In a third-party drop-shipment chain, who owes Utah sales tax, how long is a resale certificate good for, and which store-fixture invoice line items (freight, delivery, installation) are taxable?

Plain-English summary

A store-fixture seller (call it "AA") asked the Utah State Tax Commission four related sales-tax questions about drop shipments, resale certificates, and its invoice line items. The Commission answered each in turn.

Drop shipments (Questions 1-2): In the classic drop-shipment chain — AA sells to an unregistered out-of-state dealer "AB," who resells to Utah customer "AC," and AA ships straight to AC — neither AA nor AB has to collect Utah sales tax as long as AA documents the exempt sale to AB with a resale exemption certificate (Form TC721, using AB's home-state tax number) or a letter from AB confirming no Utah nexus and resale intent. If AC is also buying for resale rather than as the final consumer, AA can rely on the certificate AC gave AB instead of getting a separate one from AB, because that downstream certificate proves both resales were exempt.

Resale certificates (Question 3): A certificate stays valid indefinitely until the vendor or the Commission revokes it — there's no fixed expiration — though the Commission recommends refreshing them roughly every three years or whenever a customer's business or the law changes. A seller who accepts a certificate in good faith isn't on the hook if the buyer's exemption later turns out to be wrong; liability shifts to the buyer.

Store-fixture invoice lines (Question 4): For a direct sale to a Utah customer (not a resale), taxability turns on whether the fixture stays personal property or becomes part of the building:

• Product price: taxable to the final consumer if sold without installation; if the seller also installs it into the realty, the seller — not the customer — owes use tax as the final consumer.
• Common-carrier freight: exempt if separately stated and the shipment happens after title passes (FOB origin).
• Seller's own-truck delivery: taxable even if separately stated, because title normally passes only at delivery.
• Contracted-out installation labor: taxable unless the property becomes part of real property; if the seller isn't contractually responsible for installation, it has no collection duty even if it arranged the installer.

What this means for you

Wholesalers and manufacturers using drop shipments

Drop-shipment structures (seller → unregistered reseller → end customer) can be tax-free in Utah, but only with paper to back it up. Get a resale certificate or a written no-nexus/resale statement from your reseller before you rely on the exemption — an undocumented "exempt" sale can leave you liable for the tax.

Businesses that hold resale certificates on file

There's no hard expiration on a Utah resale certificate, but don't treat "no expiration" as "never review." Refresh certificates periodically (the Commission suggests about every three years) and whenever you learn a customer's business changed, since a stale certificate that no longer reflects reality is a bigger audit risk than an outdated form.

Sellers who both sell and install fixtures, equipment, or store buildouts

Whether you or your customer owes the tax flips depending on who installs. Sell-only and you're generally exempt on installation labor if it's separately stated and the item doesn't become real property, but the product itself is taxable to the customer. Sell-and-install so the item becomes real property, and you become the taxable "consumer" of the materials — the customer owes nothing on the item, but you owe use tax on your own cost.

Anyone shipping goods into Utah

The freight rules are precise: separately stated common-carrier charges on taxable goods are exempt only if the shipment happens after title passes (FOB origin terms, or an invoice silent on FOB terms shipped via common carrier defaults to FOB origin). Deliver in your own vehicle instead, and the delivery charge is taxable regardless of how it's stated on the invoice.

Common questions

Q: Do I have to collect Utah tax on a drop-shipment sale to an out-of-state reseller?
A: No, if you document the sale as exempt with a resale certificate or an equivalent no-nexus/resale letter. Without that documentation, you can be held liable for the tax even though the sale was, in substance, a wholesale resale.

Q: How long is a Utah resale exemption certificate good for?
A: It's valid until revoked by the vendor or the Commission — there's no statutory expiration — but the Commission recommends renewing roughly every three years and whenever a customer's business circumstances change.

Q: Is delivery/freight taxable on a taxable sale?
A: Common-carrier freight, separately stated, is exempt if the shipment happens after title passes. Delivery in the seller's own truck is generally taxable even if separately stated, because title typically doesn't pass until delivery unless the contract says otherwise.

Q: Is installation labor taxable?
A: Only if the property doesn't become part of real property. Installation that converts personal property into real property is exempt (and the installer, not the customer, then owes use tax on the materials).

Q: Can I rely on this ruling for my own drop-shipment or fixture business?
A: Not directly. This is a private letter ruling binding on the Commission only for the specific taxpayer and facts described. It's useful as an illustration of the Commission's reasoning, but you should seek your own ruling or advice if your facts differ.

Citations and references

Statutes and rules:

• Utah Code Ann. § 59-12-106(2) (vendor liability absent a documented exemption)
• Utah Code Ann. § 59-12-107 (nexus/registration)
• Utah Admin. Code R865-19S-23 ("Rule 23," resale exemption certificates)
• Utah Admin. Code R865-19S-31 (passage of title / place of sale)
• Utah Admin. Code R865-19S-58 (contractor as final consumer of installed property)
• Utah Admin. Code R865-19S-71 (exempt common-carrier freight conditions)
• Utah Admin. Code R865-19S-78(A) (taxability of installation labor)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/99-029.pdf

Original ruling text

99-029

Response August 29, 2000

REQUEST LETTER

99‑029

April 22, 1999

Ref: 1. Third party drop shipments

2. Resale certificate from our customers= customer

3. How long is a blanket certificate valid

4. What items are taxable

Dear sirs:

In an effort to be in compliance and to render our best service to our customers, we are currently updating our tax information on issues in your state with regards to our obligation to collect sales and/or use tax in your state.

We are requesting in writing letter ruling on:

1. Third party drop shipment ‑ the typical structure of the transaction finds an out-of-state dealer "AA" registered for the collection of sales and use tax in "said" state. "AA" sells to an out‑of‑town state dealer "AB" who is unregistered in 'said' state. "AA" ships the product to a point in "said" state to "AB"'s customer "AC". My question is what is AA's responsibility for sales or use tax?

2. Resale certificate from AC. If my customers' customer (AB's AC), issues a valid resale to AB, can I accept that to relieve me from collecting tax?

3. How long is a blanket resale certificate valid?

4. We sell store fixtures. We separately state on each invoice.

A. Net for product

B. Freight- by common carrier

C. Delivery - by our truck

D. Installation‑contracted (not done by our employees)

Which items are taxable?

Your response to these issues is greatly appreciated. Please mail or fax (972‑563-6137) as soon as possible.

Sincerely,

RESPONSE LETTER

August 29, 2000

RE: Utah Tax Liability for an Out-of-State Vendor

Dear NAME,

We have received your request for an advisory opinion concerning your company's obligation to collect and remit Utah sales and use tax on sales made to Utah customers. We shall address your questions in the order you presented them.

QUESTION 1. You describe a situation where your company, (AA), sells an item of tangible personal property to another company, (AB). AB then sells this item to its customer, (AC), who is located in Utah. AA then ships the item directly to AC. Both AA and AB are companies located outside of Utah, and while AA is registered with Utah to collect and remit sales tax to Utah, AB is not. We assume for purposes of this opinion that AB is not registered with Utah because it has no sales tax nexus with Utah and, thus, is not required to be registered.

It is assumed that the AC in this question is the final consumer, because Question #2 addresses the situation where AC is not the final consumer. Under these circumstances, neither AA nor AB should be required to collect and remit Utah sales tax on this transaction. However, because AA is registered with Utah for sales and use tax purposes, it must document its exempt sale to AB; otherwise it can be held liable for Utah sales tax on the transaction. Utah Code Ann. Section 59-12-106(2); Utah Admin. Code R865-19S-23 ("Rule 23").

To document your exempt sale to AB, our current policy requires that you have AB complete a Utah sales tax exemption certificate (Form TC721) indicating that its purchases from you are for resale. In the space which asks for the Utah sales tax number on the Form TC721, AB would instead use its home-state sales tax number as AB is not registered in Utah. Your company should retain this document in your records as evidence of the exempt sale. However, as an alternative, you may keep on record a letter from AB stating that AB has no nexus with Utah for sales tax purposes under Utah Code Ann. Section 59-12-107 and that items purchased by AB from your company are intended for resale. The advantage to this alternative is that it alerts AB to ascertain whether or not it has sales tax nexus with Utah. In addition to the exemption certificate, Rule 23 also requires that you keep a copy of the sales invoice showing the name and identity of your customer, AB.

QUESTION 2. This question involves a situation almost identical to that in Question 1. The only difference here is that the Utah customer, AC, is not the final consumer of the item, but is buying the item for resale. In this situation where both transactions are for resale, AA would typically receive an exemption certificate from AB, and AB would receive a separate exemption certificate from AC. You ask specifically if you can accept and keep on record the exemption certificate issued from AC to AB instead of requiring AB to also complete a separate exemption certificate relating to the original transaction. AC's exemption certificate shows that the item you sold AB has since been resold to AC. Accordingly, it not only provides evidence that the sale from AB to AC is exempt, but also that the sale from AA to AB was for resale and, thus, also exempt. In this situation where neither transaction is subject to taxation, the exemption certificate issued by AC to AB is adequate evidence that AA has no Utah sale tax liability.

QUESTION 3. How long is a resale exemption valid? The exemption certificate is valid until it is revoked by the vendor or the Tax Commission. If the exemption certificate is accepted in good faith, it releases the vendor from liability for uncollected sales tax. As a routine matter, we suggest that new exemption certificates be obtained every three years. We also recommend that you renew any master exemption certificate whenever you are aware that a customer's business activities have changed or whenever changes in the law are likely to impact that customer's exempt status. However, as long as you have an exemption certificate on file, you are not liable for an exemption claimed in error. Instead, we will look to the party claiming the exemption for any sales tax due.

QUESTION 4. You list four charges that you separately invoice when selling store fixtures, then ask which of the four are taxable. Because a third-party drop shipment sale from your company to AB is exempt under the resale exemption, we assume you ask this question in regards to a direct sale made by your company to a Utah customer. The following answers reflect that assumption. You may also find helpful the enclosed Utah Tax Commission Publication 42, which offers sales tax guidance on the sale and installation of tangible personal property that is affixed to real property. Store fixtures may either be considered personal property or real property after their installation, depending on the nature of their installation. The tax consequences, as explained below, will depend upon this determination.

A. Net for Product. We assume this term refers to the price at which you sell an item. We also assume that you are not considered a real property contractor. The sales price of tangible personal property is taxable to the final consumer of the property. Thus, your company should collect sales tax on the price of tangible personal property sold to Utah customers when the sale of that property does not include installation so that it becomes part of the realty.

However, if your company also installs the tangible personal property so that it becomes part of the realty, there has not been a sale of tangible personal property to your Utah customer. In this situation, you would not charge sales tax on the price of the item to your Utah customer. Instead, your company is considered the final consumer of the tangible personal property. Utah Admin. Code R865-19S-58. As such, you would report and submit a use tax to Utah based on the amount you paid for the item, unless Utah sales tax has already been paid on your purchase of the item. Should you have already paid sales tax on the item to another state, the amount paid to another state may be credited against your Utah use tax liability.

B. Freight by Common Carrier. If the item being shipped is exempt from taxation, the transportation charges associated with the sale are also exempt. On the other hand, if the item being shipped is taxable, the transportation charges are usually taxable, too, as part of the sales price of the item. However, there is an exemption from sales tax for transportation charges, if stated separately, when the freight is shipped by common carrier. However, the transportation charges must satisfy all of the following conditions, as set forth in Utah Admin. Code R865-19S-71 to qualify for the exemption:

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.

a) Shipment of the tangible personal property takes place after passage of title if the terms of the sale or lease are F.O.B. origin or F.O.B. shipping point.

b) If the invoice does not indicate an F.O.B. point, and a common carrier is used, it is assumed the terms are F.O.B. origin.

c) In all other cases, the shipment of tangible personal property takes place before passage of title.

C. Delivery - by Vendor's Truck. When the tangible personal property is subject to taxation and the vendor uses its own truck for delivery, the transportation charges, even if separately stated, are generally taxable. If the contract requires the vendor to deliver or ship goods to a buyer, title to the property passes upon delivery to the place agreed upon unless the contract explicitly provides otherwise. Utah Admin. Code R865‑19S‑31. Accordingly, unless you and your customer explicitly agree that title to taxable personal property (and the risks of loss and other benefits and burdens of ownership) passes prior to it being delivered, the transportation charges are taxable when you deliver it in your own truck.

D. Installation ‑ Contracted (Not Installed by Our Employees). Charges for labor to install tangible personal property are taxable, unless the personal property is installed in connection with real property. Utah Admin. Code R865-19S-78(A). Accordingly, installation charges, if separately stated, are not taxable when the personal property becomes part of the realty or when the personal property is affixed to the realty, even though it does not become part of the realty.

If your company is not required under its contract to install the personal property it sold and your customer separately contracts with another entity to install the property, your company has no responsibility to collect and remit sales tax on any taxable installation charges. However, if you are required under your contract to install the personal property you sold, you have the responsibility to collect and remit any taxable installation charges, even if you "contract out" the installation of the property to another party.

Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson

Commissioner