Ruling 93-3, Sales and Use Taxes / Sales Agent Services
This information is not current and is being provided for reference purposes only
This Ruling has been cited by Ruling 94-22; obsoleted by AN 2000(8)
FACTS:
A company (hereinafter referred to as "the Company") initiates sale transactions for buyers and sellers of businesses and business assets. The Company has contingent compensation agreements with both buyers and sellers located throughout the country, whereby a fee is paid if the Company is successful in initiating either a purchase or a sale, depending upon whether the Company represents the buyer or seller.
The Company is not authorized to negotiate for buyer or seller; the function performed by the Company is introducing the parties and initiating the transaction.
The items bought or sold may include the stock of a corporation, other intangible assets, real estate, tangible personal property (such as inventory, equipment, etc.), or a combination thereof.
ISSUES:
(a) Whether a sales agent must be directly involved in the consummation of a sale for the agent's services to be subject to sales and use taxes under Conn. Gen. Stat. §12-407(2)(i)(U);
(b) whether a sale must be consummated before the services of a sales agent can be subject to sales and use taxes under Conn. Gen. Stat. §12-407(2)(i)(U);
(c) whether the services of a sales agent are subject to sales and use taxes under Conn. Gen. Stat. §12-407(2)(i)(U) if the agent represents the buyer, rather than the seller;
(d) whether the services of a sales agent are subject to sales and use taxes under Conn. Gen. Stat. §12-407(2)(i)(U) if the property being sold consists of both tangible personal property and other types of property; and
(e) whether the services of a sales agent are subject to sales and use taxes under Conn. Gen. Stat. §12-407(2)(i)(U) if the transfer of title to the tangible personal property takes place in Connecticut.
DISCUSSION:
Conn. Gen. Stat. §12-407(2)(i) provides, in pertinent part, as follows:
(2) "Sale" and "selling" mean and include: . . . (i) the rendering of certain services for a consideration, exclusive of such services rendered by an employee for his employer, as follows: . . . (U) services of the agent of any person in relation to the sale of any item of tangible personal property for such person . . .
Based upon the plain language of the statute, there are several important prerequisites for the imposition of tax under Conn. Gen. Stat. §12-407(2)(i)(U). First, to be taxable, the gross receipts of the service provider, or the sales price paid by the service recipient, must be for services of an "agent." The word "agent" must be construed according to the commonly approved usage of the language; Conn. Gen. Stat. §1-1(a). "Agent" means "one who acts for or in the place of another by authority from him . . . ." Webster, Third New International Dictionary. According to the facts presented, the Company "finds" buyers for sellers and vice versa, with the object of accomplishing a sale. The Company is compensated on a contingency basis if a sale takes place. Although the Company states that it does not engage in the actual negotiation of a sale or purchase, it clearly is authorized to represent one side in "finding" a partner to a transaction. These facts reasonably lead to the conclusion that the Company represents either a buyer or seller as its "agent." Further, the phrase "in relation to the sale" in the statute indicates that the services of a sales agent need not be of a precise or complete nature--in other words, the "finding" of a buyer, for which the agent is compensated, is enough, as long as it leads to an actual sale, even if the agent does not involve itself directly in the details of the sale. See also Ruling No. 91-4, where the Department held that the services of a literary agent, whose job it was generally to "find" or arrange for a publisher for an author's work, were the services of an "agent" for purposes of Conn. Gen. Stat. §12-407(2)(i)(U) (although because the sale of the literary work was of intangible property, the services of the agent were not taxable).
Next, the agent must be representing a seller, as opposed to a buyer. According to the facts, the Company may represent, and be compensated by, either a buyer or a seller. Only to the extent that the Company represents a seller would its services be potentially taxable under Conn Gen. Stat. §12-407(2)(i)(U). This conclusion is supported by the plain language of the statute, which refers to the "sale of any item of tangible personal property for [a] person."
Another requirement is that the agent must be representing a seller in relation to the sale of "tangible personal property," as differentiated from intangible property or real property. The facts indicate that the Company may be an agent in connection with the sale of either intangibles such as stock, goodwill, royalties, etc., of real estate, or of tangible property such as equipment and inventory. When the sale is mixed, it is incumbent upon the agent and the seller to determine the percentage of the entire sales price which is attributable to the sale of tangible personal property. This fraction must then be used to determine what portion of the agent's fee or commission is taxable.
The final area of examination relates to the situs of sales agent services. Conn. Gen. Stat. §12-408(1) imposes a tax on "gross receipts of any retailer . . . from the rendering of any services constituting a sale in accordance with [§12-407(2)(i)] . . ." A retailer is considered to be "engaged in business in this state" when it is "rendering in this state any service described in [§12-407(2)(i)] . . ."; Conn. Gen. Stat. §12-407(15). In the instant matter it is not known whether the Company will be located within Connecticut, and the purchaser and seller may each be located in different states. Therefore, an objective and easily ascertainable standard is needed for determining when the benefit of the service of a sales agent occurs in Connecticut.
Other Departmental rulings on services of sales agents have been based on where the tangible personal property that was sold (e.g., motor vehicles) was situated at the time of the sale, and not where the purchaser or seller was located. For example, in Ruling No. 90-43, where it was assumed that automobile auctions took place in Connecticut, it was noted:
[The agent's] services are rendered in Connecticut and the benefit of [the agent's] services are received by sellers at the time the motor vehicle is sold at auction. The fact that some of the sellers at [the agent's] auctions may be from outside of Connecticut is immaterial to the imposition of section §12-407(2)(i)(U).
As previously indicated, whether taxable sales agent services occur is directly dependent upon and related to whether a sale of tangible personal property takes place. If there is no sale of tangible personal property, there can be no taxable sales agent service-- §12-407(2)(i)(U) quite specifically refers to "the sale of any item of tangible personal property," implying that an actual sale is essential. Conn. Gen. Stat. §12-407(2)(a) defines "sale" as "[any transfer of title . . . of tangible personal property for a consideration . . ." Therefore it is reasonable to conclude that the benefit of a sales agent service occurs in Connecticut when the tangible personal property is sold in Connecticut, that is, when title to the property is transferred in Connecticut, irrespective of where the parties are located.
RULING:
The Company is performing taxable sales agent services under Conn. Gen. Stat. §12-407(2)(i)(U) when it acts on behalf of a seller and is paid for services which lead to the actual sale of tangible personal property, when the transfer of title to such property from the seller to the buyer takes place in Connecticut. When a sale involves tangible as well as intangible or real property, the Company and the seller must determine the percentage of the total sales price attributable to the sale of the tangible property, and that percentage of the Company's fee or commission will be subject to sales and use taxes.
LEGAL DIVISION
May 11, 1993