If a Utah-registered wholesaler drop-ships products directly to a reseller's Utah customers, does the wholesaler have to collect Utah sales tax when the reseller itself has no Utah nexus?

Plain-English summary

A wholesaler registered to collect sales tax in Utah and 45 other states got stuck in a dispute with one of its mail-order reseller customers, who was registered only in its own home state and refused to pay tax on drop shipments the wholesaler made into Utah. The reseller's own letter (attached to the request) argued that federal court protections shield companies without nexus from being forced to collect tax, and flatly stated it would keep declining to pay tax for any state outside its home state. Caught in the middle and worried about its own compliance, the wholesaler asked the Commission directly: since it's the one physically shipping the product into Utah, is it responsible for the Utah sales tax?

The Commission's answer: no, under the facts described. In this arrangement, the reseller — not the wholesaler — is the one actually selling to the Utah end customer; the reseller just never takes physical possession, instead directing the wholesaler to ship straight from its own facility to the customer. That makes the reseller the vendor making the Utah retail sale, and the wholesaler is merely fulfilling on its behalf. If the reseller genuinely lacks Utah sales and use tax nexus, it isn't required to collect and remit Utah tax on that sale — a separate factual question the Commission explicitly declined to decide in this ruling, since it wasn't asked to.

What the Commission did resolve is the wholesaler's own exposure: because its sale to the reseller is a sale for resale, it's exempt from Utah tax, and the wholesaler has no responsibility to collect Utah tax on the items it ships in — but only if it properly documents that exempt resale. Since the reseller isn't Utah-registered, the wholesaler can still satisfy the documentation requirement by obtaining an exemption certificate showing the reseller's home-state sales tax number, or, as an alternative, simply keeping a letter from the reseller stating that its purchases are for resale and that it has no Utah sales and use tax nexus.

What this means for you

Wholesalers and manufacturers drop-shipping for resellers

You don't need your customer to be Utah-registered to treat your sale to them as an exempt resale — a properly worded no-nexus/resale letter, or an exemption certificate using their home-state tax number, is enough to protect you from Utah tax liability on shipments you make into Utah at their direction.

Resellers disputing their own nexus with a state

This ruling doesn't resolve whether you have nexus and must collect tax on your own sales — that's a separate question the Commission pointedly declined to answer here. Refusing to pay your wholesaler doesn't make the nexus question go away; it just shifts where the dispute needs to be resolved.

Accountants mediating disputes between wholesalers and their resale customers

This is a useful template for de-escalating exactly this kind of dispute: get the wholesaler proper resale/no-nexus documentation from the reseller (protecting the wholesaler), while treating the reseller's own collection obligation as a separate, unresolved question that the reseller needs to address on its own with the state.

Common questions

Q: We ship directly into Utah for a customer who resells our products — are we on the hook for Utah tax?
A: Not if your sale to that customer is documented as an exempt resale, even if the customer isn't registered in Utah — you can use their home-state tax number on an exemption certificate, or a letter confirming the resale and their lack of Utah nexus.

Q: Does this ruling settle whether our reseller customer itself owes Utah tax?
A: No — the Commission explicitly limited its opinion to the wholesaler's own liability and did not decide whether the reseller has Utah nexus.

Q: What if we don't get any documentation from the reseller?
A: Then you risk being held liable for the Utah tax on those sales yourself, since the resale exemption depends on proper documentation, not just an informal understanding.

Q: Can another wholesaler in a similar drop-ship dispute rely on this ruling?
A: No — it's an advisory opinion based on this wholesaler's specific facts and documentation efforts. Get your own analysis if you're in a similar situation.

Citations and references

No statutes or administrative rule sections were cited by number in the response letter; the ruling applies Utah's general drop-shipment/resale-exemption framework (see also UT PLR 02-011 and UT PLR 02-027 for closely related fact patterns on documentation and who is the "seller" in multi-party drop-ship transactions).

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/03-001.html

Original ruling text

REQUEST
LETTER

03-001

NAME

ADDRESS

Attached is a response we received from a customer that has been nothing but a problem for us when it comes to sales tax. We are registered to collect sales tax in your state as well as in all 46 states and they refuse to pay us the tax to remit to your state for drop shipments we make for them. They are registered in OTHER STATE only and are a mail-order type business.

We have always been under the impression that we were responsible (as the selling entity) to collect sales tax for your state.

We would like to request an official ruling on this matter to make sure we are doing things correctly.

Sincerely

NAME

ADDRESS

ATTACHMENT

NAME

ADDRESS

This letter was written to

NAME

ADDRESS

You are correct that states can collect taxes from sales which originate within a state and drop ship in the same state. However, the tax is owed by the purchasing entity. Everything we have seen shows that the federal courts protect catalog companies and others without nexus from being required to collect and pay these taxes. This doesn't stop states from trying. The attorneys who specialize in this field say that enough companies without nexus just "go along" with the states, that the states are encouraged to keep pursuing even though the federal laws protect such companies.

COMPANY can conduct business in the way it sees fit, as does OTHER COMPANY. As such we will discontinue selling COMPANY products. We still will not pay any taxes for states outside of OTHER STATE.

Sincerely

NAME

ADDRESS

RESPONSE
LETTER

April 14, 2003

NAME

ADDRESS

RE: Request for Private Letter Ruling Concerning Drop Shipments Made by COMPANY. (�COMPANY�)

Dear NAME,

We have received your request for a private letter ruling concerning COMPANY drop shipments of tangible personal property into Utah. COMPANY, which has sales and use tax nexus with Utah, sells for resale tangible personal property to OTHER COMPANY (�OTHER COMPANY�), a OTHER STATE company that supposedly does not have sales and use nexus with Utah. OTHER COMPANY does not take physical possession of the tangible personal property at issue. Instead, upon OTHER COMPANY selling the tangible personal property to Utah customers, it directs COMPANY to ship the items from COMPANY facility to the customers. You inquire whether COMPANY should remit sales tax on items sold by , but shipped into Utah by COMPANY.

Under these circumstances, OTHER COMPANY, not COMPANY, is considered the vendor making the Utah sale. If OTHER COMPANY does not have sales and use nexus with Utah, it is not required to collect and remit Utah sale tax, even if it contracts with COMPANY to ship the item sold into Utah. Because COMPANY sales for resale to OTHER COMPANY are exempt from taxation, COMPANY has no responsibility to collect and remit sales tax on the items it ships into Utah under these circumstances, if it properly documents the exempt sale between OTHER COMPANY and itself.

To document an exempt sale between COMPANY and OTHER COMPANY, you should obtain an exemption certificate from OTHER COMPANY that includes OTHER COMPANY sales tax number. Because OTHER COMPANY is not registered in Utah, it may use its OTHER STATE sales tax number when completing the exemption certificate. As an alternative, you may accept a letter from OTHER COMPANY indicating that its purchases from COMPANY are for resale and informs COMPANY that it has no sales and use tax nexus with Utah. With such documentation, COMPANY would not be liable for any Utah sales and use tax on the items it ships into Utah under the circumstances described.

This opinion addresses only COMPANY sales tax liability for the circumstances described in your request letter. We are not rendering an opinion as to whether OTHER COMPANY has sales and use nexus with Utah. Should you have any other questions, please contact us.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/KC

03-001