If a Utah cabinet maker's materials end up installed as real property in another state, does Utah give credit for use tax paid to that other state, or is Utah tax simply not owed at all?

Plain-English summary

A Utah company manufactures custom cabinets in Utah that get installed in homes in another state ("STATE"). Some of the cabinet materials came from Utah vendors (who would normally charge Utah sales tax); others were purchased outside Utah. STATE was asserting that its own use tax applied to the materials once incorporated into real property there, and the company asked whether Utah would give it credit for use tax paid to STATE.

The Commission's answer turned on Utah Code Ann. § 59-12-104(33), which creates a limited exemption from Utah tax for property sold to a Utah customer that is later shipped out of state and incorporated into real property elsewhere under a contract -- but only if two conditions are both met:

1. The destination state also taxes the transaction (here, STATE did tax it), and
2. The destination state allows a credit for tax already paid in Utah.

For the materials purchased from Utah vendors, both conditions were satisfied -- the transactions were taxable in STATE, and STATE gave a credit for Utah sales tax paid, so no Utah tax was due, and the company could use a Utah exemption certificate to buy those materials tax-free.

For the materials purchased outside Utah (where a Utah use tax would otherwise apply), the Commission noted that STATE would not allow any credit for Utah use tax paid, so condition 2 wasn't met in the way the exemption normally requires -- but its bottom-line conclusion was still that no use tax is due in Utah on those materials either. The letter doesn't spell out the intermediate reasoning for this half of the answer beyond stating the STATE credit fact and the "no use tax is due" conclusion; it's presented here exactly as the Commission wrote it.

Because no Utah tax was owed either way, the practical answer to the company's original question -- "will Utah credit our use tax paid to STATE?" -- became moot: there was no Utah tax liability to credit against.

What this means for you

Manufacturers and contractors selling into other states

If your Utah-made goods get shipped out of state and installed as real property there (kitchens, built-ins, custom fixtures), check § 59-12-104(33)'s two-part test: is the sale also taxed by the destination state, and does that state credit Utah tax paid? If both are true, you may owe no Utah tax on the materials at all -- which is often simpler than trying to get a credit after the fact.

Businesses buying materials both in-state and out-of-state for the same out-of-state job

This ruling treated Utah-sourced and out-of-state-sourced materials as reaching the same "no Utah tax" result, even though the statutory path (sales tax exemption vs. use tax) differs. If your facts split the same way, get your own advisory opinion rather than assuming the same result applies automatically.

Accountants and tax professionals

The letter's treatment of the out-of-state-purchased materials is worth flagging: it states STATE won't credit Utah use tax, which on its face suggests the § 59-12-104(33) exemption's second condition fails for that category -- yet the Commission still concludes no Utah use tax is due. Read the original letter's exact wording (below) before citing this point, since the reasoning connecting those two statements isn't fully spelled out in the response.

Common questions

Q: Does Utah give a credit for use tax I pay to another state?
A: This ruling didn't actually need to answer that, because it found no Utah tax was due in the first place. Check § 59-12-104(33) to see if your own transaction is exempt outright.

Q: What's the two-part test for the out-of-state-installation exemption?
A: (1) the destination state must also tax the transaction, and (2) the destination state must give credit for tax already paid to Utah.

Q: Does this ruling apply to my business?
A: No. It binds the Commission only for the requesting company and the facts described. Another taxpayer can't rely on it as binding, though it may carry some persuasive weight in a dispute with closely similar facts.

Citations and references

Statutes and rules:

• § 59-12-104(33) (exemption for property incorporated into out-of-state real property under a contract)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/98-007.htm

Original ruling text

98-007

Response February 10, 1998

January
13, 1998

COMPANY
A manufactures custom cabinets in Utah which are installed in homes in the
State of STATE. We do not pay sales tax
on the materials incorporated in the cabinets because many of the materials are
purchased outside the State of Utah.

The
State of STATE is taking the stand that the use tax on the materials
incorporated in the cabinets installed in STATE are Payable to the State of
STATE.

We
need to know if the State of Utah will allow credit for the use tax on these
materials if we pay it to the State of STATE.

Sincerely,

NAME

February
10, 1998

NAME

ADDRESS

CITY
STATE ZIP

Advisory
Opinion - Credit for use tax paid in STATE

Dear
NAME,

We have received your request for
sales tax guidance pertaining to your company�s sales of cabinets which are
installed and converted to real property in STATE. As we understand STATES�s practice, that state allows a credit
for sales tax paid in another state, but does not apply the credit to use tax
paid in another state. We offer the
following guidance:

Section 59-12-104 (33) of the Utah
Code creates a limited sales tax exemption for sales of tangible personal
property to persons within this state if the property is subsequently shipped
outside of Utah and incorporated into real property outside of Utah pursuant to
a contract. However, the exemption is
limited to the extent that the other state imposes a sales, use, gross receipts
or other similar transaction tax on the property, then allows a credit against
those taxes for taxes imposed in Utah.
To summarize the exemption, no Utah tax is due on sales unless:

1. the sales are also taxable in the state
   of destination, and

2. the destination state allows a credit
   for taxes paid in Utah.

Your transactions meet the first
condition listed above. That is, the
transactions are taxable in STATE. To
the extent that your company purchases materials from Utah vendors who collect
Utah sales tax, your transactions also meet the second condition because STATE
will allow a credit for sales tax paid in Utah. As to the use tax paid on items purchased outside of Utah, it is
our understanding that STATE will not allow a use tax credit at all. The use tax paid in Utah, then, fails to
meet condition 2 outlined above.
Therefore, no use tax is due in Utah.
You may use a Utah exemption certificate to make these purchases tax
free.

Please let us know if you have other
questions.

For
the Commission,

Joe
B. Pacheco,

Commissioner

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