When a customer both resells and personally consumes the same type of product, does the supplier charge sales tax on everything, or can the customer buy it all tax-free and self-report the tax on what it consumes?

Plain-English summary

A supplier selling to veterinarian clients asked the Commission how to handle sales tax when a vet buys products it will partly resell/dispense to patients and partly consume itself in its own practice -- plus two related questions about government and nonprofit purchasers.

Question 1: What must the supplier do when a vet with an exemption certificate orders goods it will both consume and resell? Under Utah Admin. Code R865-19S-23(D), when the purchaser cannot segregate the goods purchased for resale from the goods purchased for its own consumption at the time of purchase, all the goods should be purchased tax-free. The purchaser (the vet) then reports and pays sales/use tax on the cost of whatever portion is later actually consumed rather than resold. The supplier also asked about penalties for noncompliance: under Utah Code Ann. § 59-1-401, a noncompliant taxpayer faces, in addition to the tax owed, a 10% penalty for failing to file a return or failing to pay the tax.

Question 2: Can a veterinarian just have an account and buy everything tax-free, self-reporting tax on what it consumes? Yes -- this restates the same rule: when resale and consumption goods can't be segregated at purchase, buy everything tax-free and self-report on the consumed portion.

Question 3: Can universities, government agencies, and nonprofits like humane societies buy everything tax-free? The answer splits by entity type:

• State universities and Utah/federal government entities (including local government and public schools) can buy all goods tax-free by presenting an exemption certificate -- or the vendor can instead simply keep a copy of the purchase order, check, or voucher under Rule R865-19S-23(C).
• Religious institutions, charities, and other 501(c)(3) nonprofits (including religious schools/universities) that have been issued a Utah sales tax exemption number are exempt under § 59-12-104.1(2), but only for sales made in the conduct of the entity's regular activities, and with a dollar threshold: for sales of $1,000 or more, the exemption applies at the point of sale with a certificate; for sales under $1,000, the supplier must collect tax at the point of sale, and the nonprofit must apply to the Tax Commission for a refund. An exception exists if the sale is made under a contract between the vendor and the exempt entity -- then the exemption can be applied at the point of sale regardless of dollar amount.

What this means for you

Suppliers selling to buyers who both resell and personally use the product

You don't need to split every order into taxable and exempt portions at the register. If your customer genuinely can't tell in advance which units will be resold and which will be self-consumed, the whole order can go out tax-free on an exemption certificate, with the buyer responsible for self-reporting tax on the consumed portion later.

Veterinarians, pharmacists, and similar dual-use buyers

Don't assume you must pay tax up front on everything and sort it out later, or that you must pre-segregate your order. Buying tax-free and self-reporting use tax on what you actually consume is the Commission-sanctioned approach when segregation isn't practical at purchase time.

Nonprofits, humane societies, and other 501(c)(3) organizations

Unlike government entities, most nonprofits don't get a blanket tax-free pass on every purchase -- watch the $1,000 threshold. Below that amount, expect to pay tax at the register and then file for a refund, unless your purchases are made under a standing contract with the vendor, which lets the exemption apply immediately regardless of amount.

Accountants and tax professionals advising exempt or mixed-use purchasers

This ruling is a clean citation for the segregation problem under R865-19S-23(D), and a useful side-by-side of the government exemption (unconditional, any amount) versus the charitable/religious 501(c)(3) exemption (conditioned on regular-activity use and the $1,000 threshold, absent a contract).

Common questions

Q: If I can't tell at the time of purchase which items I'll resell and which I'll use myself, do I pay tax on everything up front?
A: No. You can buy everything tax-free with an exemption certificate and then self-report and pay tax on the portion you actually consume.

Q: What's the penalty for not properly collecting or paying sales tax?
A: A 10% penalty applies for failing to file a return or failing to pay the tax, in addition to the tax itself.

Q: Can a nonprofit like a humane society buy everything tax-free the same way a government agency can?
A: Not automatically. Nonprofits with a 501(c)(3) exemption number get the exemption at the point of sale only for purchases of $1,000 or more (or under a standing contract); smaller purchases require paying tax and then applying for a refund.

Q: Does this ruling apply to my business?
A: No. It binds the Commission only for the requesting supplier 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:

• Utah Admin. Code R865-19S-23(C), (D) (exemption certificates; buying tax-free when goods can't be segregated)
• § 59-1-401 (10% noncompliance penalties)
• § 59-12-104.1(2) (charitable/religious 501(c)(3) exemption and $1,000 threshold)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/98-065.htm

Original ruling text

Response
September 18, 1998

REQUEST
LETTER

NAME

COMPANY

September
18, 1998

Dear
Mr. Chapman,

As
per our phone conversation, I am requesting a clarification as to what the specific
requirements are for COMPANY and other suppliers in regard to charging and
collecting sales tax from our veterinarian clients.

1 - What
is COMPANY required to do if a veterinarian has on file with us a tax exempt
certificate and orders a product that he both consumes himself and also
dispenses and resells? Are we required
to charge sales tax on all the items and the veterinarian then deducts the tax
from his return on the products he resold or does he buy all of them tax exempt
and pay the taxes himself on the consumed items? Also what are the penalties for non-compliance for the supplier
and the veterinarian?

2- Are
there any circumstances that the veterinarian can have an account and purchase
everything on a tax-exempt basis and pay the sales tax on the products he
consumes?

3 Are
Universities, government agencies and non-profits such as humane societies
allowed to buy everything on a tax-exempt basis?

I
would appreciate a response as soon as possible so we can get this matter
settled quickly and correctly. If you
have any questions, please contact me at the number below.

Sincerely,

NAME

October
13, 1998

NAME

COMPANY

RE: Sales Tax on Goods Purchased for Resale

Dear
NAME,

We have received your request for an
advisory opinion concerning your duties, as a supplier, to collect sales tax
when selling goods purchased for both resale and consumption. You have specifically asked three questions
concerning your sales to veterinarian clients. The first two questions concern
the resale exemption, the last question the exemption for government agencies
and other exempt entities. We shall
answer the questions separately below.

Question 1. You first ask what your company is required to do when the
veterinarian files an exemption certificate with you when placing an order for
goods that the veterinarian will both consume and also dispense and sell. Your duties concerning exemption
certificates are explained in Utah Admin. Code R865-19S-23 (copy
enclosed). Section (D) of that rule
does state that when the purchaser is unable to segregate the goods purchased
for resale from the goods purchased for his or her own consumption, then all
the goods should be purchased tax- free.
Then, the purchaser would report and pay the tax on the cost of the
goods that are later consumed.

You next ask what penalties exist
for the non-compliance of ones sales tax responsibilities. In addition to the taxes due, a
non-complying taxpayer is subject to penalties provided under Utah Code Ann.
�59-1-401, which include 10% penalties for failure to file tax returns and
failure to pay the sales tax.

Question 2. As stated above, when the purchaser is unable to segregate the
goods purchased for resale from the goods purchased for his or her own
consumption, then all the goods should be purchased tax-free.

Question 3. State universities and Utah and federal government entities
(including local government entities and public schools) are allowed to
purchase all goods tax-free upon presentation of an exemption certificate. As an alternative, section (C) of Rule
R865-19S-23 does allow the vendor to retain a copy of a purchase order, check,
or voucher in place of the exemption certificate.

For religious and charitable
institutions (including religious universities and schools), and other
non-profit entities that apply for and are issued a sales tax exemption number
by the Tax Commission by virtue of their federal-code 501(c)(3) status, Utah
Code Ann. �59-12-104.1(2) provides that these entities are exempt from sales
tax if the sale is made in the conduct of the entity�s regular activities. Subsection 104.1(2) further provides that,
for these entities, the exemption shall be honored at the point of sale if the
sale is in the amount of at least $1000 and the buyer presents an exemption
certificate. For sales under $1000,
sales tax shall be collected at the point of sale and the buyer shall apply to
the Tax Commission for a refund of the sales tax. However, should the sale be
made pursuant to a contract between the vendor and the exempted entity, the law
does allow the exemption to be applied at the point of sale whatever the amount
of the sale.

Please contact us if you have any
other questions.

For
the Commission,

Joe
B. Pacheco, CPA

Commissioner

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