Can a Utah manufacturer sell tax-free to an out-of-state (Colorado) retailer who resells to a Utah customer, when the goods are drop-shipped directly to the Utah jobsite?

Plain-English summary

A metal building manufacturer, registered as a Utah retailer, sells buildings to a Colorado retailer who in turn resells them to end customers located in Utah. The manufacturer asked how to handle two common drop-shipment scenarios: (1) shipping the building directly by common carrier to the Utah jobsite on the Colorado retailer's instructions, and (2) the Colorado retailer's own carrier picking the building up at the manufacturer's plant before delivering it to the Utah end-user. Specifically, the manufacturer asked whether Utah would accept the Colorado retailer's own (Colorado) sales tax registration number to support a resale exemption, and what documentation was needed.

The Commission confirmed the resale exemption applies in both scenarios, and Utah will accept the Colorado retailer's own state sales tax license number on the exemption paperwork:

• The manufacturer "may make tax free sales for resale" to the Colorado retailer, but — like any exempt sale — must obtain a valid exemption certificate from that retailer. The retailer's Colorado sales tax license number is acceptable on that certificate; Utah doesn't require the out-of-state buyer to hold a separate Utah registration to support the resale exemption.
• If the manufacturer can't obtain that exemption certificate, it must instead collect Utah sales tax on the transaction (citing Utah Admin. Rule R865-19S-23).
• The resale exemption applies no matter who arranges the transportation — whether the manufacturer ships directly to the Utah jobsite, or the Colorado retailer's own carrier handles pickup and delivery, the underlying sale from manufacturer to retailer is treated the same way for exemption purposes.

The Commission was careful to note the limits of this opinion: it addresses only the manufacturer's own sales tax liability on its sale to the Colorado retailer. It expressly does NOT decide whether the Colorado retailer itself has Utah nexus (i.e., whether the Colorado retailer's own resale to the Utah end customer creates a Utah registration/collection obligation for that retailer) — the Commission invited the manufacturer to refer its Colorado customer directly to the Commission if that separate question comes up.

What this means for you

Manufacturers and wholesalers drop-shipping to out-of-state retailers' Utah customers

You can sell tax-free to an out-of-state retailer under the resale exemption, using that retailer's own out-of-state sales tax number on your Utah exemption certificate — you don't need the retailer to be Utah-registered. But get that certificate on file; without it, you're on the hook to collect Utah tax.

Businesses arranging drop-shipments through common carriers

Who physically arranges the shipping (you or your customer) doesn't change the resale-exemption analysis on your own sale — the exemption travels with the sale-for-resale characterization, not the shipping logistics.

Out-of-state retailers reselling into Utah via drop-shipment

This ruling doesn't resolve whether YOUR business has Utah nexus from making retail sales to Utah customers — that's a separate question worth raising directly with the Commission, since your own registration/collection obligations aren't addressed here.

Common questions

Q: Do I need my out-of-state customer to be Utah-registered before I can sell to them tax-free for resale?
A: No — Utah accepted the customer's own (Colorado) sales tax license number on the exemption certificate in this ruling.

Q: Does it matter whether I ship directly to the Utah jobsite or my customer's carrier picks up the goods at my plant?
A: No — the resale exemption applies the same way in either scenario, per this ruling.

Q: Does this ruling confirm my out-of-state customer doesn't have to register in Utah?
A: No — the Commission explicitly declined to address that separate nexus question.

Citations and references

Statutes and rules:

• Utah Admin. Rule R865-19S-23 (resale exemption certificates)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/97-076.htm

Original ruling text

97-076

Response January 5, 1998

November
17, 1997

Ref: Request for Written Ruling

Dear
Kenneth:

COMPANY
A is a metal building manufacturer and is a registered retailer in the state of
Utah. We are required to collect sales/use tax in your state. We have a customer
that is located in Colorado that is purchasing a metal building from us. This
Colorado customer has requested that we ship this building via common carrier
to his customer who is located within the state of Utah and drop-ship the
building at the Utah jobsite (third-party drop shipment transaction). Our
Colorado customer is not registered in the state of Utah.

Will
the state of Utah accept our customer's Colorado number or does Utah require
anyone doing business in your state to register for sales tax? If Utah will
accept the Colorado customer's number, what documentation will be required for
our files to support this exemption?

Also,
quite often, we have the exact same transaction as described above, but the
Colorado customer will retain the common carrier, send it to our plant to pick
up the building, and then deliver the building to the end-user in Utah. Does the tax liability remain the same in
this transaction? f not, where does the tax liability occur?

So
that we may better serve our customers and the state of Utah, please provide a
written

ruling
on the above questions as soon as possible. You may mail your response to my

attention
at the mailing address shown above. Thank you.

Sincerely,

COMPANY
A

January
5, 1998

NAME

ADDRESS

CITY
STATE ZIP

Advisory
Opinion - Interstate Sales

Dear
NAME,

We have received your request for
sales tax information pertaining to interstate sales. We offer the following guidance.
We offer this guidance upon our understanding that you only sell the
buildings, and that you do not install the buildings on behalf of your Colorado
customer. We also assume from the facts
in your letter that your Colorado customer is making retail sales in Utah.

COMPANY A may make tax free sales
for resale to the Colorado retailer.
Like other exempt sales, your company must obtain an exemption
certificate from the Colorado retailer.
The Colorado retailer may use its Colorado sales tax license number on
this form. If you are unable to obtain
an exemption certificate from that customer, you must collect sales tax on the
transaction. (See enclosed copy of Utah
Administrative Rule R865-19S-23). The
resale exempt applies, no matter who arranges transportation.

This opinion addresses only your
sales tax liability under the facts disclosed.
We are not rendering an opinion as to whether your Colorado customer has
nexus. If that issue arises in your
discussions with your customer, please refer the customer to us. We are sure they will be interested to learn
whether their activities in Utah may create nexus and tax liability.

Please let us know if you have other
questions.

For
the Commission,

Joe
B. Pacheco,

Commissioner

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