commences the activation of the purchased gift code using electronic
equipment that is owned by the Retail Establishment and connected to the
Wholesaler's network. The Retail Establishment transmits to the
Wholesaler the information necessary to activate the gift code. The
Wholesaler then transmits this information to Processor, and Processor
transmits this information to Gift Code Issuer. Gift Code Issuer pays
Processor a processing and fixed card fee at the time of activation.
Under the proposed transactions ("Proposed Transactions"), Wholesalers
would begin selling gift codes to Retail Establishments located in Utah or
directly to Utah consumers at Retail Establishment locations. Gift Code
Issuer and Affiliate Internet Retailers are not physically present in Utah, as
none of these entities have offices, employees, tangible personal property
or real property located within the state.
For this PLR you provided the following additional, revised, or clarifying facts. The
locations of the Retail Establishments now include Utah. Thus, Wholesalers are currently
selling gift codes to Retail Establishments located in Utah or directly to Utah consumers
at these Retail Establishments located in Utah. All Retail Establishments are owned by
unrelated third parties. The Gift Code Issuer does not lease or service property located in
Utah. None of Gift Code Issuer’s affiliated entities, which include the Affiliated Internet
Retailers and the Website Operator, have a location in Utah and deliver taxable products
or services on the Gift Code Issuer’s behalf. Additionally, none of Gift Code Issuer’s
affiliated entities have both a substantially similar line of products and business name.
Finally, no Utah business location of an entity affiliated with Gift Code Issuer is used to
advertise, promote, or facilitate sales by Gift Code Issuer.
II. Issues
In this context, you have asked the following questions:
-
Are sales of gift codes to Utah residents subject to Utah’s sales and use tax?
-
Is Gift Code Issuer required to register to collect and remit Utah sales and use tax?
-
Are the Affiliate Internet Retailers required to register to collect and remit Utah sales
and use tax on their separate sales of tangible personal property to consumers located in
Utah? -
Would the above conclusions change if Gift Code Issuer sold the gift codes directly to
Retail Establishments located in Utah?12
Page 13
III. Authorities
Much of the applicable law used in PLR 09-024 is the same. Below is noted the statutory
changes that occurred after PLR 09-024 was issued.
Utah Ann. Code § 59-12-107 was amended, significantly revising the subsections relating
to an area of the Utah Code that you refer to as the Affiliate Nexus Statute. Section 59-
12-107 provides in part as follows:
(1) As used in this section:
(a) "Ownership" means direct ownership or indirect ownership
through a parent, subsidiary, or affiliate.
(b) "Related seller" means a seller that:
(i) meets one or more of the criteria described in Subsection (2)
(a)(i); and
(ii) delivers tangible personal property, a service, or a product
transferred electronically that is sold:
(A) by a seller that does not meet one or more of the criteria
described in Subsection (2)(a)(i); and
(B) to a purchaser in the state.
(c) "Substantial ownership interest" means an ownership interest in a
business entity if that ownership interest is greater than the
degree of ownership of equity interest specified in 15 U.S.C. Sec.
78p, with respect to a person other than a director or an officer.
(2) (a) . . . . each seller shall pay or collect and remit the sales and use
taxes imposed by this chapter if within this state the seller:
(i) has or utilizes:
(A) an office;
(B) a distribution house;
(C) a sales house;
(D) a warehouse;
(E) a service enterprise; or
(F) a place of business similar to Subsections (2)(a)(i)(A)
through (E);
....
(iii) regularly solicits orders, regardless of whether or not the
orders are accepted in the state, unless the seller's only
activity in the state is:
(A) advertising; or
(B) solicitation by:
(I) direct mail;
(II) electronic mail;
(III) the Internet;
(IV) telecommunications service; or
(V) a means similar to Subsection (12)(a)(iii)(A) or (B);
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....
(b) A seller is considered to be engaged in the business of selling
tangible personal property, a service, or a product transferred
electronically for use in the state, and shall pay or collect and
remit the sales and use taxes imposed by this chapter if:
(i) the seller holds a substantial ownership interest in, or is
owned in whole or in substantial part by, a related seller; and
(ii) (A) the seller sells the same or a substantially similar line of
products as the related seller and does so under the same
or a substantially similar business name; or
(B) the place of business described in Subsection (2)(a)(i)
of the related seller or an in state employee of the related
seller is used to advertise, promote, or facilitate sales by
the seller to a purchaser.
....
The Utah State Tax Commission revised Publication 37, available at
http://tax.utah.gov/forms/pubs/pub-37.pdf, to reflect the changes in § 59-12-107.
IV. Discussion
Issue 1: Are sales of gift codes to Utah residents subject to Utah’s sales and use tax?
The sales of the gift codes to Utah residents are not subject to Utah’s sales and use tax.
This answer is the same as it was for PLR 09-024. For the details on the analysis, please
review PLR 09-024.
Issue 2: Is Gift Code Issuer required to register to collect and remit Utah sales and use
tax?
The Gift Code Issuer is not required to register to collect and remit Utah sales and use
tax. This answer is the same as it was for PLR 09-024. For the details on the analysis,
please review PLR 09-024.
Issue 3: Are the Affiliate Internet Retailers required to register to collect and remit
Utah sales and use tax on their separate sales of tangible personal property to
consumers located in Utah?
Affiliate Internet Retailers are not required to register to collect and remit Utah sales and
use tax on their separate sales of tangible personal property to consumers located in Utah.
This answer is the same as it was for PLR 09-024. For the details on the analysis, please
review PLR 09-024.
Furthermore, Affiliated Internet Retailers do not have a registration requirement under
the revised § 59-12-107. Under § 59-12-107(2)(b)(i), Affiliated Internet Retailers can
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only be required to register, collect, and remit Utah sales and use tax based on another
entity’s presence in the state if that other entity is a related seller and has a certain
ownership relationship with the Affiliated Internet Retailers. None of the entities you
discussed meet both of these requirements. The Gift Code Issuer and the Website
Operator are not related sellers under § 59-12-107(1)(b)(i) because they have no place of
business in Utah. The Retail Establishments, the other Internet Retailers, the Processor,
and the Wholesalers might be located in Utah, but they lack an ownership relationship
with Affiliated Internet Retailers. Thus, none of the entities you have discussed can create
a Utah sales tax registration requirement for Affiliated Internet Retailers.
Issue 4: Would the above conclusions change if Gift Code Issuer sold the gift codes
directly to Retail Establishments located in Utah?
The above conclusions would not change if Gift Code Issuer sold the gift codes directly
to the Retail Establishments located in Utah. This answer is the same as it was for PLR
09-024.
V. Conclusions
-
The sale of gift codes is not subject to Utah sales and use tax.
-
Gift Code Issuer will not be required to collect and remit Utah sales and use tax on
sales of the codes. -
Affiliate Internet retailers will not be required to collect and remit Utah sales and use
tax on sales into Utah. -
These conclusion will not change if Gift Code Issuer begins to sell gift codes directly
to Retailers located in Utah.
These conclusions are based on the facts outlined above and the Utah law currently
in effect. If there are changes in the governing law or the facts, these conclusions could
change. If you believe we have misstated any facts or omitted any material facts in our
discussion, please let us know.
For the Commission,
R. Bruce Johnson
Chair
RBJ/aln
12-010
15
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