Does an out-of-state retailer get Utah sales tax nexus if a Utah-based company markets its products, processes the sales, and handles returns on its behalf?

Plain-English summary

An out-of-state sporting goods retailer ("Company A") was weighing a partnership with a Utah-headquartered online sporting goods retailer ("Company B") before committing to it, and wanted to know the Utah sales tax consequences in advance. Under the proposed arrangement, Company B would market Company A's products on Company B's own website, and when a customer bought one of those products, Company B would process and approve the sale under its own name, invoice the customer, and collect payment — all on Company A's behalf, for a commission. Company B would then forward the order to Company A, which would ship directly to the customer from outside Utah, never selling its inventory to Company B first. If a product came back defective or was returned, the customer was directed to Company B's Utah-based customer service center.

The Commission's answer: Company A would have Utah sales tax nexus. Because Company A wasn't selling its products to Company B (Company B was earning a commission for selling Company A's products on Company A's behalf), Company B was functioning as Company A's sales representative in Utah — even though the "representative" here was another company's website and back office rather than a traditional traveling salesperson.

The Commission grounded this in Scripto, Inc. v. Carson, 362 U.S. 207 (1960), where the U.S. Supreme Court found that hiring commission-based, in-state sales representatives who solicited customers and were supplied catalogs and marketing materials created nexus for the out-of-state company they represented. Company B's website (which customers visited to buy), its role taking and approving orders from Utah customers, and its customer-facing branding on the sale all lined up with that solicitation activity. The Commission specifically noted that Company B's handling of defective products and returns through its Utah customer service center went even further than the facts in Scripto — reinforcing, not weakening, the nexus finding.

The bottom line: Company A would need to get a Utah sales tax license and collect and remit tax on all taxable sales delivered to Utah, including every sale made through Company B's website — regardless of the fact that Company A itself has no employees, property, or presence in Utah and ships every order from out of state.

What this means for you

Out-of-state retailers considering an affiliate/marketing partnership with a company in another state

Before signing on, ask how much control and customer-facing responsibility your prospective partner will have. If they're marketing your products under their own name, processing sales, and handling customer service or returns — even for a simple commission, with no resale of inventory involved — that level of activity can create nexus for you in their state, just as if you'd hired your own sales force there.

Companies proposing to act as a marketing/fulfillment affiliate for an out-of-state seller

Be aware that taking on customer-facing responsibilities (approving sales under your own name, handling returns) for another company's products can trigger a tax obligation for that company in your state — worth flagging to your prospective partner before the deal is finalized, since it changes their compliance burden.

Accountants structuring multi-party e-commerce/affiliate deals

This ruling and its companion, UT PLR 02-027 (a near-identical fact pattern with the roles reversed), both apply the Scripto test the same way: whichever company benefits from in-state marketing/order-processing/returns activity conducted by another party picks up nexus, regardless of who legally owns the inventory or where it physically ships from.

Common questions

Q: We have no employees or property in Utah — can we still have nexus there?
A: Yes, if a company in Utah is acting as your sales representative — marketing your products, processing sales under your brand relationship, and handling customer service — even on a commission basis with no resale of your inventory involved.

Q: Does it matter that we never sell our inventory to the Utah company?
A: No — the Commission found nexus specifically because Company A was not selling to Company B (a resale relationship might have looked different); the commission-based representative relationship is what created nexus here.

Q: What Utah tax obligations would apply if this arrangement goes forward?
A: The out-of-state company would need a Utah sales tax license and would have to collect and remit tax on all sales made through the Utah affiliate's website that ship to Utah customers.

Q: Can another company in a similar affiliate marketing arrangement rely on this ruling?
A: No — it's an advisory opinion based on this specific proposed arrangement's facts (commission structure, order approval under the affiliate's name, Utah-based returns handling). A different arrangement, especially one involving an actual resale relationship, could come out differently.

Citations and references

Statutes and case law:

• Utah Code Ann. § 59-12-107(1)(a) (imposes sales/use tax nexus based on contacts with or activities in Utah)
• Scripto, Inc. v. Carson, 362 U.S. 207 (1960) (in-state sales representatives create nexus for the out-of-state principal)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/02-035.html

Original ruling text

REQUEST LETTER

02-035

NAME

ADDRESS

PHONE

FAX

Dear NAME:

Pursuant to Utah Administrative Procedures, Rule R861-1A-34, we respectfully request a private letter ruling for our client, Company A, on a Utah sales tax nexus issue.

Company A is a retailer located in STATE. They are engaged in the business of selling sporting goods. Currently, these products can be purchased via their internet website, by visiting one of their stores located in STATE, or by mail order through their product catalog.

In an effort to grow their business, Company A is considering a business arrangement with a company headquartered in Utah. ("Company B"). Company B is also a retailer of similar sporting goods. Their products can only be purchased via their internet website(s). With respect to this proposed business arrangement, Company B will market Company A products on their website(s). If a customer decides to purchase a product from Company B's website that is ultimately a Company A product, Company B will process, and approve the sale in Utah for Company A under the Company B name. As part of that process, Company B will invoice the customer under the Company B name and will collect all proceeds from the customer on Company A's behalf.

Once the order is received and processed by Company B, it will be sent to Company A in North Carolina for fulfillment. Upon receipt of the order from Company B, Company A will ship the product(s) directly to the customer's delivery address via common carrier. Company A will not sell the inventory to Company B. Although the specific details concerning compensation paid to Company B by Company A have not been finalized yet. Company A will pay Company B a commission for the types of sales described above. One possible scenario is that when Company B collects the sales proceeds from the customer, they will then remit that money less the agreed upon commission to Company A. Another possible payment scenario is for Company B to remit all sales proceeds to Company A and then Company A will pay Company B the agreed upon commission amount.

If the product(s) that Company A ships to the customer is/are defective, or if the customer simply wants to return the merchandise, the customer is instructed on the original packing slip to call the Company B customer service center in Utah. The customer service center representative will then instruct the customer on how to send the merchandise back to Company B.

• Does Utah have any statutes, regulations, or administrative policies concerning agency or affiliate nexus? If so, what are the stipulations and requirements?
• Does this relationship between Company A and Company B create Utah sales tax nexus for Company A?

Thank you in advance for your help resolving these issues. If you require any additional information or have any other general questions, please feel free to call me at PHONE.

Sincerely,

NAME

RESPONSE LETTER

February 6, 2003

NAME

ADDRESS

RE: Private Letter Ruling � Sales and Use Tax Nexus with Utah

Dear NAME,

We have received your request for a private letter ruling concerning a STATE company (�Company A�) that is planning to enter into a contract with a company headquartered in Utah (�Company B�). Under this contract, Company B would use its own Internet site to market Company A�s products. Company B would also process and approve the sale of Company A�s products, and then relay any approved orders to Company A in STATE to fill. Company A would ship all products sold under this contract to customers by common carrier from a site outside of Utah. All defective or returned products would be processed in Utah by Company B�s customer service center. You ask whether Company A would have sales and use tax nexus with Utah under these circumstances.

You state that Company A will not be selling its product to Company B and that the marketing arrangement will involve a commission paid by Company A to Company B. Accordingly, we find that Company B will be selling Company A�s products on behalf of Company A. Also, although you have not mentioned whether Company B will be marketing and selling the products at issue to Utah customers, we assume that it will. Based on these facts and assumptions, we would find that Company B is acting as Company A�s representative in Utah because of the extent of activities it would be conducting in Utah on Company A�s behalf. As a result, Company A would have sales tax nexus with Utah.

In Scripto
v. Carson, 362 U.S. 207 (1960), the Supreme Court found that a company that
hired 10 sales representatives or brokers on a commission basis had sales and
use nexus in the state where the brokers were located. In that case, the brokers were supplied
catalogs, samples, and advertising materials and were actively engaged in
soliciting customers from the state where the brokers were located. In your situation, Company B maintains a
website in Utah that potential customers contact to make purchases. Company B would also be taking and approving
orders from customers in Utah, where nexus is at issue. Because of the similarities between Scripto
and your situation, we would consider Company B to be actively engaged in Utah
as a representative of Company A for the purpose of attracting, soliciting, and
obtaining Utah customers. Furthermore,
Company B�s activities regarding defective and returned sales appear to exceed
those activities described in Scripto.

It appears, under these circumstances, that Company A�s relationship with Company B is sufficient to impose Utah�s sales and use tax laws on Company A. Utah would require Company A to obtain a Utah sales tax license and collect and remit sales tax on all taxable sales shipped or delivered to Utah locations, including those sales made by Company B on its Internet website. As per your request, a copy of Utah Code Ann. �59-12-107(1)(a) is attached. This section imposes sales and use nexus on entities with certain contacts with or activities in Utah. Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/KC

02-035