How did Utah tax advertising-agency purchases, movable modular buildings, tarps picked up by interstate truckers, and awnings installed on real property?

Plain-English summary

Utah Private Letter Ruling 94-010 addressed four businesses:

1. A public-relations and advertising firm.
2. A seller and installer of movable modular buildings.
3. A manufacturer selling truck tarps.
4. A manufacturer and installer of awnings.

The Commission gave a separate classification for each.

1. Advertising and public-relations firm

The firm provided advertising, media, public relations, graphics, event coordination, audiovisual work, and collateral materials.

True agency relationship

Utah Admin. Rule R865-19-65S treated a bona fide advertising agent as the consumer of materials and taxable services purchased to meet the client's needs.

Under that structure, the agency paid tax on its inputs.

No bona fide agency relationship

Without a true agency relationship, the firm was a retailer selling tangible personal property.

It had to collect and remit tax on the selling price of the tangible products.

Services connected with those sales were taxable unless specifically exempt.

The Commission gave meeting-room rental and media-ad-placement charges as examples of specifically exempt charges.

2. Movable modular buildings

The company sold and installed nonpermanent modular buildings standing on blocks. Installation materials were largely reusable when a building moved.

The Commission treated buildings that remained tangible personal property after installation as taxable on the full selling price.

A separately stated charge for attaching the building to realty could be excluded.

It gave connection of the modular building's plumbing system to the real property's water or sewer system as an example of separately stated exempt attachment work.

The company was the consumer of materials converted to realty during installation and had to pay tax when buying those materials.

The Commission said prior audit treatment appeared correct only if exemption certificates were valid, actual realty-attachment charges were not separately stated, and the installer had not converted tangible personal property to realty.

3. Tarps for interstate trucks

The tarp manufacturer correctly treated sales as exempt when:

• It delivered the merchandise to an out-of-state location in its own vehicle; or
• A common carrier shipped the merchandise out of Utah.

Utah Admin. Rule R865-19-44S governed that delivery treatment.

The result changed when an out-of-state purchaser's truck picked up the tarp at the Utah plant.

Although interstate carriers could qualify for an exemption on certain vehicle purchases, they were not exempt from tax on parts, equipment, repairs, and similar items delivered in Utah.

The tarp sale was taxable when the carrier took delivery in Utah.

4. Awnings installed on real property

The company manufactured, sold, and installed awnings attached to real property.

The Commission said awnings generally became permanent improvements to realty.

For those jobs, the seller-installer was the consumer of tangible personal property converted to realty and had to pay tax on all materials purchased for the work under Rule R865-19-58S.

Some exterior decorations called awnings could remain tangible personal property after installation because of:

• Structure.
• Short useful life.
• Function.
• Intent of the parties.

When the awning remained tangible personal property, the seller collected tax on the total selling price, less any separately stated charge for attachment to realty.

Holding

Under the four fact patterns:

• A true advertising agent paid tax on inputs.
• A non-agent advertising retailer collected tax on tangible products and connected taxable services.
• Movable modular buildings were taxable tangible personal property.
• Separately stated realty-attachment work could be exempt.
• Installation materials converted to realty were taxable to the installer.
• Out-of-state-delivered tarps were exempt.
• Tarps picked up in Utah by interstate carriers were taxable.
• Permanent awnings were treated as real-property improvements.
• Awnings remaining tangible personal property were taxed on selling price less separately stated attachment charges.

What this means for you

Advertising agencies

Document whether you are a true agent or a retailer. The classification changes who pays tax and on what base.

Modular-building dealers and contractors

Separate movable building sales, realty-attachment labor, and materials converted to real property.

Trucking-equipment sellers

Delivery location matters. Interstate use did not exempt equipment picked up in Utah.

Awning businesses

Classify each installation by permanence, useful life, function, structure, and party intent.

Common questions

Q: Did an advertising agency always collect tax from its client?

A: No. A true agent paid tax on inputs, while a retailer collected tax on tangible products and connected taxable services.

Q: Were movable modular buildings taxable?

A: Yes, on the full selling price, except separately stated attachment-to-realty work.

Q: Were tarps used in interstate trucking exempt?

A: Only when delivered outside Utah under the stated rules. Utah pickup was taxable.

Q: Who paid tax on materials used for permanent awnings?

A: The seller-installer, as the consumer of materials converted to realty.

Q: Could an awning remain tangible personal property?

A: Yes, depending on structure, useful life, function, and intent.

Key source language

• Advertising agency: “a business operating as an advertising agency should pay tax on material and taxable services it purchases to fulfill its client's needs.”
• Modular buildings: “taxable on the full selling price less any separately stated charge for attachment of the personal property to the realty.”
• Utah tarp pickup: “The sale of tarps under these conditions is subject to the tax.”
• Permanent awnings: “the person selling and installing such awnings is considered as the consumer in converting tangible personal property to realty.”

Citations and references

• Utah Admin. Rule R865-19-65S
• Utah Admin. Rule R865-19-58S
• Utah Admin. Rule R865-19-78S
• Utah Admin. Rule R865-19-44S

Source

• Landing page: Utah Private Letter Rulings
• Official ruling: Utah PLR 94-010
• Scope note: the official file contains four separate business situations; this page preserves separate holdings rather than combining them.
• Fetch note: the exact official URL returned HTTP 404 to a direct request and was then retrieved through Sofya.

Original ruling text

94-010

Response
June 27, 1994

Attn: XXXXX

State Tax Commission

160 East 300 South

Salt Lake City, Utah
84134

RE:
Request for Declaratory Judgements - Utah Sales/Use Taxes

Dear XXXXX

In order to help our clients better understand
and comply with Utah State sales and use tax laws, as well as, to provide them with some measure of protection in the event of an audit, I request that you furnish us with declaratory judgements for each the four situations described and attached.

I realize you may require additional
information in order to make a determination, so please call me if you do. I look forward to resolving these issues as soon as possible.

Sincerely,

XXXXX

SITUATION #1

Type of Business:

Full-service public relations and
advertising firm.

Description of Goods
and Services Provided:

The company will provide services in
advertising, media and public relations, graphics, special events coordination, audio-visual, and collateral materials.

Areas of Concern:

Most of our questions center on the areas
of graphics and collateral materials.
The company will produce, for example, a set of brochures or flyers. The production typically will involve services performed within the company, as well as, contracted services. The company may do the layout and then send it out to be printed. The company will bill its client a fee for the production of the brochures; however, the bill may include a number of services, such as, consulting and market research. Can the company pay sales tax to the various service providers and vendors throughout the process and then not have to charge sales tax to the client upon delivery? Otherwise, it would appear that the bill must be broken down between its taxable and nontaxable components. On which components of the client's bill is sales tax assessed?

Also, if the company were to produce an
open house, grand opening, or some similar event, and it provides flowers, printed materials, accommodations, catering, etc., again, can the company pay the sales tax along the way or does it have to acquire these items tax-free and then charge the client sales tax?

Hopefully you can see how very complicated
and burdensome this will be, if the company is required to determine and separate the items that are taxable and nontaxable. Also, you should know that there are instances in which my client may not want to put a lot of detail on her client's invoice.

We request that you furnish us with a
declaratory judgement, identifying the proper sales and use tax procedures for a firm such as this.

SITUATION #2

Type of Business:

Sales and installation of modular
buildings.

Description of Goods
and Services Provided:

The company sells and installs modular
buildings. It also acts as a
subcontractor for other dealers in the installation of modular buildings. It should be noted that these buildings are nonpermanent; i.e., they are very moveable. They stand on blocks and most of the installation materials are salvaged and reused when moved.

Areas of Concern:

When working as a subcontractor for a
dealer, my client does not pay sales tax on the materials used in the installation process, nor does he charge sales tax to the dealer because the dealer charges sales tax to the purchaser on the full price of the building including the materials and labor for installation. My client has sales tax exemption certificates in his files from the dealers.

When my client acts as the dealer, he
handles things as described above, that is, he charges sales tax on the building, the materials and the labor on the installation, unless the buyer is exempt.

My client once went through a sales tax
audit and the auditors felt as though the company should be paying sales or use tax on the installation materials. Eventually, the auditors decided not to make any adjustments because my client had exemption certificates in his files from the dealers and he had charged sales tax on the installation when he had acted as the dealer. While we were pleased that no adjustments were made, we felt that some fundamental questions were left unanswered.

We request that you furnish us with a
declaratory judgement, identifying the proper sales and use tax procedures for a business such as this.

SITUATION #3

Type of Business:

Manufacturing.

Description of Goods
and Services Provided:

The company manufactures and sells, to the
ultimate consumer, tarps used in the trucking industry.

Areas of Concern:

My client knows that sales tax is not
charged to out of state purchasers if the merchandise is delivered, either by my client's vehicles or by common carrier, to the out of state purchaser.

From time to time, an out of state
purchaser will have its own truck out on the road and near my client's manufacturing facility in Salt Lake. The purchaser will give instructions to the driver to go by and pick up the tarp. My client wants to know if sales tax must be charged in this instance. The trucks we are dealing with are large, dual axle vehicles, often weighing in excess of 26,000 pounds.

We request that you furnish us with a
declaratory judgement, identifying the proper sales tax procedures for a situation such as this.

SITUATION #4

Type of Business:

Manufacturing.

Description of Goods
and Services Provided:

The company manufactures, sells, and
installs awnings attached to real property.

Areas of Concern:

My client has heard conflicting methods of
dealing with the sales and use tax issues involved in this type of business. Is sales or use tax paid by my client on the materials used in the manufacturing process?, or is sales tax charged to the end user on all or a portion of the total sales price?

Re:
Request for Declaratory Judgment -- Various Utah Sales/Use Tax Issues

Dear XXXXX:

This letter is in repose to your recent
request (copy attached) for the Tax Commission to issue declaratory judgments on various sales and use tax issues.

Although your inquiry was framed as a
request for declaratory judgments, Tax Commission policy is to initially treat all such inquiries as requests for advisory opinions. As such, it was referred to the Tax Commission's Auditing Division for their analysis and recommendations. The division's recommendations are as follows:

1.
Full-service public relations and advertising firm - Administrative Rule R865-19-65S (copy attached) indicates that a business operating as an advertising agency should pay tax on material and taxable services it purchases to fulfill its client's needs. This position is predicated on the situation in which the advertising agency has a true agency relationship with its client and is providing various services, not merely selling tangible personal property. In the absence of a bona fide agency relationship, your client would be considered a retailer selling tangible personal property. As a retailer, your client would be responsible to collect and remit the tax on its selling price of tangible personal property. Any services which are in connection with the sales of the tangible personal property are taxable unless specifically exempted under the law. Charges for rental of a meeting room and charges for placing advertising in the media are examples of such specifically exempt charges.

2.
Sales and installation of modular buildings - The sales of modular buildings which remain tangible personal property after installation are taxable on the full selling price less any separately stated charge for attachment of the personal property to the realty. Charges for the connection of the modular buildings plumbing system to the water/sewer system of the real property is an example of charges that could be separately stated and exempted. See Rule R865-1958S and R865-19-78S attached. Your client would be considered the consumer of any materials converted to realty in the process and must pay tax on such material purchases. The past audit treatment of your client appears to have been correct if the charges were covered by properly executed exemption certificates, if charges for actual attachment to the realty had not been separately stated, and if your client had not made any conversions of tangible personal property to realty.

3.
Manufacturing and sales of tarps used in the trucking industry - Your client's treatment of sales of merchandise delivered to out-of-state locations by your client's vehicles or shipped out-of-state by common carriers is correct; See attached Rule R865-19-44S.

While interstate carriers may enjoy
exemption from sales tax on purchases of vehicles used in interstate commerce under certain circumstances, such carriers are not exempt from tax on parts, equipment, repairs, etc. when they take delivery of such items in Utah. The sale of tarps under these conditions is subject to the tax.

4.
Manufacture, sales and installation of awnings to real property - Generally, awnings become a permanent improvement to the realty, and the person selling and installing such awnings is considered as the consumer in converting tangible personal property to realty. The seller/installer should pay tax on all materials purchased to use in such jobs as indicated in Rule R865-19-58S (copy attached). Some types of exterior decoration referred to a �awnings� may remain tangible personal property after installation because of structure, short useful life, function or intent of the parties. The seller of such items should collect tax on the total selling price of the awning less any separately stated charge of attachment to the realty.

Respectfully,

Alice Shearer