If an out-of-state company builds and runs a client retailer's website and collects payment on the retailer's behalf, is the website operator responsible for collecting and remitting Utah sales tax, and does it create its own Utah nexus?

Plain-English summary

A California company ran an early online shopping "mall" -- a website through which client retailers, including at least one located in Utah, sold goods. The operator designed and maintained each client's website, collected and held customer payments, took a commission, and remitted the retailer's share back to the retailer. All of the operator's own design, hosting, and support work happened in California; it had no physical presence in Utah apart from this arrangement. The operator also sometimes sold goods on its own account, some to Utah customers. It asked the Commission four linked questions: must it collect Utah sales tax as agent for its Utah client retailers; must it remit that tax directly to Utah or can it just hand collected amounts to the retailer; must it file Utah sales tax returns on its own or its clients' behalf; and does simply having client retailers with Utah nexus give the operator itself Utah nexus for its own separate sales (and would that, in turn, extend to its other, non-Utah clients)?

The Commission's answer separates the retailer's tax obligation from the operator's own nexus:

• Collection duty tracks the client retailer's nexus, not the operator's location. All sales of tangible personal property to Utah customers are taxable regardless of where the seller is based. The retail vendor -- or the vendor's agent -- must collect and remit if the vendor has Utah nexus. Utah Code § 59-12-107(5) sets out what creates nexus: owning/leasing property in the state, leasing property to Utah consumers, having sales agents there, or providing service/maintenance for sold items, directly or through an agent. If the website operator is acting as agent for a vendor with Utah nexus, the operator must collect sales tax on that vendor's Utah sales.
• Remittance responsibility is contractual, not automatically the operator's. Whether the operator itself must report and remit the tax to Utah, or can simply collect it and hand it to the retailer (who then reports and remits), depends on the terms of the operator's agreement with each vendor. The Commission recommended vendor contracts spell this out clearly. Either way, whichever entity actually collects and reports the tax on the vendor's behalf needs its own Utah sales tax license.
• The operator doesn't automatically get Utah nexus just because its clients do. Having client retailers with Utah nexus doesn't, by itself, create Utah nexus for the operator's own separate sales. That would only follow if the client retailers were acting as the operator's agents (the reverse relationship of what was described here), or if the operator independently met one of Utah's own nexus tests.

What this means for you

Website operators, payment processors, or early "marketplace"-style platforms serving Utah retailers

Collecting payment on behalf of a Utah-nexus retailer means you're stepping into that retailer's sales tax collection duty as its agent -- but check your contract to see whether you're also on the hook for remittance and filing, or just collection.

Out-of-state platforms with a mix of clients inside and outside Utah

Serving one client with Utah nexus doesn't automatically drag your other, non-Utah clients (or your own separate sales) into Utah's tax net -- nexus analysis runs client-by-client and, separately, on your own activities.

Businesses structuring agent/vendor relationships for online sales

Put collection and remittance responsibilities in writing. The Commission's guidance here turns heavily on "the terms of its agreement with the vendor" -- an unclear contract leaves the tax-compliance obligations unclear too.

Common questions

Q: Does a website operator have to collect Utah sales tax for a client retailer located in Utah?
A: Yes, if the operator is acting as the retailer's agent and the retailer has Utah nexus.

Q: Does the website operator automatically have to remit that tax directly to Utah itself?
A: Not automatically -- it depends on the contract between the operator and the retailer, though whoever actually collects and reports the tax needs a Utah sales tax license.

Q: If a platform has one client retailer with Utah nexus, does that create Utah nexus for the platform's other clients too?
A: No -- nexus doesn't automatically spread across unrelated clients just because they share the same platform operator.

Q: Does having Utah-nexus clients give the platform operator its own Utah nexus for its own separate sales?
A: Not by itself -- only if the clients are acting as the operator's agents, or the operator independently meets Utah's nexus tests.

Q: Are sales tax nexus rules the same for income tax purposes?
A: No -- the ruling notes nexus requirements differ slightly between sales tax and income tax, and points the taxpayer to separate guidance on that distinction.

Citations and references

Statutes cited:

• Utah Code Ann. § 59-12-107(5) (vendor nexus and sales tax collection/remittance obligation)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/96-145.pdf

Original ruling text

96-145

Response October 30, 1996

Request

Monday, September 09, 1996

Sales Tax Division

Utah State Tax Commission

210 North 1950 West

Salt Lake City, UT 84134

Please consider the following a request for an
opinion or ruling on the facts stated herein:

FACTS

XXXXX is a California company engaged in the
support, maintenance, and administration of an electronic “mall”
accessible through the Internet and World Wide Web.

XXXXX is maintained on a server located in
California.

All design, implementation, support, maintenance, and
administrative services rendered by XXXXX are performed in California.

Except as noted below, XXXXX has no nexus in Utah.

XXXXX has been retained by client retailers, one or
more of whom is located in Utah, to perform the following services;

1. Design
   and implement a Website for the client retailer, and

2. Support
   and maintain the Website on an ongoing basis, and

3. Receive,
   record, and take payment for sales made through the Website to the client
   retailer's customers, and

4. Remit payment
   of the client retailer's share of such sales to the client retailer.

XXXXX receives a commission on all sales transacted
through the Website. XXXXX is in
physical custody of funds remitted by our client retailer's customers, but is
never in possession of any personality related to the transaction.

XXXXX owns no direct or indirect interest in any of
its clients retailers.

The client retailer is solely responsible for any
manufacturing, purchasing, or any other acquisition of products sold through
XXXXX.

The client retailer is solely responsible for the
maintenance of any physical inventory of products sold through XXXXX. Such inventories will presumably be
maintained at the client retailer's premises, located in Utah.

The client retailer is solely responsible for the
fulfillment of any orders generated through XXXXX and fulfillments are made
from retail inventory maintained by the client retailer and located in Utah.

XXXXX may engage in sales of tangible personality on
its own account. Some of these sales
may be transacted with customers located in Utah.

ISSUES ON WHICH WE SEEK AN OPINION:

It is clear to us that client retailers located in
Utah possess nexus sufficient to subject them to both sales and income tax
jurisdiction within Utah. However, we
are unclear as to XXXXX's responsibility in this regard. We therefore request a ruling on the
following issues;

1. Is XXXXX
   responsible, as agent for its client retailers located in Utah, for the
   assessment and collection of sales tax due on sales transacted with its client
   retailer's customers in Utah?

(We presume the answer to this question is yes. Hence, the following questions)

2. Is XXXXX
   responsible for remittance directly to Utah of sales taxes collected on behalf
   of its client retailers located in Utah?
   If remittances and accountings are made to XXXXX's client retailers, is
   XXXXX's liability to Utah extinguished?

3. Is XXXXX
   responsible for filing sales tax returns, either on its own behalf, or on the behalf
   of its client retailers located in Utah?

4. Does
   XXXXX itself, solely by virtue of its agency relationship with client retailers
   located in Utah, acquire nexus in Utah sufficient to subject its own sales of
   tangible personality to sales tax?

If so, do XXXXX's other client retailers (those not
located in Utah, solely by the virtue of their relationship with XXXXX, acquire
nexus in Utah sufficient to subject their sales of tangible personality to
sales tax?

Sincerely,

XXXXX

XXXXX

Advisory opinion - Sales tax on transactions using
the internet

Dear XXXXX

We
have received your request for sales tax advice pertaining to XXXXX's
transactions on behalf of client's. We
offer the following:

All
sales or leases of tangible personal property to customers in Utah are subject
to Utah sales and use tax. Although
sales and use tax is the liability of the purchaser, the retail vendor (or the
vendor's agent) is responsible for collecting and remitting the tax to the
State of Utah if the vendor has nexus in Utah.
Utah Code Section 59-12-107 (5) states, in pertinent part:

(ii) maintains a stock of goods;

. . .

A
vendor has nexus in Utah if it owns or leases property here; if it leases
property to Utah consumers; if it has sales agents here; or if it provides
service or maintenance for the items sold, either directly or through an
agent. An agent or independent
contractor with Utah nexus is enough to create nexus for the vendor.

If
XXXXX is acting on behalf of a vendor who has nexus in Utah, XXXXX must collect
sales tax on that vendor's Utah sales.
The vendor is liable for the tax, but XXXXX may be required under the
terms of its agreement with the vendor to report and remit the tax to the Utah
State Tax Commission on the vendor's behalf.
If XXXXX's agreement with the vendor requires XXXXX only to collect the
tax and then turn it over to the vendor, the vendor must report and remit the
tax collected. We suggest that your
contracts with vendors clearly specify whether XXXXX is responsible for merely
collecting the sales tax or if it is also responsible for reporting and
remitting it.

Any
vendor who is required to collect and remit Utah sales and use tax is also
required to obtain a Utah sales tax license.
If XXXXX collects and reports sales tax on behalf of its clients, XXXXX
must have a Utah sales tax license. A
sales tax license application is enclosed for your use. If you have questions about this form or the
reporting requirements, please contact our Customer Service Division at
801-297-2200.

Regarding
XXXXX's own sales in Utah, XXXXX is subject to Utah sales tax if it has nexus
in Utah as described in this letter.
The fact that XXXXX has clients who have nexus in Utah is not enough to
create nexus for XXXXX unless those client's are acting as agents of XXXXX.

Nexus
requirements for sales tax purposes are slightly different from nexus
requirements for income tax purposes. A
publication describing these differences is enclosed for your information. Please let us know if you have other
questions.

For
the Commission,

Alice
Shearer,

Commissioner