Were a wholesaler's separately stated product, storage, handling, delivery, and retail-support charges all exempt when the retailer bought products for resale?

Plain-English summary

Utah Private Letter Ruling 95-063 said tangible products bought by retailers for resale were exempt when the wholesaler received a valid resale-exemption certificate.

Products bought for the retailer's own use were taxable.

The Commission did not rule that all separately stated storage, handling, delivery, and retail-support charges were simply exempt components of the resale price. It said more details were needed to classify the services.

Wholesale plan

The company distributed grocery, dairy, and frozen products to retailers.

It planned to itemize:

• Product acquisition cost.
• Storage.
• Handling.
• Delivery.
• Advertising.
• Marketing.
• Retail financial services.
• Retail technology.
• Training.
• Store development.
• Franchise marketing programs.

The requester argued that every item remained part of the selling price of goods purchased for resale and should therefore be exempt.

Products purchased for resale

The Utah Sales and Use Tax Act exempted property held for resale in the regular course of business.

The wholesaler's product sales were exempt when the retailer bought the items for resale and supplied an exemption certificate.

The certificate documented that the retailer, rather than the wholesaler, would make the taxable retail sale.

Retailer-consumed products

The resale exemption did not apply when the retailer was the final consumer.

The response gave examples under Utah Admin. Rule R865-19S-68(A):

• Merchandise used in advertising.
• Merchandise used in displays.
• Products given away as customer incentives.

Tax was due on those purchases because the retailer consumed the property instead of reselling it.

Support services remained unresolved

The Commission could not determine the tax treatment of the other services without more transaction details.

It specifically declined to agree that every service cost was merely part of the exempt resale product price.

For example, store-development charges could include taxable equipment leases. If so, the wholesaler had to collect tax on the lease charges.

The Commission invited a further request with more detailed service facts.

Holding

Under the ruling:

• Products bought for resale were exempt with an exemption certificate.
• Products consumed by the retailer were taxable.
• Advertising, display, and giveaway merchandise were retailer-consumed examples.
• Separately stated service charges were not automatically exempt.
• The service classifications remained unresolved without more facts.
• Taxable equipment leases within a service package had to be taxed.

What this means for you

Wholesalers and grocery distributors

Separate actual resale inventory from retailer-use products and independently analyze services.

Retailers

A resale certificate does not cover property used in your own advertising, displays, operations, or giveaways.

Accountants and tax professionals

Do not assume invoice itemization settles classification. Review what each service or charge actually provides under current law.

Common questions

Q: Were products bought for resale exempt?

A: Yes, with a resale-exemption certificate.

Q: Were retailer-use items exempt?

A: No.

Q: Were products used in advertising or displays taxable?

A: Yes, because the retailer was the final consumer.

Q: Did the Commission agree every support-service fee was part of the exempt product price?

A: No.

Q: Were the support services taxable?

A: The ruling did not decide without more facts.

Q: Could store-development charges include taxable items?

A: Yes. The Commission gave equipment leases as an example.

Key source language

• Resale: “sales by your client of items purchased for resale are exempt from sales tax upon receipt of an exemption certificate from the retailer.”
• Final consumer: “Sales tax is due on any items of tangible personal property purchased by the retailer” when the retailer consumes them rather than resells them.
• Service issue: “We cannot comment on the taxable status of the other services offered by your client without more detail about the transactions.”
• No automatic inclusion: “We do not necessarily agree that the costs associated with the services are merely part of the sales price of the items purchased for resale.”

Citations and references

• Utah Admin. Rule R865-19S-68(A)

Source

• Landing page: Utah Private Letter Rulings
• Official ruling: Utah PLR 95-063
• Outcome note: the resale status was decided, but the separately offered service charges were left unresolved pending more detailed facts.
• Fetch note: the exact official URL returned HTTP 404 to a direct request and was then retrieved through Sofya.

Original ruling text

95-063

Response October 2, 1995

Request

September 21, 1995

XXXXX

Tax Administration

Utah Department of Taxation

210 North 1950 West

Salt Lake City, UT 84134

Dear XXXXX:

Re: Sales/Use Tax -- Private Letter Ruling

On behalf of our client, we respectfully request a private letter ruling regarding the taxability of various items charged by a wholesale distributor (�Company A�) to its customers. The following are the facts involved in this case and the issues for which we are requesting a ruling from the state.

FACTS

Company A is a wholesaler/distributor of grocery, dairy and frozen products. All of Company A�s customers are retailers of these consumable products. Company A not only provides the products, but also provides retail support services such as marketing, training, and financial service. In the past, the costs incurred by Company A for product acquisition, product storage, product handling, vendor discounts and various support service items were considered overhead costs and were included in the product selling price. The invoices showed on line item for the selling price of the product and a separate line item for shipping/delivery charges. Some of their divisions do show a separate line item for fees, which is a fixed percentage of sales ranging from 2 percent to 5 percent.

Company A is currently in the process of implementing a new marketing plan (�Plan�). The intent is to provide its customers the lowest possible cost-of-goods by (1) eliminating from the base selling price costs for advertising, marketing of other retail support service, (2) passing through to the retailers manufacturer discounts and (3) allowing the retailers to choose the specific services they require.

Under the Plan, all products will be sold F.O.B. Company A�s loading dock at its acquisition cost plus a storage charge and a handling charge. If Company A provides the delivery service, it also will be priced separately. Retailers who need support services may separately purchase the amount and type of service they require. The retail support services which will be available to the retailers include: advertising, marketing, retail financial service, retail technology, retail training, retail store development, and franchise marketing programs. Under the Plan the invoices will, therefore, be more detailed. Each of the various charges such as acquisition cost, storage charge, handling charge, delivery charge and the various support service costs will be separately stated on the invoice. However, all the separate items billed on the invoice remain components of the selling price of the products.

ISSUES/CONTENTION

It is our contention that since the items that are separately stated on the invoice are merely components of the selling price of the products sold for resale, all product sales should be exempt form sales/use tax. Resale certificates will be obtained from the retail customers. If you agree with this conclusion, please sign below and return via facsimile to XXXXX.

Thank you for your attention to this ruling request. If you have any questions or need additional information, please call me at XXXXX.

Sincerely,

XXXXX

On behalf of the state of Utah, I agree with the contentions stated above.

By:______Date:_____

Title:__________

October 2, 1995

XXXXX

RE: Advisory Opinion - Applicability of sales tax to items sold for resale.

We have received your request for an advisory opinion regarding the application of sales tax to products and services sold by your client to retailers. We find as follows:

The Utah Sales and Use Tax Act imposes a sales tax on tangible personal property purchased within the state and a use tax on tangible personal property purchased outside Utah and stored, used or consumed in Utah. However, purchases of property held for resale in the regular course of business are exempt from sales tax. Therefore, sales by your client of items purchased for resale are exempt from sales tax upon receipt of an exemption certificate from the retailer.

Sales tax is due on any items of tangible personal property purchased by the retailer for the retailer�s own consumption or for which the retailer is deemed the final consumer. For example, if the retailer purchases merchandise to use in advertising or displays or to give away as a customer incentive, the retailer is the end consumer of the product and sales tax is due. Utah Admin. Rule R865-19S-68(A).

We cannot comment on the taxable status of the other services offered by your client without more detail about the transactions. We do not necessarily agree that the costs associated with the services are merely part of the sales price of the items purchased for resale. For instance, if the charges for �store development� include taxable equipment leases, your client must collect sales tax on the leases. If you can provide use with more detail about the service transactions, we will be happy to issue another opinion regarding their taxable status.

For the Commission,

Alice Shearer

Commissioner