SALT Report 2284 – The Utah State Tax Commission issued a ruling regarding the sale and distribution of gift codes that are used to purchase goods and services from certain online retailers. The Taxpayer in this case, sells the gift codes either directly to Utah consumers over the internet or to an unrelated, third party wholesaler who then sells the gift codes to Utah consumers in the form of a gift card. The Taxpayer requested guidance as to whether its sales of gift codes are subject to sales and use tax.
In its response, the Commissioner referred to Private Letter Ruling #09-024 which established that gift codes are not tangible personal property and that they are not a service Utah has identified as subject to sales and use tax. Further, the Commissioner stated that gift codes simply provide consumers “the right to acquire tangible personal property or services from online retailers.” In other words, gift codes are intangible rights that represent a form of payment and function as a cash equivalent. For those reasons, the sale of a gift code is not subject to sales and use tax.
Further, the Commissioner stated that because the Taxpayer does not have a physical presence in the state, and does not maintain an office or employees in Utah, and does not own any real or tangible personal property in the state the Taxpayer does not satisfy Quill’s physical presence nexus standard. Because of this, the Taxpayer is not required to register for, and collect sales and use tax as a result of its sale of gift codes to wholesalers in Utah.
Finally, the Commissioner stated that the internet retailers associated with the Taxpayer are not required to register to collect sales and use tax under Utah’s Affiliate Nexus Statute. The statute specifically requires that the in-state entity and the out-of-state entity be “related sellers” and that they meet one of the following requirements:
- The out-of-state seller sells the same or a substantially similar line of products as the related seller and does so under the same or a substantially similar business name, or
- The related seller’s place of business or its in-state employee is used to advertise, promote or facilitate sales for the out-of-state seller to purchasers.
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