Response
July 10, 1992
July
10, 1992
XXXXX
Re: Tax Bulletin 11-91
Dear
XXXXX:
This
letter is in response to your recent request for a Tax Commission ruling on
what constitutes a direct loan and what a financial institution must do to
qualify for a refund when a repossession occurs.
The
Tax Commission policy is to refer such requests to the division most qualified
to analyze the request and make recommendations concerning it. As such, your
request was referred to the Tax Commission's Auditing Division for their
analysis and recommendations. The division's recommendations are as follows:
1. Utah Code section 59-12-107(8) allows a
refund (credit) of taxes paid on the portion of the purchase price remaining
unpaid at the time of a repossession. Tax Commission Rule R865-19-20S specifies
that this credit is allowed only to the selling dealer, but that this right to
a refund be may passed on to a financial institution through the assignment of
a non-recourse loan.
2.
A direct loan on a vehicle purchased from a dealer is a loan arranged for by
the borrower directly with the financial institution. If a repossession occurs
involving a product purchased using a direct loan, the financial institution is
not eligible to apply for a refund.
3.
A non-recourse loan is a loan from the dealer to the customer that is
subsequently assigned or sold to a financial institution. The dealer has no
further responsibility to the financial institution after the loan is assigned
or sold. The dealer's rights under this loan are transferred to the financial
institution including the right to a refund upon repossession.
4.
In summary, where a dealer makes a loan and assigns it to a financial
institution, that financial institution may request a refund through the dealer
upon making a repossession. If a buyer
goes to his own bank or credit union the obtains a loan, the bank or credit
union may not request a refund when a repossession occurs.
Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendations. Obviously, if there are deviations from these facts,
this opinion may be negated.
If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
Notice of Appeal Rights and a copy of the Utah Taxpayer Bill of Rights are
attached.
For
The Commission,
Joe
B. Pacheco
Commissioner
Joe
B. Pacheco, Commissioner
Utah
State Tax Commission
160
East Third South
Salt
Lake City, Utah 84134
Dear
Mr. Pacheco:
I
have reviewed Tax Bulletin 11-91, and notice some apparent inconsistencies. For
example, the second paragraph states:
"On
non-recourse financed repossessions, financial institutions may arrange with
the selling vendor for the selling vendor to take credit and forward the funds
to the financial institution."
However
the fourth paragraph states:
"If
a repossession occurs involving a product purchased using a direct loan, the
financial institution is not eligible to apply for a refund."
The
statement in the fourth paragraph seems to conflict with the statement in the
second paragraph. It also seems to be in conflict with Rule R865-19-20S(16)
which states:
16.
"Credit for tax on repossessions is allowed only to the selling dealer or
vendor."
paragraph
1a of this rule goes on to say;
"This
does not preclude arrangements being made between the dealer or vendor and
third party financial institutions wherein sales tax credits for repossessions
by financial institutions may be taken by the dealer or vendor who will in turn
reimburse the financial institution."
Are
not all loans direct loans? If you go to XXXXX store and purchase a living room
set and finance it through XXXXX, isn't that a direct loan? If you purchase a
car from a XXXXXX dealer and finance it through XXXXX, isn't that a direct
loan? If a financial institution makes arrangements with a car dealer that when
a customer of the dealer doesn't have other financing, the dealer will call the
institution and, upon credit approval, it will finance the purchase. Under the
current rules, can the financial institution get a refund of sales tax on
repossessed cars by following the procedure as stated in R865-19-20S(16)(la).
If not, what must a financial institution do in order to qualify.
Thank
you for your help in this matter.
Respectfully,
XXXXX