As of the mid-1990s, did Utah use tax apply to mail-order and early online purchases, and how did Utah tax software, newspapers, and other products delivered electronically?

Plain-English summary

An early Internet publisher compiling a state-by-state guide to sales and use tax on electronic commerce asked the Commission a detailed set of questions about (1) mail/phone/online purchases delivered by common carrier without sales tax charged, and (2) purchases of fully electronic products (software, e-newspapers, e-books, digital music, movies, and images) downloaded from an out-of-state website with no other Utah contact.

On tangible purchases without sales tax charged: the Commission confirmed Utah use tax is owed on the storage, use, or consumption of tangible personal property in Utah when no sales tax was charged. The purchaser is legally liable for it, but the vendor only has a duty to collect and remit it if the vendor has substantial nexus with Utah (an office, warehouse, salesperson, or similar presence) — otherwise the purchaser self-reports. An individual without a sales tax number reports use tax on their income tax return; a business with a sales tax number reports it with its regular sales tax filings, on a quarterly, monthly, or electronic-funds-transfer schedule depending on the prior year's tax liability ($50,000+ triggers monthly filing, $96,000+ triggers mandatory EFT). Utah did not allow tax payment by credit card at the time.

On fully electronic products: the Commission was notably cautious, explaining that Utah's sales and use tax law was still catching up to emerging technology and that the Legislature had commissioned a study on how the tax should apply to satellite, wire, and computer-related purchases. With that caveat, it offered two concrete, already-settled rules: "canned" or non-custom software is taxable whether purchased off the shelf or downloaded over the Internet, while custom software is not taxable, because the purchaser is really buying the programmer's design services and the resulting program is merely incidental to that service. Separately, newspapers and newspaper subscriptions are not taxable, whether delivered electronically or in print. Beyond those two areas, the Commission expressly said it had not yet formally ruled on other electronically delivered products (magazines, books, music, film, photographs/artwork), though it suggested that products taxable in physical form would probably be taxable delivered electronically too.

What this means for you

Reading this ruling today

This is a snapshot of Utah's use-tax and electronic-commerce position as of January 1996 — well before later developments in remote-seller sales tax law (including the U.S. Supreme Court's 2018 Wayfair decision on economic nexus, and subsequent state marketplace-facilitator and digital-goods legislation). Treat the specific "not yet ruled on" gaps and nexus standard described here as historical, and verify current Utah law and guidance before relying on this for a present-day transaction.

Software sellers (historical context)

At the time, the canned-vs-custom software distinction was the clean line: off-the-shelf/canned software was taxable regardless of delivery method (in a box or downloaded), while true custom programming services were not.

Publishers and digital content sellers (historical context)

Newspapers and their subscriptions were exempt from sales tax at the time, electronic or print — but the Commission was explicit that it had not extended that reasoning to magazines, books, music, film, or images, leaving those categories open questions as of this opinion.

Common questions

Q: Did a Utah consumer owe use tax on untaxed mail-order or early online purchases in 1996? A: Yes — use tax was owed on tangible personal property used in Utah when sales tax wasn't collected, though only vendors with substantial Utah nexus were required to collect and remit it; otherwise the purchaser self-reported.

Q: Was downloaded software taxable the same as boxed software in Utah? A: For "canned" or non-custom software, yes — it was taxable regardless of delivery method. Custom software was not taxable, because it's treated as a programming service.

Q: Were digital newspapers taxed differently from print newspapers? A: No — newspapers and subscriptions were not subject to sales tax whether delivered electronically or in print.

Q: Does this 1996 guidance reflect current Utah law on remote sellers and digital goods? A: No — treat it as historical. Remote-seller nexus and digital-goods taxation have changed substantially since 1996, including after the 2018 Wayfair decision. This is also a private letter ruling binding only on the Commission as to this requester's specific questions, not a general rule others can rely on.

Citations and references

Statutes and rules:

• Utah Admin. Rule R865-19S-92 (software purchase taxation)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/96-002.pdf

Original ruling text

96-002

Response
January 9, 1996

Request

December
26, 1995

Dear
sirs,

As
editor of XXXXX, an Internet web page on issues affecting the software industry, and in my work with various software organizations I am frequently asked about sales and use taxes on electronically received products. Consequently I am undertaking a project to collect, and make available on the Internet, information on sales and use tax handling in each state as it affects electronic commerce. This project is of particular importance in view of U.S. XXXXX recent statements encouraging the FTC to crack down on mail-order companies which do not fully inform their customers about taxes due on mail-order sales.

I
have separated the questions into two parts.
Part one deals with questions which should be easily answered, whereas part two may require some additional time to complete. I would appreciate a quick response to part one and a timely response to part two. In particular, please respond separately to the two parts if part two will take additional time.

Part
One

For
this part we assume that Customer C has purchased via mail, phone, or online service an item which is delivered to C by common carrier, and that no sales taxes were charged.

Questions:

I-1)
Are use taxes due from the customer to your state?

I-2)
What is the proper procedure for C to remit payment of use taxes to your state if C is an individual? Please include the following information: form, date due, payee, remittance address.

I-3)
What is the proper procedure for C to remit payment of use taxes to your state if C is a business? Please include the following information: form, date due, payee, remittance address.

I-4)
Can payment be submitted electronically?
If yes, how? If no, does your
state have any current plans to allow electronic payment in the future?

I-5)
Can payment be made by credit card? If
so, how?

Part
Two

In
this part we ask that you consider the following situation: Customer C visits, via the Internet or other online service, Provider P's web site, which is not located in your state. After electronically transferring payment to P, C then transfers to C's own computer the electronic product. P is unaware that C is located in your state. P has no other contact with your state.

Questions:

II-1)
Assuming that P does not collect sales taxes from C, are use taxes owed by C to your state for the electronic products obtained by C from P's web site?

II-2)
If additional factors are required to answer question II-1, what are those factors?

II-3)
Does the nature of the product determine whether or not use taxes are due? (Note that all products are electronically delivered.) If yes, please indicate which products use taxes are due for:

Software,
custom

Software,
noncustom (�off-the-shelf�)

An
issue of a newspaper in electronic form

An
issue of a magazine in electronic form

A
report or book in electronic form

A
music recording in electronic form

A
movie or film in electronic form

A
photograph or other artwork in electronic form

Other,
(please specify)

II-4)
Given that this is the only contact that P has with your state, does P have any responsibility for the collection of sales taxes on sales to customer C? If yes, please indicate under which law or regulation this duty arises.

II-5)
Finally, please provide us with statutes, regulations, or cases which affect these questions in your state. Also please indicate if your office or state has issued any recent rulings or regulations which would affect this issue, or if any changes are pending.

If
possible, we would prefer to receive your response via e-mail to: XXXXX. An E-mail version of this letter is available by requesting it from me at the same e-mail address.

Otherwise,
return via mail to:

XXXXX

Or
return via fax to:

XXXXX

If
you have questions, please call XXXXX.

Sincerely,

XXXXX

Editor

XXXXX

RE:
Advisory Opinion

Dear
XXXXX,

We
have received your request for sales tax information pertaining to purchases via the Internet or other electronic access. We are, of course, happy to respond to taxpayer questions. However, we are concerned about your making representations to your customers about Utah sales and use tax law based solely on the questions posed in your letter. Our sales and use tax laws are complex, and the emerging technology surrounding online access services has complicated it even more. In fact, the Utah State Legislature has commissioned a lengthy study to determine how Utah sales and use tax will apply to satellite, wire and compute related purchases. That study is underway, and it may impact sales tax statutes in the future.

Having
cautioned you as to the limitations of this reply, we offer the following guidance on issues presented in your letter:

Part
I: We assume that �C� is a Utah customer making purchases from either an in-state or out- of-state vendor.

1
. Use tax is a tax on the storage, use or consumption of tangible personal property in Utah. When tangible personal property is sold in interstate commerce for use or consumption in this state, the sale is subject to Utah use tax. Although use tax is the liability of the purchaser, the retail vendor is responsible for collecting and remitting the tax to the State of Utah if the vendor has an office, warehouse, salesperson, or other substantial nexus with Utah. In that case, the vendor must obtain a sales tax number from the Utah State Tax Commission and report and remit the sales tax at least quarterly.

2.
If C is an individual who does not have a tax number, C must report the use tax on the line provided on C's income tax form.

3.
If C is a Utah resident or Utah company with a sales tax number, the tax that C owes is generally reported along with tax C has collected on C's sales tax returns.

If
the sales tax liability for the previous year was less that $50,000, the tax must be reported quarterly. If the tax liability was $50,000 or more for the previous year, the tax must be reported monthly. If the tax liability is
$96,000 or more for the previous year, the payment must be made by electronic transfer.

4.
Vendors who are not required to remit sales taxes to the Tax Commission by EFT may voluntarily do so by contacting the Tax Commission not less than 30 days before the beginning of a new fiscal year. Vendors who make this election, however, are subject to the same requirements and penalties as those who are required to remit sales taxes by EFT. The election to remit sales taxes by EFT is effective for the following fiscal year and every fiscal year thereafter unless the Tax Commission receives written notification not less than 30 days prior to the commencement of a fiscal year that the vendor no longer elects to remit sales taxes by EFT. The revocation will become effective in the fiscal year following notification.

Vendors
who are required to remit sales taxes to the Tax Commission by EFT and those who request EFT status must file an EFT agreement with the Tax Commission. The agreement form will be sent to vendors required to remit sales taxes by EFT. Those who request EFT status must contact the Tax Commission to obtain the form.

Generally,
a vendor's EFT payment shall be remitted by an XXXXX transaction through the XXXXX (XXXXX) system CCD application. Under this procedure, the vendor will contact the third party with whom the state contracts and authorize that third party to initiate the debit to the vendor's account. Subsequent to initiating the debit, the third party will process the transaction through XXXXX and submit the appropriate records to the Tax Commission for the identification of all EFT payments.

In
those instances where a vendor's organization bylaws prohibit third-party access to its bank account, the vendor may remit its payment by ACH-credit with tax payment addendum transaction through NACHA's CCD+ application. Under this procedure, the vendor will contact its bank, authorizing it to initiate the debit to the vendor's account and contact the third party to provide the necessary information for the Tax Commission. Subsequent to initiating the debit, the bank will process the transaction through NACHA.

In
certain unusual circumstances, an EFT may be accomplished by XXXXX, transfer of funds from an account at the Tax Commission's bank to the Tax Commission's account, or cash deposit into the Tax Commission's bank account. Use of these procedures, however, is limited and must be approved beforehand by the Tax Commission.

5
. Utah currently does not allow payment of tax by credit card. However, the topic is under discussion.

Part
II: A Utah customer purchases a product which is delivered via online access from an out- of-state vendor.

1,

2. Generally, if the product is taxable if delivered in a tangible form, we
   will probably consider it taxable if delivered electronically. However, the Commission has not yet had occasion to rule on sales of this nature outside of sales of software.

3.
In Utah, the tax status of software purchases depends upon whether the purchaser is buying software or programming services. The sale of �canned� or �non-custom� software is considered taxable whether it is purchased off the shelf or over the Internet. Custom software is not taxable because the purchaser is buying the services of the programmer to design the software program and the program itself is incidental to the programmer's services.

Sales
of newspapers and newspaper subscriptions are not subject to sales tax whether delivered electronically or otherwise. The Commission has not formally ruled on the other electronic purchases on your list.

See
response to Part I questions.

Utah
Administrative Rule R865-19S-92 governing software purchases is enclosed.

If
you have other questions, please let us know.

For
the Commission,

Alice
Shearer

Commissioner