Does an out-of-state manufacturer with no offices, warehouses, or sales staff in Utah have to collect Utah sales/use tax on sales shipped to Utah dealers, and are its shipping charges taxable?

Plain-English summary

A law firm asked the Utah State Tax Commission about an out-of-state manufacturer of display-room component products, sold mostly to dealers (occasionally to individuals), shipped via UPS or a hired carrier from outside Utah, with no in-state stock of goods and no Utah sales force. The firm wanted a ruling on (1) whether the client has Utah nexus and (2) how shipping/delivery charges are taxed.

Nexus: Utah use tax applies to storage, use, or consumption of tangible property here; while the purchaser technically owes it, the vendor must collect and remit it if the vendor has Utah nexus. Under § 59-12-107(5), nexus arises from having (or using) an office, distribution house, sales house, warehouse, or other place of business in Utah; maintaining a stock of goods here; regularly delivering property here other than by common carrier or U.S. mail; or regularly engaging in leasing/servicing activity for property located here. The Commission explained the client has nexus if it owns property in Utah, has sales agents here, or provides service/maintenance for its products here — directly or through a third party acting on its behalf (the Commission looks closely at the actual relationship between the vendor and any such third party to decide this).

Dealer sales: The Commission noted it wasn't fully clear on the nature of the client's dealer sales, so it explained both scenarios: if Utah dealers buy the products for resale, they can buy tax-free by giving the manufacturer a Utah resale exemption certificate. If dealers buy for their own nonexempt use (e.g., using the product for their own display), the dealer owes sales tax on that purchase. Whether the manufacturer collects that tax or the dealer self-reports it depends on nexus: if the manufacturer has nexus, it must collect and remit the tax; if it doesn't, the dealer must accrue and remit use tax directly.

Shipping charges: Shipping/delivery charges are exempt if the underlying sale is exempt, or — for an otherwise taxable sale — if all four of these conditions are met: (1) shipment is by common carrier; (2) shipping charges are separately stated/segregated on the invoice; (3) the charges reflect the actual cost of shipping by common carrier; and (4) shipment happens after title passes to the buyer. If shipment happens before title passes, shipping costs included in the sales price are part of the taxable sales/use tax base regardless of whether they're separately stated.

What this means for you

Out-of-state manufacturers and wholesalers selling into Utah through dealers

Having no office, warehouse, or direct sales force in Utah is a strong starting point for lacking nexus — but be careful about third parties acting on your behalf in Utah (for service, repair, or sales support), since the Commission will scrutinize that relationship closely and could find nexus through an agent even without your own physical presence.

Dealers/distributors buying from an out-of-state manufacturer

If you're buying for resale, get a Utah resale exemption certificate on file to buy tax-free. If you're buying for your own use (not resale), you owe use tax on that purchase regardless of whether the seller collects it — if the seller lacks nexus, that responsibility falls on you to self-report.

Businesses invoicing shipping/delivery charges separately

To keep shipping charges out of the taxable base, you need all four conditions simultaneously: common carrier delivery, separately stated charges, charges that reflect actual shipping cost (not marked up), and shipment occurring after title transfers to the buyer. Missing even one — especially shipping before title passes — pulls shipping costs into the tax base.

Accountants and tax professionals

This ruling is a clean two-part reference: the classic § 59-12-107(5) nexus factors (including the agent/third-party wrinkle) and the four-part shipping-charge exemption test under R865-19S-71 — useful anywhere a client asks whether freight/shipping is taxable.

Common questions

Q: We have no office or warehouse in Utah but use an independent contractor there for repairs — does that create nexus?
A: Possibly. The Commission looks closely at the relationship between the vendor and the third party; if that contractor is effectively providing service/maintenance on the vendor's behalf in Utah, it can create nexus for the vendor.

Q: Our Utah dealer buys from us for resale — do we need to collect tax?
A: No, as long as the dealer gives you a valid Utah resale exemption certificate, that purchase is tax-free to the dealer (the dealer collects tax when it later resells the item).

Q: We ship FedEx/UPS to Utah customers and list "shipping" separately on the invoice — is that exempt?
A: Only if all four conditions are met: common carrier shipment, separately stated charges, charges reflecting actual shipping cost, and shipment after title passes to the buyer. If title passes only after delivery (i.e., shipment happens before title transfer), the shipping charge is taxable even if separately stated.

Citations and references

Statutes and rules:

• Utah Code Ann. § 59-12-107(5) (sales/use tax collection nexus factors)
• Utah Admin. Rule R865-19S-71 (taxability of shipping/delivery charges)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/97-025.htm

Original ruling text

97-025

Response
May 8, 1997

REQUEST
LETTER

Dear
Ms. Shearer:

Our
firm represents a client located outside your state who is involved in the
manufacture of component products primarily used in display room areas. The
products are sold predominantly to dealers and only occasionally to an
individual.

Our
client does not maintain a stock of goods anywhere except STATE. All goods are
shipped from STATE via United Parcel Service or by a contractor
(transportation) for hire. We do not have a sales force outside the State of
STATE, as our sales are to qualified dealers.

It
would be greatly appreciated if, at your earliest convenience, if you would
provide us with your letter ruling as to the nexus of our client, as well as,
your ruling as to the transportation delivery charges.

Respectfully
requested,

NAME

RESPONSE LETTER

NAME

ADDRESS

CITY
STATE ZIP

Advisory
Opinion - Nexus

Dear
NAME,

We have received your request for
tax guidance pertaining to nexus. Because
your request letter addresses sales by your client, we assume that you are
interested in whether your client has responsibility for collecting and
remitting sales or use tax on its sales into Utah. If you also have questions concerning nexus for corporate tax
purposes, please let us know.

Use tax is a tax on the storage, use
or consumption of tangible personal property in Utah. When tangible personal property is sold in interstate commerce
for use or consumption in this state, the sale is subject to Utah use tax. Although use tax is the liability of the
purchaser, the retail vendor is responsible for collecting and remitting the
tax to the State of Utah if the vendor has nexus with Utah. A vendor has nexus with Utah if it has an
office, a warehouse, a salesperson, or other physical presence in Utah. Utah Code Section 59-12-107 (5) states, in
pertinent part:

(1) (a) Each vendor shall pay or collect and remit the sales and use
taxes imposed by this chapter if within this state the vendor:

(i) has or utilizes an office,
distribution house, sales house, warehouse, service enterprise, or other place
of business;

(ii)
maintains a stock of goods;

. . .

(iv) regularly engages in the
delivery of property in this state other than by common carrier or United
States mail; or

(v) regularly engages in any
activity in connection with the leasing or servicing of property located within
this state.

Therefore, your client has nexus
with Utah if it owns property here, if it has sales agents here, or if it
provides service or maintenance for the equipment, either directly or through
an agent. A third party who is in Utah
and acting on behalf of your client to sell, or to provide repair or
maintenance for the items sold may create nexus for the client. We will look closely at the nature of the
relationship between the vendor and the third party to make that determination.

We do not fully understand the
nature of your client�s sales. For
instance, you state that your sales are to qualified �dealers� in Utah. If the dealers are purchasing items from
your client for resale, they may purchase the items tax free upon giving your
client a Utah resale exemption certificate.
If the dealers are purchasing items for display or some other nonexempt
purpose, the dealer is liable for sales tax on the purchase of the items. If your client has nexus, your client must
collect and remit the sales tax to the commission. If your client does not have nexus, the dealer must accrue and
remit the use tax directly.

Regarding shipping charges, these
charges are exempt if the sale is exempt or if the transaction satisfies all of
the following conditions:

1. Shipment must take place by means of
   common carrier.

2. Charges
   must be segregated and listed separately.

3. Charges must reflect the actual cost of
   shipping the particular tangible personal property by common carrier.

4. Shipment of the tangible personal
   property must take place after passage of title. If shipment of the tangible personal
   property occurs before the passage of title, shipping costs, to the extent
   included in the sales price of the item, and regardless of whether they are
   segregated on the invoice, shall be included in the sales and use tax base.

A copy of Utah Administrative Rule R865-19S-71
is enclosed for your information.
Please let us know if you have other questions.

For
the Commission,

Joe
B. Pacheco,

Commissioner