Did a Utah dealer have to collect sales tax when trailers were refurbished and first returned to service outside Utah, even though a Utah fleet manager paid the dealer?
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This page answers the general question as of 2009. Ask about yours and see what current Utah tax law says, with citations.
Plain-English summary
Utah Private Letter Ruling 09-007 concluded that a Utah dealer did not have to collect sales tax from a Utah fleet manager for trailer refurbishment performed and first used outside Utah.
Utah generally taxed repair or renovation services for tangible personal property.
This transaction was sourced outside Utah, however, because the fleet manager first used the refurbishment service when the trailers returned to service in another state.
The Commission also found that the out-of-state transaction lacked substantial nexus with Utah. The manager's payment to the dealer in Utah was not enough by itself.
The four-company arrangement
The anonymous Utah dealer sold and serviced products and arranged trailer refurbishment.
A separate Utah company managed nationwide fleets and contracted with the dealer for the work.
The fleet owner was based in another state, operated nationally, and kept the trailers at a regional facility in a second state.
The actual refurbishing manufacturer was located in a third state. None of the four companies was related by ownership.
How the work moved
The Utah fleet manager authorized the work and contacted the Utah dealer.
The dealer issued a purchase order to the out-of-state manufacturer and arranged common-carrier transportation from the trailers' out-of-state base to the manufacturer's state.
After refurbishment, the manufacturer shipped the trailers back to their out-of-state base.
The trailers did not go directly to Utah. They might later pass through Utah after returning to service for deliveries.
The manufacturer billed the dealer, and the dealer billed the manager for the work, markup, costs, and separately identified transportation charges.
Repair services were generally taxable
Section 59-12-103(1)(g) generally taxed amounts charged for repairs or renovations of tangible personal property unless an exemption applied.
The trailers were tangible personal property.
The ruling therefore did not treat refurbishment as categorically exempt. It resolved the issue through Utah's transaction-location rules.
First use sourced the service outside Utah
Section 59-12-211(3) located a taxable service where the purchaser took receipt when it was not received at the seller's business location.
Section 59-12-211(1)(a)(i)(B) defined receipt of a service as making first use of that service.
The manager's first use of the refurbishment occurred outside Utah because the trailers returned to service in another state before any later Utah travel.
The refurbishment transaction was therefore located outside Utah.
Commerce Clause nexus
The Commission also applied the substantial-nexus part of the Complete Auto test.
It found no substantial nexus between Utah and this refurbishment transaction once section 59-12-211 located the transaction outside the state.
The mere fact that payment occurred in Utah did not create enough nexus.
Holding
The Utah dealer did not have to collect sales tax from the Utah fleet manager for the described trailer-refurbishment transaction.
The conclusion was limited to the specified product, locations, affiliations, and other conditions.
What this means for you
Equipment dealers
A Utah billing relationship does not necessarily source an interstate repair to Utah. Trace where the purchaser first uses the repaired property.
Fleet managers
Keep records showing the property's location before repair, repair location, return destination, date and place it reentered service, and any later Utah travel.
Tax professionals
Analyze both taxability and sourcing. A service may be taxable in kind yet fall outside Utah because receipt or first use occurs elsewhere.
Common questions
Q: Are trailer refurbishment services generally taxable in Utah?
A: Yes. The ruling said repair and renovation services generally fell within section 59-12-103(1)(g).
Q: Why was this particular charge not taxed?
A: The manager first used the refurbishment outside Utah when the trailers returned to service at their out-of-state base.
Q: Did payment to the Utah dealer source the transaction to Utah?
A: No. The Commission said payment in Utah alone was not enough for substantial nexus.
Q: What if the refurbished trailers had returned directly to Utah?
A: The ruling did not decide that scenario. Its conclusion depended on the trailers first returning to service outside Utah.
Q: Did the ruling apply broadly to any repair arranged by a Utah company?
A: No. It was binding only to the extent the product, location, affiliation, and other specified conditions matched.
Key source language
- First use: “The Manager’s first use of the refurbishment services clearly occurs outside of Utah because the refurbished trailers do not return to Utah until after they have previously been returned to service in another state.”
- Utah payment: “The mere payment in Utah for the refurbishment services is not enough for substantial nexus.”
- Conclusion: “Your client, the Dealer, is not required to collect sales tax from the Manager for the refurbishment transaction that you described.”
Citations and references
- Utah Code Ann. §§ 59-12-103(1)(a), (g), 59-12-102(108)(a), 59-12-107, and 59-12-211(1)(a), (3)
- Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (as cited in the ruling)
Source
- Landing page: Utah Private Letter Rulings
- Official ruling: Utah PLR 09-007
Original ruling text
FINAL PRIVATE LETTER RULING
REQUEST LETTER
09-007
February 24, 2009
Ms Pam Hendrickson -Chair
Utah State Tax Commission
210 North 1950 West
Salt Lake City UT 84010
Dear Chair Hendrickson:
I am requesting a Private Letter Ruling from the commission on behalf of my client, who wishes to remain anonymous.
The facts are as follows:
There are four parties involved in the transaction:
Company (A) is a dealer of tangible personal property who sells and services product for a national manufacturer. A is located in Utah and has no operations in any other states.
Company (B) manages tangible personal property for other companies that is used in the course of interstate commerce. B does not own the tangible personal property. B is located in Utah.
Company (C) is the owner of the tangible personal property which is managed by (B). C is based in STATE 1 and has regional operations in Utah. The regional group that provides the services for A is located in STATE 2. The property is operated in interstate commerce.
Company (D) manufacturers repairs and refurbishes tangible personal property and is located in STATE 3.
The flow of the transaction is as follows:
C contracts with A to refurbish tangible personal property that is owned by C.
A contracts with D to perform the work to refurbish the tangible personal property. The work is performed in STATE 3.
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The tangible personal property is shipped by common carrier by A from STATE 2 to STATE 3.
D refurbishes the tangible personal property and ships it back to STATE 2 by common carrier.
D bills A for the work after B approves the work and processes the paper work.
A then bills B for the work plus their mark up and costs, including the costs to transport the tangible personal property from STATE 2 to STATE 3 and back. The costs to transport are segregated on the bill and are specifically labeled with the origin and the destination of the shipment.
B is required as part of their contract with C to manage the tangible personal property owned by C and to provide the appropriate paper work.
Question:
Should A collect sales tax from B or C for the repair of the tangible personal property?
Thank you for your consideration. If you have any questions please contact me at PHONE or email at EMAIL.
Sincerely,
NAME
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RESPONSE LETTER
September 22, 2009
NAME
ADDRESS
RE: Private Letter Ruling Request—Sales Tax Treatment of Repair Work
Dear NAME:
You have requested a ruling on behalf of your client (Company A or Dealer), who chooses to remain anonymous. Based on your request letter and through a subsequent telephone conversation, you presented a transaction that involves four companies, which are unrelated by ownership. The four companies are: 1) Company A (“Dealer”), 2) Company B (“Manager”), 3) Company C (“Owner”), and 4) Company D (“Manufacturer”). The business relationships between the four companies may be described as follows:
Dealer is your client and is only located in Utah. It sells and services products, including trailers, for a national manufacturer. In particular for this case, Dealer provides refurbishment services for trailers. Dealer subcontracts with Manufacturer for the actual refurbishment services. 1
Manager is also based in Utah. It is also a dealer and is a competitor of your client, Dealer. Manager is also a fleet management company. Manager manages the maintenance of its customers’ nationwide fleets, keeping the fleet property running in good working order and taking care of the necessary paperwork. You verbally represented that you believe Manager may have its own maintenance facilities and the capacity to do some repairs and maintenance at its facilities in Utah. Regardless, Manager does contract with other firms to perform maintenance and repair services nationwide. For this case, Manager is managing Owner’s trailers, which are used in interstate commerce, and it is contracting with Dealer for refurbishment services on those trailers.
Owner owns the trailers. It operates nationally, is based in STATE 1, and has regional operations in Utah. It also has a regional group facility in STATE 2, where the trailers are based. The trailers are managed by Manager. By telephone, you corrected a misstatement and clarified that the regional group facility is not related in any way to Dealer.
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Under the understanding that the original contract would be considered a resale of services, Dealer provides Manufacturer with a Utah exemption certificate.
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Manufacturer is located in STATE 3. It manufactures, repairs, and refurbishes trailers.
Manufacturer did not manufacture the specific trailers that are being refurbished in this case.
The flow of the transaction is as follows:
-
Owner contracts with Manager to manage the trailers and provide appropriate paperwork.
Also, Owner authorizes Manager to do the refurbishment work. -
Manager contacts Dealer to refurbish Owner’s trailers.
-
Dealer sends a purchase order to Manufacturer requesting the refurbish work.
-
The trailers are located at Owner’s regional group facility in STATE 2.
-
Dealer contracts with a common carrier to transport the trailers from STATE 2 to the
Manufacturer in STATE 3. -
Manufacturer refurbishes the property in STATE 3.
-
Manufacturer ships the property back to the regional group facility in STATE 2 by
common carrier. -
The trailers are not directly transported to Utah after they are refurbished. However, they
might travel through Utah once they are refurbished and again in use for deliveries. -
Manufacturer bills Dealer for the refurbishment work and does not charge Dealer Utah
sales tax. Dealer had previously provided Manufacturer with a Utah exemption
certificate. -
Dealer then bills Manager for the work plus Dealer’s mark up and costs, including the
cost to ship the property from STATE 2 to STATE 3 and back. These transportation costs
are segregated on the bill. -
Manager charges Owner for its management services.
We note that you originally provided in your request letter that Owner contracts with Dealer for the refurbishment work, but based on our discussions, you clarified that Manager is contacting Dealer for the work and being billed by Dealer after the work is completed.
Issue
Your specific issue is: Should the Dealer collect sales tax from the Manager for the repair of the tangible personal property?
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Applicable Law
Utah Code Ann. § 59-12-103(1) imposes tax on:
(a) retail sales of tangible personal property made within the state;
....
(g) amounts paid or charged for services for repairs or renovations of tangible personal property, unless Section 59-12-104 provides for an exception for:
(i) the tangible personal property; and
(ii) parts used in the repairs or renovations of the tangible personal property described in Subsection (1)(g)(i), whether or not any parts are actually used in the repairs or renovations of that tangible personal property . . .
Utah Code Ann. § 59-12-102(108)(a) defines tangible personal property to be “personal property that: (i) may be: (A) seen; (B) weighed; (C) measured; (D) felt; or (E) touched; or (ii) is in any manner perceptible to the senses.”
The duties and responsibilities of a seller are outlined in Utah Code Ann. § 59-12-107, which states in subsection (2):
(a) Except as provided in Section 59-12-107.1, a tax under this chapter shall be collected from a purchaser.
....
(c) (i) Each seller shall:
(A) give the purchaser a receipt for the tax collected; or (B) bill the tax as a separate item and declare the name of this state and the seller’s sales and use tax license number of the invoice for the sale.
Utah Code Ann. § 59-12-211 provides instruction on the locations of certain transactions.
Section 59-12-211(3) states:
Subject to Subsection (10), and except as provided in Subsections (7), (8), (9), (11), and (13), if tangible personal property, a product transferred electronically, or a service that is subject to taxation under this chapter is not received by a purchaser at a business location of a seller, the location of the transaction is the location where the purchaser takes receipt of the tangible personal property or service.
Section 59-12-211(1)(a) defines “receipt” as follows:
(i) "Receipt" and "receive" mean:
(A) taking possession of tangible personal property;
(B) making first use of a service; or
(C) for a product transferred electronically, the earlier of:
(I) taking possession of the product transferred electronically; or (II) making first use of the product transferred electronically.
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(ii) "Receipt" and "receive" do not include possession by a shipping company on behalf of a purchaser.
Analysis
As explained below, we conclude that the Dealer is not required to collect sales tax from the Manager for the refurbishment services on the trailers in this case.
According to Utah law, unless otherwise exempt, sellers must collect sales tax on “amounts paid or charged for services for repairs or renovations of tangible personal property.” § 59-12-103(1)(g). As provided by § 59-12-211(3), “ if . . . a service . . . is subject to taxation under this chapter [and] is not received by a purchaser at a business location of a seller, the location of the transaction is the location where the purchaser takes receipt of the . . . service.”2 (Emphasis added.) Section 59-12-211(1)(a)(i)(B) defines receipt as “making first use of a service.” In this case, the amounts paid or charged for the refurbishment services fall under the plain language of § 59-12-103(1)(g), under which repair services are generally taxed. However, under § 59-12-211(1)(a)(i)(B), the location of the refurbishment transaction is outside of Utah. The Manager’s first use of the refurbishment services clearly occurs outside of Utah because the refurbished trailers do not return to Utah until after they have previously been returned to service in another state.
In general, Utah does not tax transactions for services when the transactions are located outside of Utah. The Commission recognizes that the Commerce Clause of the U.S Constitution limits Utah’s imposition of sales tax, including impositions under § 59-12-103(1)(g). In Complete Auto Transit, Inc. v. Brady, 430 US 274, the U.S. Supreme Court set forth a four- pronged test that must be met for a state tax to be sustained against a Commerce Clause challenge. The four-pronged test requires that the tax (1) is applied to an activity with a substantial nexus with the taxing state, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to the services provided by the state.
Under the facts of this case, the Commission finds that the charge or receipt for the refurbishment services does not meet the first prong of the test in Complete Auto, requiring that the activity have a substantial nexus with the taxing state. In this case, the refurbishment transaction does not have a substantial nexus when the transaction is located outside of Utah under § 59-12-211. The mere payment in Utah for the refurbishment services is not enough for substantial nexus. Therefore, the Dealer is not required to collect sales tax from Manager for the refurbishment services described in this ruling.
Conclusion
Your client, the Dealer, is not required to collect sales tax from the Manager for the refurbishment transaction that you described. Our conclusions are based on the facts as 2 Section 59-12-211(3) also states that it is subject to § 59-12-211(10), and does not apply as provided in Subsections (7), (8), (9), (11), and (13). Section 59-12-211(10) discusses how the local taxing jurisdiction is based primarily on ZIP Code. Subsections (7), (8), (9), (11), and (13) address issues that are not present in this case.
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described. Should the facts be different, a different conclusion may be warranted. If you feel we have misunderstood the facts as you have presented them, if you have additional facts that may be relevant, or if you have any other questions, please contact us. This ruling is only binding to the extent that the conditions, i.e. product, location, affiliation, etc., are specified; the specific companies need not be named.
For the Commission,
Marc B. Johnson
Commissioner
MBJ/aln
09-007
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