Does an out-of-state manufacturer that sells into Utah through independent sales reps have sales tax nexus and need to register, even if it believes its sales are tax-exempt?

Plain-English summary

An attorney wrote to the Utah State Tax Commission's Voluntary Disclosure Section on behalf of an Indiana manufacturing business that sold equipment to Utah manufacturers but had never registered for Utah sales tax. The company believed it didn't need to register because it thought its sales qualified for Utah's manufacturing equipment exemption. It had no payroll or property in Utah, used independent manufacturers' representatives working on commission to solicit sales, shipped product by common carrier from Indiana, and provided no installation, training, or on-site repair in Utah. The attorney asked whether registration was necessary and, if so, whether the company could come in through the Voluntary Disclosure Program on a prospective basis.

The Commission ruled that the company did have sales tax nexus with Utah. Under the standard described in the ruling, nexus exists if a company makes sales in Utah unless the only activity generating those sales is advertising or direct-mail solicitation. Because the company used independent manufacturers' representatives -- not just advertising or direct mail -- it had crossed that line and acquired nexus.

Having nexus meant the company was required to register with Utah and file sales tax returns, even though it believed its sales were exempt. The Commission explained that Utah's rules require any person responsible for collecting sales and use tax to file returns whether or not tax is actually due (Utah Admin. Code R865-19S-12(A)), and require a vendor selling exempt property to keep exemption certificates on file to document the exempt sales (Utah Admin. Code R865-19S-23(A)). So registration and recordkeeping duties exist independently of whether any tax is ultimately owed. The Commission also noted that the manufacturing equipment exemption is fact-intensive (it depends on whether the equipment is used in new/expanding operations, as a normal replacement, or for repair/maintenance), but said the company could rely on a purchaser's exemption certificate to protect itself if the equipment later turned out not to qualify.

Finally, the Commission forwarded the letter to its Voluntary Disclosure Program staff so they could follow up directly about the company entering that program to resolve any past liability.

What this means for you

Out-of-state sellers with sales reps or agents in Utah

If your company sells into Utah using independent sales representatives, agents, or anyone who solicits business on your behalf beyond simple advertising or direct-mail marketing, this ruling illustrates that Utah has historically treated that as enough to create nexus -- regardless of whether you have any Utah payroll, property, or physical office. Believing your product is tax-exempt does not excuse you from registering; exemption status and the duty to register/file are treated as separate questions.

Businesses considering Utah's Voluntary Disclosure Program

This ruling shows a company proactively reaching out before Utah initiated contact, which is generally the point of a voluntary disclosure program -- coming forward on your own can lead to more favorable treatment (here, a prospective-only registration was requested) than waiting to be found in an audit. The ruling itself doesn't spell out the program's specific lookback period or penalty terms; it simply refers the company to Voluntary Disclosure Program staff to work those out directly. Confirm the program's current terms with the Commission, since program rules can change and this 1998 letter doesn't describe them.

Accountants and tax professionals advising multistate manufacturers

Note that this ruling predates the U.S. Supreme Court's 2018 decision in South Dakota v. Wayfair, which eliminated the physical-presence nexus requirement nationally. The "advertising or direct-mail solicitation only" carve-out described here reflects the older, pre-Wayfair nexus framework. Utah, like other states, has since adopted economic nexus thresholds (based on sales volume/transaction count) that can create nexus even without any in-state representatives at all. Use this ruling only to understand how Utah analyzed representative-based nexus in 1998, not as current law on when nexus arises.

Common questions

Q: Does using independent sales reps in a state create sales tax nexus?
A: In this 1998 ruling, yes -- the Commission found that using independent manufacturers' representatives to solicit Utah sales (rather than only advertising or direct-mail solicitation) was enough to create Utah sales tax nexus.

Q: If my products are exempt from sales tax, do I still need to register?
A: According to this ruling, yes. The Commission held that a vendor with nexus must register and file returns whether or not tax is actually due, and must keep exemption certificates on file to document exempt sales.

Q: What is Utah's Voluntary Disclosure Program?
A: The ruling describes it as a program the Tax Commission approved to help businesses voluntarily resolve prior tax liabilities, administered by the Auditing Division's Nexus Division. The ruling doesn't spell out specific lookback periods or penalty relief terms -- it directs interested companies to contact Voluntary Disclosure Program staff directly, which is what the Commission did here.

Q: Is this ruling's nexus standard still current law?
A: No, not necessarily. This ruling applies a pre-Wayfair (2018) standard based on physical presence and representative activity. Since then, Utah and other states have adopted economic nexus rules that can require registration based on sales volume alone, even without in-state representatives. Check current Utah Code and Commission guidance before relying on the nexus test described here.

Q: Can I rely on this ruling for my own business?
A: Not as binding precedent. A private letter ruling only binds the Utah State Tax Commission for the specific taxpayer and facts it was issued to. It's useful as an illustration of the Commission's reasoning, but your situation -- and current law -- may differ.

Citations and references

Rules (Utah Admin. Code, as cited in 1998):

• R865-19S-12(A) -- requires all persons responsible for collecting sales and use tax to file a return with the Tax Commission, whether or not tax is due
• R865-19S-23(A) -- requires a vendor selling tangible personal property to exempt customers to keep exemption-certificate records verifying the nontaxable status of those sales

(These rule numbers are as printed in the 1998 ruling; Utah's administrative code has been renumbered and amended repeatedly since then, so confirm current citations before relying on them.)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/98-077.htm

Original ruling text

98-077

Response
October 5, 1998

Attention Voluntary Disclosure Section

To Whom It May Concern:

I represent
a manufacturing business in Indiana with sales in your state. This company is
not currently registered with you. At the suggestion of Company counsel, an
opinion Is requested if registration is necessary. The Company has not
previously registered because it believes its sales are exempt from your
state's sales tax. My client manufactures equipment that is used by other
manufacturing businesses within your state. It is believed that your state
grants a manufacturing exemption for such transactions. Other pertinent
information about this business is as follows:

1) The
Company has no payroll or property within your state. All such items are
located in Indiana.

2) Sales
are solicited by independent manufacturers representatives who work on a
commission basis only.

3) Product
is shipped via common carrier from Indiana.

4) The
employees of the Company provide no installation, training or on site repair
services.

If
it is determined that the Company should register and pay taxes in your state,
such should be on a prospective basis. This would be on the basis of voluntary
disclosure, recognition of the prior exempt nature of the transaction and the
possibility that there is no

nexus. Thank you in advance for your cooperation

Very truly yours,

NAME

November
30, 1998

COMPANY

ADDRESS

RE: Advisory
Opinion - Nexus and Voluntary Disclosure Program

Dear NAME,

We
have received your request for an advisory opinion concerning your client, a
company (�Company�) which manufactures equipment and sells that equipment to
Utah manufacturing businesses. You ask
if the Company is required to register with the State of Utah for sales tax
purposes and, if so, how the Company may register under the Voluntary
Disclosure Program that the Tax
Commission has implemented.

Nexus
and Registration. Sales tax nexus
exists for the Company if it makes sales in Utah, unless the only activity
leading to those sales is advertising or solicitation by direct mail. Your letter states that the Company�s sales
are solicited by independent manufacturers� representatives. As this activity is not either advertising
or solicitation by direct mail, the Company has acquired sales tax nexus with
Utah.

As the
Company has sales tax nexus with Utah, it is required to register with the
state for sales tax purposes and submit sales tax returns. You suggest that registration and filing of
returns may not be necessary if the Company�s only sales are for equipment
subject to Utah�s sales tax exemption for manufacturing equipment. This is not the case.

Utah
Admin. Code R865-19S-12(A) requires all persons responsible for collecting
sales and use tax to file a return with the Tax Commission whether or not sales
tax is due. Furthermore, Utah Admin.
Code R865-19S-23(A) requires a vendor selling tangible personal property to
customers exempt from sales tax to keep records (i.e., exemption certificates)
verifying the nontaxable status of those sales. Accordingly, the Company has
various reporting and record keeping duties, even if no sales taxes are due.

We should also point out that the
manufacturing equipment exemption is complex because of the difficulty of
determining if the equipment is used in new or expanding operations, as a
normal operating replacement, or for repair or maintenance. Depending upon its use, the equipment may or
may not be subject to the sales tax exemption for manufacturing equipment. Nevertheless, by retaining on file an
exemption certificate from the purchaser, you, as the vendor, may rely upon the
purchaser�s claim that the purchase is exempt and are protected should the
equipment later be deemed not to qualify for the exemption.

Voluntary
Disclosure Program. The Tax
Commission has approved a Voluntary Disclosure Program designed to help
businesses voluntarily resolve prior tax liabilities. Companies wishing to enter into the program may do so through
contact and exchange of information with the Voluntary Disclosure Program
staff. We are forwarding a copy of this
letter to the program staff to have them contact you concerning the Company�s
interest in entering the program.
Should you need it, the address and telephone number for the Voluntary Disclosure
Program are:

Auditing
Division, Nexus Division

Voluntary
Disclosure Program

Utah
State Tax Commission

210
North 1950 West

Salt
Lake City, UT 84134-2200

PH:
(801)297-4600

Please
contact us if you have any other questions.

For
the Commission,

Joe
B. Pacheco, CPA

Commissioner

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