Trina’s Trinkets Inc. (Trina’s) is a corporation incorporatedand headquartered in Orem, Utah. Trina’s sells more than 3,600different types of small trinkets and gifts, primarily to the endconsumer, but also to wholesalers.  

Trina’s has operated in Utah for the past 15 years. The companymade a strategic decision to target expansion of its sales intospecific geographic regions outside of Utah as well. This helpsencourage word-of-mouth advertising, which reduces the costs ofgeneral advertising expenses. To that end, Trina’s is now sellingin several nearby states, including Arizona, Idaho, Montana,Washington and Wyoming. Trina’s plans to expand further throughoutthe western United States in the coming years.

The founder, Trina, comes from rural Utah and has worked toincrease opportunities in rural areas by building her manufacturingand warehousing facilities in the city of Ephraim in SanpeteCounty, Utah. Since Trina’s established its operations in Ephraim,both the city and county have grown significantly and the area isnow considered urban.  

Trina’s uses catalogs, phone calls and sales calls to makesales, but does not yet sell online. Trina’s ships all goods fromEphraim, Utah, using a third-party carrier (e.g., UPS,FedEx).^[1]Trina’s only sells non-food itemsand does not offer services.

To handle customer inquiries, Trina’s opened a small call centerin rural Riverton, Wyoming, three years ago. The call centeremploys eight people who help take orders, solve customer issuesand take care of phone solicitations from small businesses. Trinachose Wyoming for the call center because she has extended familyin the area and wanted to provide work opportunities for them.

In 2017, Trina’s began a pilot program in which salespeople aresent to several states to try and increase sales at largerbusinesses that buy Trina’s products and then resell them. To date,Trina’s has sent salespeople to Utah, Montana and Washington. Thispilot program appears to be successful. In the coming years,Trina’s hopes to expand the program to all of the states in whichshe currently sells products and then she plans to reach severalnew markets.

Margins are slim for this business, ranging from 5% to 15% ofsales before state sales taxes are determined. The industry isextremely competitive and Trina’s faces competition from manyonline companies that are not required to pay state sales tax.Because of the high competition (which is different than mostcompanies), Trina’s does not feel that it can increase prices tocollect sales tax, and instead sales taxes come out of themargins.

Given the tight margins and relatively high costs to manufacturein the United States, Trina is considering moving some of hermanufacturing to Mexico and then purchasing warehouse space inArizona. She has also considered trying to sell her productsthrough Amazon.com. She continues to consider how her operationscan positively impact rural areas.

Trina’s has struggled to compute sales taxes correctly for eachjurisdiction. Trina’s hired you, a tax advisor, to answer a varietyof sales-tax-related questions and create a system (or tool) tocompute sales taxes for the business. Additionally, Trina isinterested to know how the potential operational changes she isconsidering would affect her sales tax collection obligations.

For purposes of this case, you can ignore sales tax issuesrelated to the shipping costs.

• Provide the most important operational and tax policy issuesrelated to collecting state sales taxes.
  • This should not be specific to Trina’s specific circumstancesor a particular state, rather it should discuss the importantprinciples and considerations that should be considered whenanalyzing the state sales tax collection process for anybusiness.
  • 1. US Constitution-Due Process Clause and the CommerceClause
  • 2. Nexus
  • 3. Origin v. destination state classification