A company bills customers one combined line-item charge for a metered commodity. Can the part of that charge covering final delivery to the customer be carved out of the tax base as a nontaxable delivery charge?
Plain-English summary
A company sells a metered commodity (the product is redacted) to customers across Utah. It buys the product, has it prepared and transported to a hand-off point ("Location A"), then delivers it to each customer's address. The customer's bill shows a single combined "line-item charge" measured by quantity used. On its website, the company publishes a rate schedule breaking that combined rate into three pieces: a charge for the product itself ("Other Rate A"), a charge for preparation and transport from the supplier to Location A ("Other Rate B"), and a "distribution rate" for delivering the product from Location A to the customer.
The company asked the Commission to confirm it could carve the "distribution rate" out of the taxable price as a nontaxable delivery charge. The Commission said no — the entire line-item charge is taxable. It gave two independent reasons, and a charge has to clear both hurdles to be excluded:
Hurdle 1 — Is it actually a "delivery charge"? Under § 59-12-102(32), a delivery charge must be "for preparation and delivery" of the product "to a location designated by the purchaser." Looking at the company's own website document (not the labels in the request letter), the Commission found the "distribution rate" was a grab-bag of components — including things like the company's costs to replace its own distribution property — that weren't shown to be charges for delivering the product to the customer's location. So the distribution rate isn't a delivery charge at all. (The "Other Rate B" transport charge also failed, partly because the delivery locations weren't ones the customer designated.)
Hurdle 2 — Is it "separately stated" to the purchaser? Even assuming part of it were a delivery charge, § 59-12-102(99)(c)(ii) excludes it only if it's separately stated on an invoice, bill of sale, or similar document provided to the purchaser. Here:
- The bill showed one non-itemized line-item charge — nothing separately stated.
- The website rate schedule is not a document similar to an invoice or bill of sale: it doesn't address the customer's specific purchase, it uses different terminology than the bill, and its totals don't even match the bill. Merely referring customers to the website, or posting a rate table publicly, does not satisfy "separately stated … on a document provided to the purchaser."
Result: the full line-item charge goes into the taxable purchase price. (The ruling also confirms the unremarkable point that the seller's own cost of transportation to the seller — getting the product to Location A — is included in the taxable purchase price under § 59-12-102(99)(b)(ii)(F).)
What this means for you
Anyone who bills delivery or "distribution" inside a bundled price
If you want a delivery charge to be non-taxable in Utah, two things must be true, and you control both: (1) the charge has to be genuinely for preparing and delivering the product to the location the customer designates — not a catch-all that also recovers your equipment, overhead, or system-replacement costs; and (2) it has to be separately stated on the actual invoice or bill you give the customer (or a similar transaction-specific document). Roll it into one combined line and it's fully taxable.
"We post our rates online" is not enough
This is the sharpest practical lesson: publishing a rate breakdown on your website does not make a charge "separately stated." The separately-stated document has to be tied to the customer's specific transaction and actually given to them — a public rate schedule that uses different terms and doesn't reconcile to the bill won't do it. If you want the exclusion, itemize the delivery charge on the bill itself.
Don't confuse the two "transportation" directions
Utah treats inbound and outbound transport differently. The seller's cost to get the product to the seller (inbound) is part of the taxable purchase price (§ 59-12-102(99)(b)(ii)(F)). Only a genuine, separately stated charge to deliver the product to the customer's designated location (outbound) can be excluded. Labeling something "distribution" doesn't change which direction it is.
Accountants and tax professionals
The decision is a two-part test: the charge must satisfy the definition of delivery charge (§ 59-12-102(32)) and the separately-stated documentation requirement (§ 59-12-102(99)(c)(ii)), and it must be demonstrable from the seller's books and records at the time of the transaction. Note the Commission looked to the company's actual operative documents rather than the characterizations in the ruling request, and rejected a website rate schedule as a "similar document." Contrast the delivery-charge exclusions that succeeded (when properly separately stated) in PLR 21-004 and the purchase-price mechanics in PLR 22-001. (This 2018 ruling uses the older Title 59 Chapter 12 numbering — delivery charge at § 59-12-102(32), purchase price at (99).)
Common questions
Q: Is a delivery or shipping charge taxable in Utah?
A: A genuine delivery charge — for preparing and delivering the product to the location the customer designates — can be excluded from the taxable price, but only if it's separately stated on the invoice, bill of sale, or a similar document given to the customer. If it's bundled into one combined price, it's taxable.
Q: We list our rate components on our website. Is the delivery part automatically non-taxable?
A: No. The Commission held a public website rate schedule is not a document "similar to an invoice or bill of sale" and doesn't make a charge "separately stated." Itemize the delivery charge on the actual bill instead.
Q: What makes a charge fail the "delivery charge" definition?
A: If it covers things beyond preparing and delivering the product to the customer's location — for example, recovering the company's costs to replace its own distribution equipment — it isn't a delivery charge. It also must be delivery to a location the purchaser designates.
Q: Is my cost to get the product to my own facility taxable to the customer?
A: Yes — the seller's cost of transportation to the seller is part of the taxable purchase price under § 59-12-102(99)(b)(ii)(F). Only the outbound delivery to the customer can potentially be excluded.
Q: Can my company rely on this ruling?
A: No. A Utah private letter ruling binds the Commission only for the taxpayer and facts it was issued to. The two-part delivery-charge test is instructive, but your invoices and charge structure may differ.
Citations and references
Statutes:
- Utah Code § 59-12-103(1)(a), (l) — tax on retail sales of, and storage/use/consumption of, tangible personal property
- Utah Code § 59-12-102(99) — "purchase price" / "sales price" (what's included and excluded)
- Utah Code § 59-12-102(99)(b)(ii)(F) — the seller's cost of transportation to the seller is included in the purchase price
- Utah Code § 59-12-102(99)(c)(ii)(B) — a delivery charge is excluded only if separately stated on a document provided to the purchaser
- Utah Code § 59-12-102(32) — definition of "delivery charge" (for preparation and delivery to a location designated by the purchaser)
- Utah Code § 59-12-103(2)(e) — separating a transaction's nontaxable portion by reasonable, verifiable books and records
- Utah Code § 59-12-102(125) — "tangible personal property"
Source
- Landing page: https://tax.utah.gov/commission/rulings/
- Original PDF: https://files.tax.utah.gov/tax/commission/ruling/17-004.pdf
Original ruling text
FINAL PRIVATE LETTER RULING
REQUEST LETTER
17-004
April 20, 2017
VIA E-MAIL
[email protected]
Office of the Commission
Utah State Tax Commission
210 North 1950 West
Salt Lake City, UT 84134
Re: Private Letter Ruling Request Concerning the Taxability of COMPANY Property
and Service Charges
Dear Commissioners:
Pursuant to Utah Administrative Code R861-1A-34, we hereby request a Private Letter Ruling,
asking the Tax Commission to confirm our conclusion as to how COMPANY (COMPANY)
should be collecting and remitting Utah sales tax on COMPANY’s sales of property and
services.
COMPANY sells ITEM to customers throughout Utah. COMPANY buys the ITEM from
various sources. COMPANY incurs costs to prepare the ITEM and to have the ITEM
transported from the SUPPLIER’S LOCATION to LOCATION A where COMPANY assumes
responsibility for the ITEM. COMPANY then delivers the ITEM from LOCATION A to the
customer’s address.
On its invoices to its customers, an example of which is attached as Exhibit A, COMPANY
charges customers one price labeled “LINE ITEM CHARGE.” This price is $ AMOUNT 1 on
Exhibit A, with an average cost per MEASURE OF AMOUNT of $ AMOUNT 2.”
On its publicly available web-site, COMPANY publishes AN ONLINE DOCUMENT which
breaks out and shows three components of the cost per MEASURE OF AMOUNT “LINE ITEM
CHARGE” on the bill (the $ AMOUNT 2 on the bill in Exhibit A). These three components are
(1) the “OTHER RATE A” (the charge to the customer for THE ITEM), (2) the “OTHER
RATE B” (the charge to the customer for the preparation of the ITEM, and transportation of the
ITEM from the SUPPLIER’S LOCATION to LOCATION A), and (3) the “DISTRIBUTION
RATE” (the charge for COMPANY to deliver ITEM from LOCATION A to the customer’s
address). This ONLINE DOCUMENT is attached hereto as Exhibit B.
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It is our conclusion that, for sales to CUSTOMERS, COMPANY (1) should collect Utah sales
tax on the “OTHER RATE A” as this a charge for a sale of THE ITEM [TAXABLE UNDER]
Utah Code section 59-12-103(1)***; (2) should collect Utah sales tax on the “OTHER RATE B”
as this is a “cost of transportation to the seller,” which is includable within the tax base under the
definition of “purchase price” in Utah Code section 59-12-102(99)(b)(ii)(F); and (3) should not
collect Utah sales tax on the “DISTRIBUTION RATE” because this constitutes a delivery
charge which is excluded from the tax base by being excluded from the definition of purchase
price under Utah Code section 59-12-102(99)(c)(ii)(B). We are requesting a private letter ruling
confirming that our conclusion is correct.
We believe the first and second conclusions are fairly straight-forward. On the third conclusion,
some additional statutory provisions must be analyzed because the delivery charge in question is
listed on the invoice in Exhibit A as part of one non-itemized price. We have analyzed these
provisions below, and request the Commission to confirm that our conclusions below are correct.
The Utah Code specifies that “purchase price” does “not include . . . a “delivery charge” if the
delivery charge is “separately stated on an invoice, bill of sale, or similar document provided to
the purchaser at the time of sale or later” so long as such delivery charge is “demonstrated by the
books and records the seller keeps at the time of the transaction in the regular course of business,
. . . by a preponderance of the facts and circumstances at the time of the transaction, and by the
understanding of all the parties to the transaction.” Id. at § 59-12-102(99)(c)(ii).
Another Utah statute, Utah Code section 59-12-103(2)(e)(i), consistently provides that “if a
transaction consists of the sale . . . of tangible personal property, a product, or a service that is
subject to taxation” (the ITEM in this case) and “the sale . . . of tangible personal property, other
property, a product, or a service that is not subject to taxation” (the “DISTRIBUTION RATE”
delivery charge in this case) then the non-taxable portion of the transaction may be purchased tax
free if “the seller at the time of the transaction . . . is able to identify by reasonable and verifiable
standards, from the books and records the seller keeps in the seller’s regular course of business,
the portion of the transaction that is not subject to taxation.”
In COMPANY’s situation, it is our conclusion that, under these statutes, the DISTRIBUTION
RATE delivery charge is excludable from the tax base as a delivery charge because it satisfies
the statutory standards for the following reasons.
First, the DISTRIBUTION RATE delivery charge is separately stated on COMPANY’s
ONLINE DOCUMENT.
Second, the ONLINE DOCUMENT is part of COMPANY’s books and records kept at the time
of the transaction in the regular course of business.
Third, the ONLINE DOCUMENT is a document similar to an invoice or bill of sale. The
ONLINE DOCUMENT provides the same information that would be found on an invoice or bill
of sale which enables the customer to understand how its bill is calculated. See USTC PLR
2001-12 (allowing a letter which contained similar information to an exemption certificate as
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sufficient documentation for exempt sales); Mannes-Vale, Inc. v. Vale, 717 P.2d 709 (Utah 1986)
(holding that notice to the Industrial Commission was a sufficiently similar document to an
official claim to give jurisdiction to the Industrial Commission).
Lastly, the ONLINE DOCUMENT is provided to the customer through COMPANY publicly
posting the ONLINE DOCUMENT on its website. By posting the ONLINE DOCUMENT on its
web-site, COMPANY made the ONLINE DOCUMENT available to everyone and thus provided
the ONLINE DOCUMENT to its customers. See Dictionary.com (defining “provide” as “to
make available; furnish”); Merriam-webster.com (defining “provide” as “to supply or make
available”); Salt Lake Corporation v. Jordan River Restoration Network, 2012 UT 84, ¶ 23, 299
P.3d 990 (holding that due process was satisfied by providing proper notice, which included
posting information on a website).
For these reasons, it is our conclusion that, for sales to CUSTOMERS, COMPANY (1) should
collect Utah sales tax on the “OTHER RATE A,” (2) should collect Utah sales tax on the
“OTHER RATE B,” and (3) should not collect Utah sales tax on the “DISTRIBUTION RATE.”
We are requesting a private letter ruling confirming that our conclusion is correct.
Sincerely,
NAME
POSITION
COMPANY
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RESPONSE LETTER
PRIVATE LETTER RULING 17-004
August 23, 2018
NAME
POSITION
COMPANY
ADDRESS
EMAIL ADDRESS
Dear NAME:
This letter is in response to your request for a private letter ruling for COMPANY
(“Company”), which sells ITEM to CUSTOMERS.1 You asked about the sales and use
taxability of the Company’s sales of the ITEM to those customers. You discussed three
component rates that comprise the TOTAL RATE ITEM found in the Company’s ONLINE
DOCUMENT. These three component rates are the DISTRIBUTION RATE, OTHER RATE B,
and OTHER RATE A. You asserted that the TOTAL RATE ITEM of these three component
rates is the rate used to calculate the LINE ITEM CHARGE found on customers’ bills. Your
letter particularly focused on whether part of the amount of the LINE ITEM CHARGE would
qualify as a “delivery charge,” and thus, be non-taxable. This private letter ruling concludes that
no part of the LINE ITEM CHARGE found on customers’ bills is a delivery charge.2 Section III
of this private letter ruling includes the analysis for this conclusion.
I. Facts
A. You have provided the following facts through your request letter, your
exhibits, and the ONLINE DOCUMENT VERSION A (“ONLINE
DOCUMENT VERSION A”).
1
[WORDS REMOVED.]
2
The LINE ITEM CHARGE on the customers’ bills generally corresponds to the amount associated with
the TOTAL RATE ITEM found in the Company’s ONLINE DOCUMENT. However, for
COMPONENT 1 OF DISTRIBUTION RATE, the LINE ITEM CHARGE differs from the TOTAL
RATE ITEM. In the Company’s ONLINE DOCUMENT, the TOTAL RATE ITEM includes
COMPONENT 1 OF DISTRIBUTION RATE. On the customers’ bills, the LINE ITEM CHARGE does
not include COMPONENT 1 OF DISTRIBUTION RATE; COMPONENT 1 OF DISTRIBUTION RATE
is listed on a separate line on the bills. On the bills, the Company seems to treat the LINE ITEM
CHARGE as taxable and COMPONENT 1 OF DISTRIBUTION RATE as nontaxable.
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Through your request letter, you provided us with the following facts:
[The Company] sells ITEM to customers throughout Utah. [The Company] buys
the ITEM from various sources. [The Company] incurs costs to prepare the
ITEM and to have the ITEM transported from the SUPPLIER’S LOCATION to
LOCATION A where [the Company] assumes responsibility for the ITEM. [The
Company] then delivers the ITEM from LOCATION A to the customer’s address.
On its invoices to its customers, an example of which is attached as Exhibit A,
[the Company] charges customers one price labeled “LINE ITEM CHARGE.”
This price is $ AMOUNT 1 on Exhibit A, with an average cost per MEASURE
OF AMOUNT of $ AMOUNT 2.”
Exhibit A, referenced above, is a redacted copy of the Company’s bill [WORDS
REMOVED] for the sale of THE ITEM for a particular CUSTOMER ADDRESS. The
Company’s bill references a particular AGREEMENT: “AGREEMENT: #####.” The bill is
based on 8 MEASURE OF AMOUNT of THE ITEM used by the customer, as measured by a
particular PIECE OF EQUIPMENT: “EQUIPMENT ID: #####.” The bill also shows the
following:
[WORDS REMOVED]
LINE ITEM CHARGE (COST PER MEASURE OF AMOUNT AMOUNT 3
$ (AMOUNT 2))
[OTHER LINE ITEMS] $$$$$
COMPONENT 1 OF DISTRIBUTION RATE AMOUNT 4
Current ITEM BILL AMOUNT 1
....
(Italics for emphasis added.)
The 8 MEASURE OF AMOUNT of THE ITEM used, multiplied by the $ AMOUNT 2 of
“COST PER MEASURE OF AMOUNT” equals the $ AMOUNT 3 LINE ITEM CHARGE,
found in the table above.
The bill also [DIRECTS THE CUSTOMER TO VISIT THE COMPANY’S WEBSITE
FOR MORE INFORMATION ABOUT THE BILL].
Through your request letter, you also provided us with the following facts about the
Company’s ONLINE DOCUMENT (“ONLINE DOCUMENT”):
On its publicly available web-site, [the Company] publishes AN ONLINE
DOCUMENT which breaks out and shows three components of the cost per
MEASURE OF AMOUNT “LINE ITEM CHARGE” on the bill (the
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$ AMOUNT 2 on the bill in Exhibit A). These three components are (1) the
“OTHER RATE A” (the charge to the customer for THE ITEM), (2) the “OTHER
RATE B” (the charge to the customer for the preparation of the ITEM, and
transportation of the ITEM from the SUPPLIER’S LOCATION to LOCATION
A), and (3) the “DISTRIBUTION RATE” (the charge for [the Company] to
deliver ITEM from LOCATION A to the customer’s address). This ONLINE
DOCUMENT is attached hereto as Exhibit B.
Exhibit B, referenced above, includes five pages of the ONLINE DOCUMENT
VERSION A (“ONLINE DOCUMENT VERSION A”), namely pages ###, ###, ###, ###, and
. Page ### of ONLINE DOCUMENT VERSION A includes a SPECIFIC TABLE.
[WORDS REMOVED] One column of the table includes the following rates:
COLUMN
HEADING
....
DISTRIBUTION RATE $$$$$
....
OTHER RATE B $$$$$
....
OTHER RATE A $$$$$
....
TOTAL RATE ITEM $ AMOUNT 5
The above TOTAL RATE ITEM of $ AMOUNT 5 is within one cent of the $ AMOUNT 2 per
MEASURE OF AMOUNT rate for the LINE ITEM CHARGE found on the BILL of Exhibit A.
The rate on the BILL of Exhibit A is close, but not equal, to the TOTAL RATE ITEM found in
the SPECIFIC TABLE OF ONLINE DOCUMENT VERSION A; the rates discussed above do
not completely coincide.3
3
COMPONENT 1 OF DISTRIBUTION RATE seems to be treated differently by the SPECIFIC
TABLE OF ONLINE DOCUMENT VERSION A and by the BILL of Exhibit A. COMPONENT 1 OF
DISTRIBUTION RATE is included in the TOTAL RATE ITEM found in the SPECIFIC TABLE OF
ONLINE DOCUMENT VERSION A. COMPONENT 1 OF DISTRIBUTION RATE is listed separately
from the LINE ITEM CHARGE in the BILL of Exhibit A.
The different treatments of COMPONENT 1 OF DISTRIBUTION RATE can be reconciled as
explained in the paragraph below. When the different treatments are reconciled, there is over a two-cent
difference in the TOTAL RATE ITEM found in the SPECIFIC TABLE and the rate for the LINE ITEM
CHARGE.
The TOTAL RATE ITEM of $ AMOUNT 5 found in the SPECIFIC TABLE OF ONLINE
DOCUMENT VERSION A includes COMPONENT 1 OF DISTRIBUTION RATE of $$$$$. Unlike
that TOTAL RATE ITEM, the LINE ITEM CHARGE of the BILL does not seem to include
COMPONENT 1 OF DISTRIBUTION RATE. Instead, the BILL lists COMPONENT 1 OF
DISTRIBUTION RATE of $ AMOUNT 4 separately from the LINE ITEM CHARGE. Thus, to better
compare the TOTAL RATE ITEM of $ AMOUNT 5 to the amounts on the BILL, one combined rate for
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As discussed previously, the BILL of Exhibit A referred the customer to the Company’s
website, where ONLINE DOCUMENT VERSION A was found. The BILL of Exhibit A,
though, did not more specifically refer the customer to the TOTAL RATE ITEM found in the
SPECIFIC TABLE OF ONLINE DOCUMENT VERSION A for a breakdown of the rate for the
LINE ITEM CHARGE on the BILL.
B. The ONLINE DOCUMENT that is currently in effect is ONLINE
DOCUMENT VERSION B.
The Company’s ONLINE DOCUMENT ONLINE DOCUMENT VERSION B
(“ONLINE DOCUMENT VERSION B”) superseded ONLINE DOCUMENT VERSION A.
ONLINE DOCUMENT VERSION B is currently available on the following webpage of the
Company: [WORDS REMOVED].
C. ONLINE DOCUMENT VERSION B provides additional facts about the
DISTRIBUTION RATE, OTHER RATE B, and OTHER RATE A.
The subsections below explain the information found in ONLINE DOCUMENT
VERSION B about the DISTRIBUTION RATE, OTHER RATE B, and OTHER RATE A and
their component parts.
1. ONLINE DOCUMENT VERSION B’s glossary and rate tables contain
information about the DISTRIBUTION RATE, OTHER RATE B, and
OTHER RATE A.
COMPONENT 1 OF DISTRIBUTION RATE and LINE ITEM CHARGE should be calculated for the
BILL. That combined rate can be calculated as follows:
LINE ITEM CHARGE (COST PER MEASURE OF AMOUNT $AMOUNT 3
$ (AMOUNT 2))
COMPONENT 1 OF DISTRIBUTION RATE
AMOUNT 4
Total amount charged for the above items $$$$$
Price per MEASURE OF AMOUNT: the above number divided by the $AMOUNT 6
8 MEASURE OF AMOUNT of THE ITEM used
The combined rate of $ AMOUNT 6 from the BILL is over two cents more than the TOTAL RATE
ITEM of $ AMOUNT 5 found in the SPECIFIC TABLE OF ONLINE DOCUMENT VERSION A.
Overall, though, the combined rate on the BILL of Exhibit A still seems to be consistent with the
TOTAL RATE ITEM found in the SPECIFIC TABLE OF ONLINE DOCUMENT VERSION A.
However, the combined rate of the BILL and the TOTAL RATE ITEM still do not completely coincide.
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Section ### of ONLINE DOCUMENT VERSION B contains a glossary. The glossary
and other areas of ONLINE DOCUMENT VERSION B do not define DISTRIBUTION RATE,
OTHER RATE B, and OTHER RATE A.
[WORDS REMOVED]
ONLINE DOCUMENT VERSION B contains various rate tables. These rate tables
contain the different components comprising the DISTRIBUTION RATE, OTHER RATE B,
and OTHER RATE A. ONLINE DOCUMENT VERSION B contains a SPECIFIC TABLE that
is similar to the SPECIFIC TABLE OF ONLINE DOCUMENT VERSION A, which was
discussed previously. The components comprising the DISTRIBUTION RATE, OTHER
RATE B, and OTHER RATE A are the same for ONLINE DOCUMENT VERSION A and
ONLINE DOCUMENT VERSION B; however, the rate amounts differ. The SPECIFIC TABLE
OF ONLINE DOCUMENT VERSION B shows the following, in part:
COLUMN
HEADING
COMPONENT 2 OF DISTRIBUTION RATE $$$$$
COMPONENT 3 OF DISTRIBUTION RATE $$$$$
COMPONENT 4 OF DISTRIBUTION RATE $$$$$
COMPONENT 1 OF DISTRIBUTION RATE $$$$$
COMPONENT 5 OF DISTRIBUTION RATE $$$$$
DISTRIBUTION RATE $$$$$
[WORDS REMOVED] $$$$$
OTHER RATE B $$$$$
[WORDS REMOVED] $$$$$
OTHER RATE A $$$$$
TOTAL RATE ITEM $$$$$
2. ONLINE DOCUMENT VERSION B provides information about the
component parts of the DISTRIBUTION RATE.
Based on the SPECIFIC TABLE OF ONLINE DOCUMENT VERSION B provided
above, the DISTRIBUTION RATE may include the following components:
COMPONENT 2 OF DISTRIBUTION RATE
COMPONENT 3 OF DISTRIBUTION RATE
COMPONENT 4 OF DISTRIBUTION RATE
COMPONENT 1 OF DISTRIBUTION RATE
COMPONENT 5 OF DISTRIBUTION RATE
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ONLINE DOCUMENT VERSION B contains additional information about most of these
components listed above.
For COMPONENT 2 OF DISTRIBUTION RATE, the ABBREVIATION of its name
means [WORDS REMOVED]. This is the only description found. For the remaining
components, ONLINE DOCUMENT VERSION B contains the following information.
According to § ### of ONLINE DOCUMENT VERSION B, COMPONENT 3 OF
DISTRIBUTION RATE relates to the [WORDS REMOVED]. Section ### states, [WORDS
REMOVED].
According to § ### of ONLINE DOCUMENT VERSION B, COMPONENT 4 OF
DISTRIBUTION RATE relates to [WORDS REMOVED]. Section ### explains [WORDS
REMOVED].
According to § ### of ONLINE DOCUMENT VERSION B, “COMPONENT 1 OF
DISTRIBUTION RATE [WORDS REMOVED].”
According to § ###, COMPONENT 5 OF DISTRIBUTION RATE [ALLOWS THE
COMPANY TO CHARGE CUSTOMERS THE COMPANY’S COSTS TO REPLACE THE
COMPANY’S PROPERTY USED FOR DISTRIBUTION.]
3. ONLINE DOCUMENT VERSION B provides information about the
OTHER RATE B, OTHER RATE A, and [WORDS REMOVED].
[QUOTATIONS FROM ONLINE DOCUMENT VERSION B ABOUT OTHER
RATE B AND ABOUT OTHER RATE A.]
a. OTHER RATE B
[QUOTATIONS FROM ONLINE DOCUMENT VERSION B ABOUT OTHER
RATE B.]
Thus, the OTHER RATE B seems to exclude the costs of the Company’s suppliers to
purchase the ITEM and to include other costs of the Company’s suppliers, such as the suppliers’
costs for transporting the ITEM to the Company’s system and other non-transportation costs as
well.
b. OTHER RATE A
[WORDS REMOVED] For OTHER RATE A costs, § ### of ONLINE DOCUMENT
VERSION B further explains [WORDS REMOVED] the following:
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[T]he OTHER RATE A will be determined by *** adding [WORDS
REMOVED] ITEM costs from all supply sources [WORDS REMOVED] less the
OTHER RATE B costs and other revenue credits, [WORDS REMOVED].
(Emphasis added.)
Thus, based on the above quoted material, the OTHER RATE A is defined, in part, to exclude
the OTHER RATE B.
D. ONLINE DOCUMENT VERSION B explains how a customer purchases
ITEM from the Company.
A customer wanting ITEM submits an application [WORDS REMOVED]. If the
Company accepts that application, an account [WORDS REMOVED] is established. [WORDS
REMOVED]
A customer submits AN [WORD REMOVED] application by any of the following
methods: submitting a written application, making a verbal request either in person or by
telephone, or electronically transmitting the request. [WORDS REMOVED]
[WORDS REMOVED]
The Company charges state sales taxes BY APPLYING THE SALES TAX RATE TO
THE TOTAL CUSTOMER CHARGES FOR THE ITEM. [WORDS REMOVED]
II. Applicable Law
Utah Code Annotated § 59-12-103(1) imposes tax on certain transactions, stating the
following in part:
A tax is imposed on the purchaser . . . on the purchase price or sales price for
amounts paid or charged for the following transactions:
(a) retail sales of tangible personal property made within the state;
....
[WORDS REMOVED]
....
(l) amounts paid or charged for tangible personal property if within this state the
tangible personal property is:
....
(ii) used; or
(iii) consumed; . . .
As used in the language quoted above, “retail sale” is defined in Utah Code Ann.
§ 59-12-102(109); “sale,” in Utah Code Ann. § 59-12-102(110); [WORDS REMOVED].
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Utah Code Ann. § 59-12-102 defines various terms, stating in part:
As used in this chapter:
....
(32) (a) "Delivery charge" means a charge:
(i) by a seller of:
(A) tangible personal property;
(B) a product transferred electronically; or
(C) services; and
(ii) for preparation and delivery of the tangible personal property,
product transferred electronically, or services described in
Subsection (32)(a)(i) to a location designated by the purchaser.
(b) "Delivery charge" includes a charge for the following:
(i) transportation;
(ii) shipping;
(iii) postage;
(iv) handling;
(v) crating; or
(vi) packing.
....
(99) (a) "Purchase price" and "sales price" mean the total amount of
consideration:
(i) valued in money; and
(ii) for which tangible personal property, a product transferred
electronically, or services are:
(A) sold;
....
(b) "Purchase price" and "sales price" include:
(i) the seller's cost of the tangible personal property, a product
transferred electronically, or services sold;
(ii) expenses of the seller, including:
(A) the cost of materials used;
(B) a labor cost;
(C) a service cost;
(D) interest;
(E) a loss;
(F) the cost of transportation to the seller; or
(G) a tax imposed on the seller;
(iii) a charge by the seller for any service necessary to complete the sale;
or
....
(c) "Purchase price" and "sales price" do not include:
....
(ii) subject to Subsections 59-12-103(2)(e)(ii) and (2)(f)(i), the
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following if separately stated on an invoice, bill of sale, or similar
document provided to the purchaser at the time of sale or later, as
demonstrated by the books and records the seller keeps at the time
of the transaction in the regular course of business, including books
and records the seller keeps at the time of the transaction in the
regular course of business for nontax purposes, by a preponderance
of the facts and circumstances at the time of the transaction, and by
the understanding of all of the parties to the transaction:
....
(B) a delivery charge;
....
(125)(a) Except as provided in Subsection (125)(d) or (e), "tangible personal
property" means 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.
[WORDS REMOVED]
III. Analysis
As explained previously in this private letter ruling, you asked about the sales and use
taxability of the Company’s sales of THE ITEM to CUSTOMERS. In particular, you asked
whether the amount associated with the DISTRIBUTION RATE found in the ONLINE
DOCUMENT would qualify as a “delivery charge,” and thus, be non-taxable. This private letter
ruling concludes that no part of the LINE ITEM CHARGE found on customers’ bills is a
delivery charge.
A. Section 59-12-103(1) imposes sales and use taxes on sales of THE ITEM.
Section 59-12-103(1)(a) imposes sales and use taxes on “retail sales of tangible personal
property made within the state.” [WORDS REMOVED] Thus, the Company’s sales of THE
ITEM to CUSTOMERS meets § 59-12-103(1)(a).
Section 59-12-103(1)(l) imposes sales and use taxes on “amounts paid or charged for
tangible personal property if within this state the tangible personal property is . . . used[] or . . .
consumed.” Because ITEM is tangible personal property [WORDS REMOVED], the
CUSTOMERS’ use of that ITEM within Utah will be taxable under § 59-12-103(1)(l), as well.
[WORDS REMOVED]
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The focus of this private letter ruling, though, is not whether the Company’s sales of THE
ITEM are subject to sales and use taxes. Instead, the focus is on the amount of the purchase
price or sales price of the ITEM the Company sells to its customers.
B. In general, § 59-12-103(1) imposes sales and use taxes “on the purchase price
or sales price” of taxable transactions.
Section 59-12-103(1) imposes tax “on the purchase price or sales price for the amounts
paid or charged for the [transactions enumerated in § 59-12-103(1)].” Utah Code Annotated
§ 59-12-102(99) defines “purchase price” and “sales price.” Section 59-12-102(99)(a)-(b)
provides the items that are generally included in “purchase price” and “sales price”; and
§ 59-12-102(99)(c) provides items that are specifically excluded from the definition of “purchase
price” and “sales price.”
C. The LINE ITEM CHARGE on the BILL of Exhibit A meets
Subsection (99)(a) of the definition of “purchase price” and “sales price,”
found in § 59-12-102.
The LINE ITEM CHARGE on the BILL of Exhibit A meets § 59-12-102(99)(a). Section
59-12-102(99)(a) states the following:
"Purchase price" and "sales price" mean the total amount of consideration:
(i) valued in money; and
(ii) for which tangible personal property, a product transferred electronically, or
services are:
(A) sold . . .
The LINE ITEM CHARGE of the BILL of Exhibit A of $ AMOUNT 3 is the amount the
Company charged the customer for the ITEM the customer used. Thus, the full LINE ITEM
CHARGE will be subject to sales and use taxes unless a part of the LINE ITEM CHARGE is
excluded from “purchase price” by meeting the exclusion found in subsection (99)(c) of § 59-12-
102.
D. In general, a separately stated delivery charge may be excluded from a
purchase price or sales price if that charge meets the requirements found in
both § 59-12-102(32) and § 59-12-102(99)(c).
You have argued that a part of the LINE ITEM CHARGE is excluded from the definition
of purchase price because that part is a separately stated delivery charge under
§ 59-12-102(99)(c).
To be a separately stated delivery charge excludable under § 59-12-102(99)(c), a charge
must meet multiple requirements. First, the charge must meet the definition of delivery charge
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found in § 59-12-102(32). Second, the charge must meet the requirements found in
§ 59-12-102(99)(c), under which the charge must be separately stated.
The requirements of § 59-12-102(32) are discussed below in Subsections III.E. through
III.I. The requirements of § 59-12-102(99)(c) are discussed below in Subsections III.J. through
III.K.
E. For the Company’s charge to be a “delivery charge,” § 59-12-102(32)
requires that the Company’s charge be “for preparation and delivery” and
“to a location designated by the [Customer].”
Section 59-12-102(32) defines “delivery charges” as follows.
(a) "Delivery charge" means a charge:
(i) by a seller of:
(A) tangible personal property;
(B) a product transferred electronically; or
(C) services; and
(ii) for preparation and delivery of the tangible personal property, product
transferred electronically, or services described in Subsection (32)(a)(i)
to a location designated by the purchaser.
(b) "Delivery charge" includes a charge for the following:
(i) transportation;
(ii) shipping;
(iii) postage;
(iv) handling;
(v) crating; or
(vi) packing.
(Emphasis added.)
Based on the above definition, to be a delivery charge, a charge must be “for preparation
and delivery” of the tangible personal property, product transferred electronically, or services
sold. For this private letter ruling, the tangible personal property sold is the ITEM the Company
sells to CUSTOMERS [WORDS REMOVED ABOUT HOW COMPANY DELIVERS ITEM].
Additionally to be a delivery charge, a charge must also be a charge for preparation and
delivery “to a location designated by the purchaser.” For this private letter ruling, the
Company’s CUSTOMER must designate the location where the ITEM is received for the charge
to be a delivery charge.
The analysis below in Subsections III.F. through III.I. addresses whether the facts
provided show any part of the LINE ITEM CHARGE is a “delivery charge,” as defined in
§ 59-12-102(32). This private letter ruling concludes that the facts provided do not show that
any part of the LINE ITEM CHARGE is a “delivery charge.”
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F. The analysis for this private letter ruling will use the meanings found in the
ONLINE DOCUMENT for the terms DISTRIBUTION RATE, OTHER
RATE B, and OTHER RATE A.
You have asserted that the LINE ITEM CHARGE on the BILL of Exhibit A includes a
delivery charge. You explained that the LINE ITEM CHARGE is comprised of the three
component parts of the TOTAL RATE ITEM found in the SPECIFIC TABLE OF ONLINE
DOCUMENT VERSION A. The three component parts of the TOTAL RATE ITEM found in
the SPECIFIC TABLE are the DISTRIBUTION RATE, OTHER RATE B, and OTHER
RATE A. In your request letter, you stated that the three component parts of TOTAL RATE
ITEM have the following meanings:
DISTRIBUTION RATE: “the charge for [the Company] to deliver ITEM from
LOCATION A to the customer’s address”
OTHER RATE B: “the charge to the customer for the preparation of the
ITEM, and transportation of the ITEM from the
SUPPLIER’S LOCATION to LOCATION A”
OTHER RATE A: “the charge to the customer for THE ITEM”
The ONLINE DOCUMENT does not include the meanings you stated in your request
letter for DISTRIBUTION RATE, OTHER RATE B, and OTHER RATE A. This private letter
ruling uses the information found in the ONLINE DOCUMENT for the meanings of the
DISTRIBUTION RATE, OTHER RATE B, and OTHER RATE A, instead of relying on the
meanings you provided in your request letter.
G. The ONLINE DOCUMENT does not show that the DISTRIBUTION RATE
meets the “preparation and delivery” requirement of the definition of
delivery charge.
You asserted that the DISTRIBUTION RATE meets the definition of delivery charge.
This Subsection III.G. explains why this private letter ruling reaches a different conclusion.
As explained in this private letter ruling’s Subsection I.C.2, the DISTRIBUTION RATE
may include the following components:
COMPONENT 2 OF DISTRIBUTION RATE
COMPONENT 3 OF DISTRIBUTION RATE
COMPONENT 4 OF DISTRIBUTION RATE
COMPONENT 1 OF DISTRIBUTION RATE
COMPONENT 5 OF DISTRIBUTION RATE
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For COMPONENT 2 OF DISTRIBUTION RATE, the ABBREVIATION of its name
means [WORDS REMOVED]. This is the only description found in ONLINE DOCUMENT
VERSION B. This description is too limited to conclude that COMPONENT 2 OF
DISTRIBUTION RATE is a charge “for [the] preparation and delivery” of the ITEM and not a
charge for other purposes, as well.
COMPONENT 3 OF DISTRIBUTION RATE relates to the [WORDS REMOVED].
Section ### of ONLINE DOCUMENT VERSION B states [WORDS REMOVED]. ONLINE
DOCUMENT VERSION B does not show that COMPONENT 3 OF DISTRIBUTION RATE is
“for preparation and delivery” of THE ITEM; thus, ONLINE DOCUMENT VERSION B does
not show COMPONENT 3 OF DISTRIBUTION RATE is a delivery charge.
COMPONENT 4 OF DISTRIBUTION RATE relates to [WORDS REMOVED].
COMPONENT 4 OF DISTRIBUTION RATE is not “for preparation and delivery” of THE
ITEM; it is not a delivery charge.
COMPONENT 1 OF DISTRIBUTION RATE relates to [WORDS REMOVED].
According to § ### of ONLINE DOCUMENT VERSION B, “[WORDS REMOVED].”
COMPONENT 1 OF DISTRIBUTION RATE is not “for preparation and delivery” of THE
ITEM; it is not a delivery charge.
COMPONENT 5 OF DISTRIBUTION RATE allows the Company to charge
customers the Company’s costs to replace the Company’s PROPERTY USED FOR
DISTRIBUTION. Replacing the Company’s PROPERTY USED FOR DISTRIBUTION relates
to the Company’s ability to provide THE ITEM to CUSTOMERS. However, a charge by the
Company to replace its PROPERTY USED FOR DISTRIBUTION is not clearly a charge to the
customer “for preparation and delivery” of THE ITEM to the customer’s location.
In summary, the ONLINE DOCUMENT does not show that the component parts of the
DISTRIBUTION RATE are charges for the “preparation and delivery” of the ITEM to the
customer’s location. Thus, the DISTRIBUTION RATE is not a delivery charge.
H. The ONLINE DOCUMENT does not show that the OTHER RATE B and
OTHER RATE A meet the “preparation and delivery” requirement of the
definition of delivery charge.
You asked about the taxation of the OTHER RATE B and the OTHER RATE A. Unlike
the DISTRIBUTION RATE, you did not assert that the OTHER RATE B and the OTHER
RATE A were delivery charges. The paragraphs below analyze the OTHER RATE B and the
OTHER RATE A, and they conclude that the ONLINE DOCUMENT does not show these rates
are delivery charges. Thus, this conclusion is consistent with your analysis.
As explained in this private letter ruling’s Subsection I.C.3.a., the OTHER RATE B
seems to reflect the suppliers’ costs other than those costs specifically for the ITEM.
Furthermore, these OTHER RATE B costs seem to include costs for transporting the ITEM, but
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also include other costs as well. Thus, ONLINE DOCUMENT VERSION B does not show that
the OTHER RATE B is for “preparation and delivery” only.4
As explained in this private letter ruling’s Subsection I.C.3.b., the OTHER RATE A
includes ITEM costs from all supply sources and excludes both OTHER RATE B costs and
[WORDS REMOVED]. Based on the above description, ONLINE DOCUMENT VERSION B
does not show that the OTHER RATE A is for “preparation and delivery”; it is not a delivery
charge.
I. In summary, the “preparation and delivery” requirement of the definition of
delivery has not been shown.
As explained above, the ONLINE DOCUMENT does not show the Company charges a
delivery charge because the ONLINE DOCUMENT does not show the “preparation and
delivery” requirement of the definition of “delivery charge” has been met.
J. For a seller’s charge to be an excludable delivery charge, the charge must
also be meet the requirements found in § 59-10-102(99)(c).
Section 59-12-102(99)(c) excludes from “purchase price” and “sales price” the following,
in part:
"Purchase price" and "sales price" do not include:
....
(ii) subject to Subsections 59-12-103(2)(e)(ii) and (2)(f)(i), the following if
separately stated on an invoice, bill of sale, or similar document provided to
the purchaser at the time of sale or later, as demonstrated by the books and
records the seller keeps at the time of the transaction in the regular course of
business, including books and records the seller keeps at the time of the
transaction in the regular course of business for nontax purposes, by a
preponderance of the facts and circumstances at the time of the transaction,
and by the understanding of all of the parties to the transaction:
....
(B) a delivery charge;
....
4
Additionally, the language of “to a location designated by the purchaser” found in § 59-12-102(32)(a)(ii)
is also unmet. The Company’s CUSTOMERS do not designate the ITEM delivery locations associated
with the OTHER RATE B. The Company and/or the suppliers determine those delivery locations. Thus,
for the Company’s sales of THE ITEM to the CUSTOMERS, no part of the OTHER RATE B meets the
definition of “delivery charge.”
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Thus, to be excluded from “purchase price” or “sales price” as a delivery charge,
§ 59-12-102(99)(c) requires that the charge be all of the following:
1. “a delivery charge.”
2. “separately stated on an invoice, bill of sale, or similar document provided to the
purchaser.
3. “demonstrated by the books and records the seller keeps at the time of the
transaction in the regular course of business.”
4. “demonstrated . . . by a preponderance of the facts and circumstances at the time
of the transaction.”
5. “demonstrated . . . by the understanding of all of the parties to the transaction”
As explained previously in Subsections III.E. through III.I. of this private letter ruling,
the BILL and ONLINE DOCUMENT do not show that any part of the Company’s LINE ITEM
CHARGE is a delivery charge. However, even assuming that part of the TOTAL RATE ITEM
found in the SPECIFIC TABLE OF ONLINE DOCUMENT was shown to be a delivery charge,
the BILL and ONLINE DOCUMENT still do not show that this part of the TOTAL RATE
ITEM was “separately stated on an invoice, bill of sale, or similar document provided to the
purchaser,” as required by § 59-12-102(99)(c), as explained below.
K. The BILL and ONLINE DOCUMENT do not show the Company’s charge
for THE ITEM to CUSTOMERS includes a delivery charge “separately
stated on an invoice, bill of sale, or similar document provided to the
purchaser.”
The BILL of Exhibit A, considered alone, does not separately state any part of the LINE
ITEM CHARGE as a delivery charge.
The ONLINE DOCUMENT, considered alone, is not a document similar to an invoice or
bill of sale. The ONLINE DOCUMENT does not address the specific purchase of THE ITEM
by a Customer as an invoice or bill of sale does.
Considering the BILL and THE ONLINE DOCUMENT together, there is a question as to
which parts of the ONLINE DOCUMENT are incorporated into the BILL. The BILL of
Exhibit A refers the customer to the Company’s website, but the BILL does not directly refer the
Customer specifically to the SPECIFIC TABLE OF ONLINE DOCUMENT VERSION A for a
breakdown of the LINE ITEM CHARGE on the BILL. Furthermore, the BILL’s term of LINE
ITEM CHARGE is not used in the SPECIFIC TABLE OF ONLINE DOCUMENT
VERSION A. Finally, the rate for the LINE ITEM CHARGE on the BILL of Exhibit A does not
completely coincide with the TOTAL RATE ITEM found in the SPECIFIC TABLE OF
ONLINE DOCUMENT VERSION A.
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For these reasons, the BILL and THE ONLINE DOCUMENT do not show a delivery
charge “separately stated on an invoice, bill of sale, or similar document provided to the
purchaser.”
IV. Conclusions
The Company’s sales of THE ITEM to CUSTOMERS are subject to Utah sales and use
taxes. The full LINE ITEM CHARGE on the BILL is subject to taxes. No part of the LINE
ITEM CHARGE is excluded from the purchase price or sales price as a separately stated
delivery charge.
The Tax Commission’s conclusions are based on the facts as you described them and the
Utah law currently in effect. Should the facts be different or if the law were to change, a
different conclusion may be warranted. If you feel we have misunderstood the facts as you have
presented them, you have additional facts that may be relevant, or you have any other questions,
please feel free to contact the Commission.
Additionally, you may also appeal the private letter ruling in the following two ways.
First, you may file a petition for declaratory order, which would serve to challenge
the Commission's interpretation of statutory language or authority under a statute. This petition
must be in written form, and submitted within thirty (30) days after the date of this private letter
ruling. You may submit your petition by any of the means given below. Failure to submit
your petition within the 30-day time frame could forfeit your appeal rights and will be
deemed a failure to exhaust your administrative remedies. Declaratory orders are discussed
in Utah Administrative Code R861-1A-34 C.2., available online
at http://tax.utah.gov/commission/effective/r861-01a-034.pdf, and in Utah Administrative Code
R861-1A-31, available online at http://tax.utah.gov/commission/effective/r861-01a-031.pdf.
Second, you may file a petition for redetermination of agency action if your private letter
ruling leads to an audit assessment, a denial of a claim, or some other agency action at a division
level. This petition must be written and may use form TC-738, available online
at http://tax.utah.gov/forms/current/tc-738.pdf. Your petition must be submitted by any of the
means given below, within thirty (30) days, generally, of the date of the notice of agency action
that describes the agency action you are challenging.
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You may access general information about Tax Commission Appeals online
at http://tax.utah.gov/commission-office/appeals. You may file an appeal through any of the
means provided below:
• Best way—by email: [email protected]
• By mail: Tax Appeals
USTC
210 North 1950 West
Salt Lake City, UT 84134
• By fax: 801-297-3919
For the Commission,
Rebecca L. Rockwell
Commissioner
RLR/aln
17-004
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