United States

Utah: Marketplace Provider Not Required to Collect Sales Tax

May 15, 2017
From KPMG TaxWatch

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The Utah State Tax Commission recently ruled that an online marketplace provider (“the company”) was not required to collect and remit sales tax on sales of products to Utah customers that were facilitated using the company’s website. The company, which had a Utah location, operated a website that enabled various unrelated vendors to sell products. Certain vendors and customers were located in the state. Once a customer placed an order, the company processed the order and payment and provided the vendor with the purchaser’s information so that the vendor could ship the product. In return for these services, the company charged a fee equal to 25 percent of the purchase price.

The issue before the Commission was whether the company had a collection responsibility. The Commission determined at the outset that the company was not making “sales” of products on its website. Specifically, it never held title to the products, and consequently never transferred title, which is a necessary element of a sale. Nor did the company make an “exchange” with respect to the products because the company never held, much less transferred, any interest in a vendor’s product. Next, the Commission determined that the company was not a “commission merchant,” which is defined as an agent employed to sell property for a principal and who possesses or controls the property. Notably, the company never possessed or controlled the products sold through its website. The company was also not an “auctioneer” because it was not selling products to the highest bidder. Having reached the conclusion that the company was not required to collect, the Commission cautioned that vendors that sell goods on the company’s website may be liable to collect and remit Utah sales tax regardless whether they have physical presence in Utah due to the physical presence of the company in Utah. Such tax would be collected on the full purchase price without regard to the processing fee. For more information regarding Private Letter Ruling 16-003, please contact Michael Larkin at 801-237-1335.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.