00-1539 and 01-0170

Advertisement Violations

Signed 6/4/02

 

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

 

PETITIONER, ) FINDINGS OF FACT,

) CONCLUSIONS OF LAW,

Petitioner, ) AND FINAL DECISION

)

v. ) Appeal Nos. 00-1539, 01-0170

) Account Nos.

MOTOR VEHICLE ENFORCEMENT )

DIVISION OF THE UTAH STATE TAX ) Tax Type: Advertisement Violations

COMMISSION, )

)

Respondent. ) Judge: Davis

_____________________________________

 

Presiding:

G. Blaine Davis, Administrative Law Judge

Pam Hendrickson, Commission Chair

R. Bruce Johnson, Commissioner

 

Appearances:

For Petitioner: PETITIONER REP 1, Attorney at Law

PETITIONER REP 2

For Respondent: Mr. Laron Lind, Assistant Attorney General

Mr. Kent Jorgensen, Motor Vehicle Enforcement Division

Mr. Kip Ingersoll, Motor Vehicle Enforcement Division

Ms. Julie Thomas, Motor Vehicle Enforcement Division

Ms. Kim Fletcher, Motor Vehicle Enforcement Division

 

 

STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on May 2, 2002. Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

FINDINGS OF FACT

1. Petitioner is a licensed motor vehicle dealer in the State of Utah, which sells used automobiles. Most of these automobiles are sold to low income individuals, many of whom have little or no credit history, or a poor credit history.

2. Respondent has previously imposed fines on Petitioner for advertising violations for ads which said, "WE FINANCE ANYONE". After those fines were imposed, Petitioner added the words, "Starting at $300 Down" to its signs.

3. With a $300 down payment, a purchaser may buy a car for a total purchase price of up to $3,000. The balance would be financed for up to 16 months at an interest rate of 35% per annum. Bi-monthly payments would be required, and if a person does not make the payments, the car is repossessed. Only 5% to 10% of the purchasers finish paying for the vehicle and receive the car title.

4. On September 28, 2000, Respondent sent to Petitioner a letter which stated in part, as follows:

"Your advertisement on TELEVISION STATION, July 14, 2000, has been found in violation of Utah State Tax Code Ann. 41-3-210 which is clarified in R877-23V-7(7). It state (SIC) in part:

"(7) Finance. The phrases "no finance charge", "no carrying charge", or similar expressions may not be used when there is a charge for placing the transaction on a time payment basis. Statements representing or implying that no prospective credit purchaser will be rejected because of inability to qualify for credit may not be used.

 

This is a Level II violation and the second offense is a $250 fine. Your dealership has been assessed the $250 fine. . . ."

 

5. On or about December 1, 2000, Respondent also sent to Petitioner a second letter which stated, in relevant part, as follows:

"Your advertisement in the NEWSPAPER, November 22, 2000, has been found in violation of Utah State Tax Code 41-3-210 which is clarified in R877-23V-7(4). It state (SIC) in part:

"(4) Savings and Discount Claims. Because the intrinsic value of a used vehicle is difficult to establish, specific claims of savings may not be used in the advertisement. This includes statements such as, "was priced at $ . . . now priced at $ . . . ."

This is a level II violation and the second offense is a $250 fine. Your dealership has been assessed the $100 fine. . . ."

 

6. On or about December 26, 2000, Respondent sent a third letter to Petitioner which stated, in relevant part, as follows:

"Your advertisement in the NEWSPAPER, December 26, 2000, has been found in violation of Utah State Tax Code Ann. 41-3-210 which is clarified in R877-23V-7(4). It state (SIC) in part:

"(4) Savings and Discount Claims. Because the intrinsic value of a used vehicle is difficult to establish, specific claims of savings may not be used in an advertisement. This includes statements such as "was priced at $ . . ., now priced at $ . . ."

This is a Level II violation and the third offense is a $1,000 fine. Your dealership has been assessed the $1,000 fine. . . ."

 

7. On or about January 2, 2001, Respondent filed its Answer to Petition for Appeal in Appeal No. 00-1539, in which the following facts were alleged.

1.         On July 14, 2000 a PETITIONER advertisement was run on TELEVISION. It advertised, "We Finance Anyone".

2.         This is a violation of Utah Code Annotated (UCA) 41-3-210 clarified in 877-23V-7(7): 7. Finance. The phrases, "no finance charge", "no carrying charge", or similar expressions may not be used when there is a charge for placing the transaction on a time payment basis. Statements representing or implying that no prospective credit purchaser will be rejected because of inability to qualify for credit may not be used.

3.         On March 23, 2000 a ruling was made on appeal #00-0020 by the Utah State Tax Commission which found that PETITIONER was in violation of R877-23V-7(7) by having a sign on their place of business that made the same claim, "We Finance Anyone", as does the TV ad.

4.         This ad ran on TELEVISION, 13 times between July 31 and August 5, 2000 and is still being run to date.

5.         A fine letter for case number ##### was sent to the dealership assessing a Level II, second offence (SIC) fine for $250.00.

6.         On November 11, 2000 an advertisement was run in the NEWSPAPER. It advertised that a used 1999 Ford Lariat was to be sold (SIC) $25,500 and that it was sticker priced at $35,500.

7.         This is a violation of Utah Code Annotated (UCA) 41-3-210 clarified in 877-23V-7(4). Savings and Discount Claims. Because the intrinsic value of a used vehicle is difficult to establish, specific claims of savings may not be used in an advertisement. This includes statements such as "Was priced at $. . . ., now priced at $. . . . As of 12/19/00 this ad continues to appear in the NEWSPAPER.

8.         A fine letter for case number ##### was sent to the dealership assessing a Level II, second offence (SIC) fine for $250.00. This was a second or third offence (SIC) pending the outcome of #####.

 

8. On or about January 2, 2001, Respondent also filed an Answer to Petition for Appeal in Appeal No. 01-0170 which alleged the following facts.

1)         On December 26, 2000 an advertisement was run in the NEWSPAPER. It advertised that a used 1999 Ford Lariat was to be sold (SIC) $25,500 and that it was sticker priced at $35,500. This ad had been found in violation in November and a letter had been sent at that time informing the dealership of the illegal status. MVED waited 30+ days for the ad to be removed but instead it was run again and again.

2)         This is a violation of Utah Code Annotated (UCA) 41-3-210 clarified in 877-23V-7(4): Savings and Discount Claims. Because the intrinsic value of a used vehicle is difficult to establish, specific claims of savings may not be used in an advertisement. This includes statements such as, "Was priced at $. . . ., now priced at $. . . . As of 12/19/00 this ad continues to appear in the NEWSPAPER.

8) (SIC) A fine letter for case number ##### was sent to the dealership assessing a Level II, third offence (SIC) fine for $1000.00. This was a second or third offence (SIC) pending the outcome of #####.

 

9. Petitioner has challenged some of the details of what occurred, but has not denied the following specific facts, which the Commission finds to be true and correct:

1. On July 14, 2000, Petitioner ran an advertisement on TELEVISION, which said "We Finance Anyone".

2. The television ad ran on TELEVISION a total of 13 times between July 31 and August 5, 2000.

3. On March 23, 2000, a decision was issued by the Utah State Tax Commission in Appeal No. 00-0020 which found that PETITINER was in violation of Rule R877-23V-7(7) by having a sign on their place of business which made the same claim, as does the TV ad, i.e. "We Finance Anyone".

4. On November 11, 2000, an advertisement was run in the NEWSPAPER for a 1999 Ford Lariat which represented the vehicle to be a "demo vehicle" and said "SACRIFICE at $25,500, sticker price was $34,500". On December 26, 2000, the same advertisement was run in the NEWSPAPER for the 1999 Ford F-250 Lariat which also represented the vehicle to be a demo vehicle, and also said "SACRIFICE at $25,500, sticker price was $34,500".

 

10. The defenses raised by Petitioner are as follows:

A. The dealer's representation in advertising "We Finance Anyone" is true, because they do finance anyone.

B. This matter should not be pursued because there has not been an actual complaint filed by a consumer.

C. The rule is an unconstitutional prior restraint of truthful free speech.

D. The rule constitutes a violation of the First Amendment rights of Petitioner.

E. Petitioner's ad used the term "sticker price" which is permissible by the rule.

F. The statute is directed toward actual fraud disclosed by actual complaints, and should not be used to prohibit business dealings which do not involve actual fraud, or for which an actual complaint has not been filed.

G. The rule is over broad and a violation of the fourth prong of the Central Hudson G&E Corporation test, and is an abuse of the rulemaking authority granted to Respondent.

H. There is no legitimate compelling governmental interest to justify encroaching on the content of truthful free speech.

I. Respondent had bad motives in pursuing the Petitioner.

APPLICABLE LAW

Utah Code Ann. 41-3-210, provides as follows:

(1)    The holder of any license issued under this chapter may not:

(a) intentionally publish, display, or circulate any advertising that is misleading or inaccurate in any material fact or that misrepresents any of the products sold, manufactured, remanufactured, handled, or furnished by a licensee;

. . . .

 

(g)       engage in a business respecting the selling or exchanging of new or new and used motor vehicles for which he is not licensed,

. . . .

 

Utah Admin. Code Rule R877-23V-7, provides as follows:

A. Violation of any of the following standards of practice for the advertising and selling of motor vehicles is a violation of Section 41-3-210.

1. Accuracy. Any advertised statements and offers about a vehicle as to year, make, model, type, condition, equipment, price, trade-in-allowance, terms, and so forth, shall be clearly set forth and based upon facts.

2.      Bait. Bait advertising and selling practices may not be used.

. . . .

 

3.      Price. When the price of a vehicle is quoted, the vehicle shall be clearly identified as to make, year, model and if new or used.

. . . .

 

c) When "list", "sticker", or words of similar import are used in an advertisement, they may refer only to the manufacturer's suggested retail price. If a supplementary price sticker is used, the advertised price must include all items listed on the supplementary sticker.

. . . .

 

4. Savings and Discount Claims. Because the intrinsic value of a used vehicle is difficult to establish, specific claims of savings may not be used in ad advertisement. This includes statements such as, "Was priced at $.., now priced at $..

a)      The word "wholesale" may not be used in retail automobile advertising.

b)      When an automotive advertisement contains an offer of a discount on a new vehicle, the amount of the discount must be stated by reference to the manufacturer's suggested retail price of the vehicle.

1.      Down Payments. The amount of the down payment may not be stated in a manner that suggests that it is the selling price of the vehicle. If an advertisement states "You can buy with no money down", or terms of similar import, the customer must be able to leave the dealership with the vehicle without making any outlay.

. . . .

 

7. Finance. The phrases, "no finance charge", "no carrying charge", or similar expressions may not be used when there is a charge for placing the transaction on a time payment basis. Statements representing or implying that no prospective credit purchaser will be rejected because of inability to qualify for credit may not be used.

. . . .

 

10. Demonstrators, Executives' and Officials' Cars.

a)      "Demonstrator" means a vehicle that has never been sold or leased to a member of the public.

b)      Demonstrator vehicles include vehicles used by new vehicle dealers or their personnel for demonstrating performance ability but not vehicles purchased or leased by dealers or their personnel and used as their personal vehicles.

c)      A demonstrator vehicle may be advertised for sale only by a dealer franchised for the sale of that make of new vehicle.

d)      An executive's or official's vehicle shall have been used exclusively by an executive of the dealer's franchising manufacturer or distributor, or by an executive of the franchised dealership. These vehicles may not have been sold or leased to a member of the public prior to the appearance of the advertisement.

e)      Demonstrator's, executive's and official's vehicles shall be clearly and prominently advertised as such. Advertisements shall include the year, make, and model of the vehicle offered for sale.

. . . .

 

19. Disclosure of Material Facts. Disclosures of material facts that are contained in advertisements and that involve types of vehicle and transactions shall be made in a clear and conspicuous manner.

a) Factors to be taken into consideration include advertisement layout, headlines, illustrations, type size, contrast, crawl speed and editing.

. . . .

 

c) The disclosure must be made in a typeface and point size comparable to the typeface and point size of the text used throughout the body of the advertisement.

. . . .

 

21. Television Disclosures. A disclosure appearing in television advertisements must clearly and conspicuously feature all necessary information in a manner that can be read and understood if type is used, or that can be heard and understood if audio is used. Fine print and mouse print do not constitute clear and conspicuous disclosure.

 

Utah Code Ann. 41-3-702, provides as follows:

 

(1) The following are civil violations under this chapter and are in addition to criminal violations under this chapter:

. . . .

 

(b) Level II:

. . . .

 

(ii) advertising violation;

. . . .

 

(2)(a) The schedule of civil penalties for violations of Subsection (1) is

(i) Level I: $25 for the first offense, $100 for the second offense, and $250 for the third and subsequent offenses;

(ii) Level II: $100 for the first offense, $250 for the second offense, and $1,000 for the third and subsequent offenses;

(iii) Level III: $250 for the first offense, $1,000 for the second offense, and $5,000 for the third and subsequent offenses.

(b) When determining under this section if an offense is a second or subsequent offense, only prior offenses committed within the 12 months prior to the commission of the current offense may be considered.

. . . .

 

(5)    A civil action may be maintained by a purchaser or by the administrator.

 


DISCUSSION

Petitioner has violated the statute or the Rule in at least two different ways on more than one occasion.

First, is the statement in the ads on the 1990 Ford F-250 Lariat that states "SACRIFICE at $25,500, sticker price was $34,500", which is a clear violation of Rule R877-23V-7.3.(c) and 4. Petitioner argues that anyone would be able to reason that sticker price on a two-year old car is not intended to imply savings of $9,000, but the Commission finds that it was clearly intended to imply to a prospective purchaser that they were getting a great deal and were saving $9,000. When the majority of the customers of Petitioner have limited business sophistication, this type of advertising may well lead them to believe they are saving $9,000 on the vehicle. Such persons may not understand the meaning of "was" or "sticker price". That is precisely the type of deceptive advertising that is prohibited by both the statute and the rule.

Second, the advertising that "We Finance Anyone" is also a violation of rule R877-23V-7.7, which states "statements representing or implying that no prospective credit purchaser will be rejected because of inability to qualify for credit may not be used." Petitioner argues that it does finance anyone. However, Subparagraph 19 of the rule also requires disclosure of material facts. The statement "We Finance Anyone" does not contain any clarification regarding the down payment requirements, and the prospective limitations on the type of car, interest rate, length of financing period, frequency of payments, or other material requirements. Without such disclosure, the advertising is also deceptive and misleading. If a car is being sold for $400, but requires a $300 down payment, the statement "We Finance Anyone" is clearly misleading and deceptive and designed to attract customers who know they may have difficulty purchasing a car, and may be attracted because of the lack of disclosure of the relevant information.

As stated above, Petitioner has challenged whether Respondent submitted sufficient evidence, but in this administrative proceeding, the rules of evidence do not strictly apply, and proffers are permitted. More importantly, Petitioner has the burden of proof to establish that the determination of the motor vehicle enforcement division is not correct. Petitioner has not submitted any evidence to establish there were no violations of the statutes and rules, and in fact, Petitioner has not made any denials of the factual allegations.

Accordingly, the Commission finds that the violations alleged by the Motor Vehicle Enforcement Division occurred, and that Petitioner violated both the rule and the statute in its advertising as alleged by the letters sent to Petitioner.

Petitioner has also challenged the determinations of the Division based upon Petitioner's interpretation that the rule permits the use of "sticker" price. However, the rule specifically limits the use of the term "sticker" to the use of manufacturer's suggested retail price, or if a supplementary price sticker is used, it must state all additional items on the supplementary sticker. The use of that term is limited to new automobiles where sticker price may be a relevant issue. After an automobile has been sold or used, the use of the term "sticker" becomes irrelevant and is deceptive and misleading.

Petitioner further challenges whether the rule is consistent with the statute, or whether it is over-broad. However, the Commission specifically finds that in all of the cases for which the Motor Vehicle Enforcement Division has determined Petitioner violated the rule, such uses by Petitioner were clearly misleading and inaccurate in material facts, and therefore as applied to this case the rule is clearly consistent with the statute and within the bounds intended by the legislature.

The final arguments of Petitioner are essentially a challenge to the constitutionality of the statute and the rule as unconstitutional restrictions on speech.

In the case of Central Hudson Gas & Electric Corporation v. Public Service Commission of New York, 447 US 557 (1980), there were four questions outlined for evaluating whether statements are protected commercial free speech, and if so, whether a statute constitutionally restricts commercial speech. The four questions are as follows:

1)      Whether the expression is protected by the First Amendment?

2)      Whether the asserted governmental interest is substantial?

3)      Whether the regulation directly advances the governmental interest asserted?

4)      Whether [the regulation] is not more extensive than is necessary to serve that interest?

Question number 1 acts as a "gateway" to the First Amendment issue. In order for commercial speech to be protected, it must concern lawful activity and not be misleading. If the speech does not concern lawful activity or is misleading, it is not protected. The other three questions deal with whether it is appropriate to regulate protected speech.

In this case, the Commission finds that the advertising of Petitioner is not protected speech because it is misleading and misrepresents material facts. For commercial speech to be protected under the First Amendment it must not be misleading and must concern lawful activity. The television ad from Petitioner claims that it finances everyone, but this is misleading, misrepresents a material fact, and violates the rule. The statement is intentionally designed to lead people to believe that anyone can obtain financing from Petitioner, but that is not true. Petitioner requires a $300 down payment before financing will be approved, and that is not disclosed in its advertising. Further, the "financing on those cars can be very limited, and may only be an additional $100, so that the purchaser may have been required to make a down payment of 75% of the full purchase price. The advertising does not disclose the need for a down payment, nor is there any suggestion that "the bigger the down payment, the newer the car." The failure to mention the down payment is a misrepresentation and a failure to disclose a material fact, and is designed to mislead the public.

The print ads are also not protected because they are misleading and misrepresent material facts. The ad represents in bold print that Petitioner is sacrificing the car at $25,500, followed immediately by a statement that the sticker price of the car was $34,500. This leads the public to believe that the purchase of the car will result in a net savings of $9,000. This does not accurately reflect the amount of savings, and is misleading and deceptive with respect to the actual worth or value of the car after one or two years.

Accordingly, both the TV and print ads are misleading and misrepresent material facts, and therefore they are not commercial speech which is entitled to constitutional protection, because they "do not accurately inform the public about lawful activity." Central Hudson, supra.

Even if the television and print ads used by Petitioner were to be found to not be misleading nor related to unlawful activity, the statute must still be subjected to examination under the last three questions of the Central Hudson case. If there are no such statements, then "the government's power is more circumscribed." Id. at 564. In that event, the statute, in order to be constitutional, must be based on a substantial governmental interest and the regulation of commercial speech must then directly advance the interest intended and must not be more extensive than necessary to advance that interest.

The substantial interest of the government, demonstrated by Utah Code Ann. 41-3-210, is to protect consumers from substantial economic harms by motor vehicle businesses holding licenses in this state. The specific harm that is the governmental interest in this case is the deception of the public through the use of misleading, deceptive, or inaccurate advertising. In the Central Hudson case, the Court specifically said the "government may ban forms of communication more likely to deceive the public than to inform it." Id. at 563.

The next question is whether the regulation directly advances the government's interest. The statute clearly advances that interest of preventing deception of the public, including those practices enumerated in Rule 7, Subsections (4) and (7) which are the subject of this appeal.

Finally, the rule must be examined to ensure that it is not "more extensive than is necessary to serve [the governmental] interest." Id. at 566. The Court discussed this prong of the test in Board of Trustees of State University of New York v. Fox, 492 U.S. 469 (1989). In that case, the Court held that what is required is a "fit" between the "legislature's ends and the means chosen to accomplish those ends." Id. at 480. The fit is not required to be "perfect", "the single best disposition", nor the "least restrictive means". Id. Instead, it is a "reasonable" fit, whose "scope is 'in proportion to the interest served'", that is "narrowly tailored to achieve the desired objective." Id. The Court stated that within "those bounds we leave it to governmental decision makers to judge what manner of regulation may best be employed." Id.

In this case, the Commission has promulgated Rule R877-23V-7 which is a benefit to both consumers and dealers. Consumers are protected from misleading and inaccurate information, and dealers are spared the constant and intrusive examination of their practices that would otherwise be required. The result is consumer protection at minimal cost in both time and money, and which requires only minimal interference in the everyday operation of used car dealerships.

The Commission specifically finds that the actions of Petitioner alleged in the letters sent to it were violations of Utah Code Ann. 41-3-210 and Utah Administrative Code Rule R877-23V-7. In addition, the advertising at issue in this proceeding is not protected commercial speech because it is misleading and contains inaccurate information, and therefore does not enjoy any constitutional protection, but may be regulated as deemed appropriate.

Even if the ads used by Petitioner were not misleading or inaccurate with respect to material facts, the statements made by Petitioner in its advertising may still be regulated by Respondent because the prevention of deception of consumers is a substantial governmental interest that is furthered by the regulation of such advertising.

In addition, if the statute was in fact unconstitutional, any such determination would need to be made by a court of competent jurisdiction, because this Commission may not make a determination that any statute is unconstitutional.


DECISION AND ORDER

Based upon the foregoing, the Tax Commission determines Petitioner has violated the statute and the rule, and that both the statute and the rule are constitutional and valid. The letters of violations, and the fines imposed by Respondent are hereby upheld and sustained. It is so ordered.

DATED this 4th day of June , 2002.

___________________________________

G. Blaine Davis

Administrative Law Judge

 

BY ORDER OF THE UTAH STATE TAX COMMISSION:

The Commission has reviewed this case and the undersigned concur in this decision.

DATED this 4th day of June , 2002.

 

 

 

 

Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner

 

 

 

 

Palmer DePaulis Marc B. Johnson

Commissioner Commissioner