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