On March 22, 2012, Utah Governor Gary Herbert signed House Bill 384 (2012) into law, expanding the types of companies that are required to collect and remit Utah sales and use tax. HB 384 requires sellers that hold “substantial ownership interests” in certain “related sellers” to collect and remit Utah sales and use tax. Today, the Utah State Tax Commission released guidance on how to determine whether a business entity’s activities trigger the state’s new affiliate nexus law. The new nexus regulations go into effect on July 1, 2012.
The new affiliate nexus law, Utah Code Ann. § 59-12-107(2)(b), treats a seller as if it is selling tangible personal property, a service, or a product transferred electronically for use in Utah and will be required to collect and remit sales and use taxes if:
(i) the seller holds a substantial ownership interest in, or is owned in whole or in substantial part by, a related seller; and
(ii)(A) the 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
(B) the place of business described in Subsection (2)(a)(i) of the related seller or an in-state employee of the related seller is used to advertise, promote, or facilitate sales by the seller to a purchaser.
“Substantial ownership interest” is defined as a direct or indirect ownership interest greater than 10%. Utah Code Ann. § 59-12-107(1)(a), (c). A seller constitutes a “related seller” if (i) it has or uses an office, distribution center, or warehouse in Utah, and (ii) it delivers tangible personal property, a service, or a product transferred electronically sold by a seller that does not have or use an office, distribution center, or warehouse in Utah to a purchaser in Utah.
Unlike recent “affiliate nexus” bills adopted by Georgia, Maryland, and Minnesota that target online marketing affiliates of in-state retailers, HB 384 is not (necessarily) directed at online marketing affiliates. HB 384 is controversial as it could be applied in a manner that runs afoul of Quill Corp. v. North Dakota, 504 U.S. 298 (1992).