Did a secondary ticket seller collect Utah sales tax on its full resale price, including the markup over the original admission-ticket price?

Plain-English summary

Utah Private Letter Ruling 01-016 said the original ticket seller should collect sales tax on the original admission-ticket price, while the secondary seller's markup was not taxed.

The Commission treated the reseller as consuming the ticket while providing nontaxable services—locating, purchasing, and making the ticket available for resale.

That approach left the markup outside the sales-tax base.

If the original seller was specifically exempt from collecting tax on the admission ticket, the sale to the secondary seller was tax-free as well.

The secondary-market questions

The requester asked whether a tour packager or other reseller should buy tickets tax-free for resale and then collect tax on the full marked-up price charged to the final customer.

The requester also asked what happened when the original admission seller was exempt and therefore charged no tax on the reseller's purchase.

The Commission acknowledged a theoretical argument for resale treatment but kept its existing policy.

Two objects of the resale transaction

The Commission saw two objects in the secondary-market transaction:

1. The admission ticket.
2. Significant services involved in locating the ticket, purchasing it, and making it available for sale.

It separated the nontaxable service from the taxable ticket.

The secondary seller was treated as consuming the ticket in providing the service rather than buying it tax-free for resale.

Tax on the original ticket price

Because the reseller consumed the ticket, the original ticket seller had to collect and remit sales tax on the amount it charged.

The Commission did not impose tax on the reseller's additional price.

This meant the original ticket price was taxed while the secondary-market markup escaped tax under the described policy.

Venue-based sourcing

The Commission considered the entertainment venue to be the proper location for sourcing an admission.

Having each venue collect tax on its own original ticket sales applied the venue's local tax rate even if the reseller acquired multiple tickets elsewhere in one transaction.

The approach also covered out-of-state resellers that might lack Utah nexus.

Original seller's exemption

The second question involved an original seller entitled to sell certain admission tickets tax-free under section 59-12-104(51).

Because the secondary seller consumed the ticket in providing its service, an exempt original sale produced no tax liability on that ticket purchase.

The ruling discussed a specific arrangement under which the exempt original seller accrued an amount equal to the uncollected tax for public-safety purposes. That fact did not change the exemption.

Holding

Under the Commission's stated policy:

• The original seller collected tax on the original taxable admission-ticket price.
• The secondary seller was treated as consuming the ticket while providing nontaxable resale services.
• The secondary seller's markup was not subject to sales tax.
• Admission sourcing followed the entertainment venue.
• If the original seller's ticket sale was specifically exempt, the reseller's purchase was tax-free.

What this means for you

Ticket resellers

This historical ruling did not use ordinary resale-certificate treatment for the ticket. It treated the reseller as a service provider consuming the admission.

Event venues

The Commission's approach placed collection on the original venue sale and used the venue location for the applicable local rate.

Tour packagers

Separate admission tickets from other package components and verify current rules. The ruling addressed a specific ticket-resale policy, not every part of a tour package.

Common questions

Q: Did the reseller collect tax on the full marked-up ticket price?

A: No. The Commission taxed the original price and treated the markup as payment for nontaxable services.

Q: Could the reseller buy the ticket tax-free for resale?

A: Not under the policy described. The reseller was treated as consuming the ticket while providing its service.

Q: Who collected tax on a taxable ticket?

A: The original ticket seller collected and remitted tax on its original charge.

Q: Which local rate applied?

A: The Commission sourced the admission to the entertainment venue.

Q: What if the original ticket seller was exempt?

A: The sale to the secondary seller was tax-free under the specific exemption described.

Key source language

• Two objects: “the Commission believes that there are two objects of the transaction: 1) the ticket; and 2) significant services provided by locating the ticket, purchasing it, and making it available for sale.”
• Collection: “the secondary seller must pay sales tax on the taxable item or service consumed, which requires the original ticket seller to collect and remit sales tax on the amount the original seller charged.”
• Venue collection: “Compliance and administration are established by having each venue account for its own tax.”

Citations and references

• Utah Code Ann. §§ 59-12-103(1)(f) and 59-12-104(51)

Source

• Landing page: Utah Private Letter Rulings
• Official ruling: Utah PLR 01-016
• Date note: the source header identifies the response as May 4, 2001; the letter dateline itself is redacted as “DATE.”

Original ruling text

REQUEST
LETTER

01-016

Response 05/04/01

RE: Secondary Sales

Dear TP REP:

I really appreciated the information. However, the collection approach outlined presents some interesting questions. It makes perfect sense if the supposition is that the price allocated for tickets in such a package deal is at " face value" or is in fact actually paid. However, I think that there are some interesting dynamics that might, and I would submit, do arise. I would appreciated your insights in these cases:

1.
The tickets are purchased at a face amount but then resold at a significant markup by the packager. I realize that what is a cost associated with a service v. the price of the ticket may be an accounting exercise. But for the sake of argument let's assume that the markup is clearly stated. If the sales tax is only collected on the initial purchase hasn't the enhanced value of the final sale been lost? In fact, should the transaction actually have been one done with a resale exemption?

2.
Let us assume that the initial seller is an exempt entity (a 501(c)(3) organization such as the COMPANY. If a tour packager buys a block of tickets from the COMPANY there will be no sales tax paid at all on this transaction. However, the tour packager, which in my example is a private, tax-paying entity with nexus in Utah, then resells the tickets as part of a tour package. If the only method of collection is at the initial sales (with the exempt organization) then no sales tax would have been paid at all. This in spite of the fact that the final consumer sale clearly involves a taxable transaction - since neither the tour packager nor the final consumer is tax exempt.

I would appreciate your insights. Thanks.

NAME

RESPONSE
LETTER

DATE

NAME

ADDRESS

RE: Advisory Opinion Sale of Tickets on the Secondary Market

Dear NAME,

We have received your inquiry concerning the application
of sales tax on tickets sold on the secondary market. Tickets are usually evidence of sales of admissions, which are taxable under Utah Code Ann. �59-12-103(1)(f). When a ticket is purchased on the secondary market, the final consumer purchases the ticket from a secondary seller, not from the ticket�s original seller. The Commission�s policy is to collect sales tax on the price charged by the original seller and not to impose sales tax on any additional price charged by the secondary seller. You indicate that you believe this policy should be changed so that sales tax is collected on the entire price charged by the secondary seller.

As to your first question, sound theoretical arguments
can be made that the secondary seller should buy the ticket tax-free under the resale exemption and collect sales tax on the total amount the final consumer is charged. However, in the secondary market, the Commission believes that there are two objects of the transaction: 1) the ticket; and 2) significant services provided by locating the ticket, purchasing it, and making it available for sale. Under these specific circumstances, we believe it equitable to separate the nontaxable sale of the services from the taxable sale of the ticket. For this reason, the secondary seller is considered to �consume� the ticket when providing his or her nontaxable service. Accordingly, the secondary seller must pay sales tax on the taxable item or service consumed, which requires the original ticket seller to collect and remit sales tax on the amount the original seller charged.

This
approach solves two practical problems.
First, we believe the appropriate sourcing for an admission is the location of the entertainment venue. Thus, a tax of admission tickets to an PLACE event should be CITY local tax rate, while tickets to a PLACE B event should carry CITY tax rate, regardless of the fact that both tickets were purchased in a single transaction in another county (or even a CITY) ticket outlet. Compliance and administration are established by having each venue account for its own tax. Second, there may be situations where the reseller does not have nexus with the state and we could not require collection. Sales tax collection sourced at the venue location ensures that all admissions, including purchases by an out-of-state reseller, are subject to the same tax. Although the �mark-up� on the admissions escape tax, we believe our approach ensures appropriate revenue for the cities and towns concerned.

Your
second question concerns a secondary seller who purchases the ticket from an entity that is entitled to sell tickets for admissions tax-free, such as the COMPANY. Under our policy, the secondary seller consumes the ticket in providing the nontaxable service. Accordingly, if the original seller is entitled to sell the ticket tax-free, there is no tax liability on the sale of the ticket to the secondary seller. Utah Code Ann. �59-12-104(51) exempts COMPANY from collecting sales tax on tickets for admission to the EVENT if the amounts charged for the tickets are established by COMPANY. Accordingly, if a secondary seller purchases a ticket from COMPANY under these circumstances, the sale would be tax-free. However, while it has no impact on COMPANY exemption from imposing sales tax on these ticket sales, we are aware that COMPANY will accrue an amount equal to the sales tax it would have collected except for the Subsection 104(51) exemption. The accrued funds are to be used for public safety purposes. This agreement by COMPANY will ensure that local governments will not be unduly prejudiced by the Commission�s approach.

Please
contact us if you have any other questions.

For
the Commission,

Marc
B. Johnson

Commissioner

MBJ/KC

01-016