If I buy molds from a California company and a California company also modifies those molds, do I owe Utah sales/use tax on the modification (labor) charges, or only California tax?

Plain-English summary

A Salt Lake City vacuum cleaner manufacturer bought molds from a California firm to make a new vacuum model. The molds never left California — they stayed with a second California company that used them to mold parts for the Utah manufacturing facility. The manufacturer had claimed a Utah sales tax exemption on the molds themselves under the "manufacturing facility expanding operations" clause of the Utah Sales Tax Code.

After running a few prototypes, the manufacturer needed the molds modified. The California mold-making company made the changes and billed for the labor — and that bill included a California use tax charge. The manufacturer asked the Commission a straightforward question: was that modification invoice subject to California tax or Utah tax?

The Commission ruled that Utah sales tax did not apply to the labor charge. Its reasoning: for Utah to tax a transaction, the transaction has to be a Utah sale. Here, the original purchase of the molds and the later modification labor both took place entirely in California — nothing about either transaction occurred in Utah. Because the mold purchase and the modification were California transactions, the Utah manufacturing exemption did not even come into play (there was no Utah sale for it to exempt). The Commission also noted that the taxpayer could not use the Utah exemption to avoid California tax if California chose to tax the transaction — the two states' tax systems are separate.

The Commission added that, per its Auditing division, California has its own manufacturing equipment exemption, but the Commission has no authority to interpret California tax law. It directed the taxpayer to raise the California use tax question directly with California's Board of Equalization.

What this means for you

Manufacturers buying molds, tooling, or dies from out-of-state vendors

If you buy tooling or molds from an out-of-state vendor and that vendor (or another out-of-state company) also performs fabrication, repair, or modification labor on that equipment without it ever entering Utah, Utah generally has no sales/use tax claim on that labor — because there's no Utah sale to tax. That also means you can't lean on a Utah exemption (like the manufacturing exemption) to shield yourself from the other state's tax; if California (or any other state) taxes the transaction under its own law, that liability stands on its own.

Accountants and tax professionals advising multistate manufacturers

The key analytical move here is jurisdictional, not exemption-based: before asking "is this exempt," ask "did this transaction even happen in Utah?" A Utah exemption clause only matters for transactions Utah could otherwise tax. When the purchase and the labor both occur in another state, Utah sales/use tax doesn't reach it at all, and the client's exposure (if any) is entirely a question of that other state's law — here, California's own manufacturing equipment exemption and use tax rules, which the Utah Commission expressly declined to interpret.

If you get a mixed instate/out-of-state invoice

Watch for invoices that combine goods or labor performed in multiple states. In this ruling, both the original mold purchase and the later modification labor were confirmed to be entirely California transactions based on the facts provided; if any part of a similar transaction touched Utah, the analysis could come out differently. Document where title passes and where labor is physically performed.

Common questions

Q: I bought equipment from an out-of-state company, and that company later billed me for repairs or modifications also done out of state. Do I owe Utah sales tax on that repair bill?
A: Based on this ruling's reasoning, generally no — if the labor was performed entirely outside Utah, it isn't a Utah sale, so Utah sales tax doesn't apply. Utah tax reaches Utah transactions.

Q: Can I use Utah's manufacturing exemption to avoid paying another state's tax on an out-of-state purchase?
A: No. The Commission was explicit that if another state (here, California) imposes its own tax on a transaction, you cannot avoid that state's tax by claiming a Utah exemption. The exemption only ever applied to Utah's own tax on Utah transactions.

Q: Does Utah's manufacturing exemption apply to the mold purchase in this ruling?
A: The Commission said no, because the mold purchase itself was a California transaction with no part taking place in Utah — the exemption analysis never got triggered.

Q: What should I do about the California use tax charged on my invoice?
A: The Utah Tax Commission can't rule on California law. This taxpayer was directed to California's Board of Equalization (the state's sales/use tax authority at the time) to resolve the California-specific question, including whether California's own manufacturing equipment exemption might apply.

Q: Can I rely on this ruling for my own situation?
A: Not as binding precedent. This is a private letter ruling that bound the Commission only for the taxpayer and facts described in the original 1996 request. It's useful as an illustration of how the Commission analyzes multistate mold/tooling transactions, but your specific facts (where title passes, where labor occurs, what each state's law says) need their own review.

Citations and references

Statutes and rules referenced (as described in the ruling, without a specific citation given in the original text):

• Utah Sales Tax Code — the "manufacturing facility expanding operations" exemption clause that the taxpayer originally relied on for the mold purchase. The ruling text does not cite a specific section number; because this is a 1996 ruling, the Utah Code and Commission rules have since been renumbered and amended, so confirm the current statute before relying on it.
• California manufacturing equipment exemption — referenced by the Commission (via its Auditing division) as existing under California law, but the Commission expressly declined to interpret or apply California law, deferring instead to the California State Board of Equalization.

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/96-109.htm

Original ruling text

96-109

Response July 30, 1996

Request

XXXXX

Utah
State Tax Commission

210
North 1950 West

Salt
Lake City, Ut 84134

Dear
XXXXX

We
are manufactures of vacuum cleaners here in Salt Lake City and have a Sales and
Use tax question we need an opinion on and were told to write to you for it. We
have purchased molds through a California firm to make a new vacuum that
penetrates a market previously untapped by our company. We took sales tax
exemption on the molds based on the manufacturing facility expanding operations
clause in the Utah Sales Tax Code. While we own the molds, the company doing
our molding is also in California. We ran a couple of prototypes and discovered
we need to make some modifications. The mold maker sent us a bill including
California use tax charges. My question is, are we subject to California or
Utah tax regulations for this invoice?

Please
Fax me your opinion to XXXXX or send it to the address above. We appreciate
your help in this matter.

Sincerely,

XXXXX

XXXXX

Re: Advisory Opinion - Taxability of
labor performed on out of state equipment.

Dear
XXXXX

We received
your letter requesting an advisory opinion on the taxability of labor performed
on out of state equipment. The
following information should answer your request.

From
your request letter and further information you provided over the phone, the Commission
understands that you have purchased molds from a California company. These molds remained in California, and a
second California company uses them to produce parts for your Utah
manufacturing facility. Apparently,
after a prototype run, the mold making company made necessary modifications to
the molds and sent you a bill for the labor.
The bill included California use tax charges.

Based
on this information, Utah law does not require your company to pay Utah sales
tax for the labor performed on the molds.
For the transaction in question, a California company performed the
labor in California. In order for Utah
to levy a sales tax on the equipment modifications, the transaction would have
to be a Utah sale.

The
original purchase of the molds and the modifications to the molds took place in
California. From the information your
provided us, it appears that no part of these transactions took place in
Utah. Because the purchase and
subsequent modifications of the molds constitute California transactions, the
Utah manufacturing exemption does not apply.
If California imposes a tax on these types of transactions, you cannot
avoid the California tax by claiming the Utah exemption.

According
to our Auditing division, however, California does have a manufacturing
equipment exemption. Obviously, we are
not authorized to rule or interpret California tax law. We suggest that you direct your sales tax
questions on these transactions to the Sales and Use Tax Department of
California. For your convenience, the
address of the California State Board of Equalization is XXXXX. The phone number for the Sales and Use Tax
Department is XXXXX.

We
hope this information satisfies your request.
If you have further questions, please contact us again.

For the Commission,

Alice
Shearer,

Commissioner