Response August 16, 1993
Request
February 1, 1993
Utah State Tax Commission
XXXXX
ATTENTION: XXXXX
Dear XXXXX:
I am writing to you regarding some discussions with one of your
employees (XXXXX). XXXXX has been very
cooperative in explaining to my Motor Vehicle department the different
registration options available to someone operating in more than one
state. I wanted to verify with you that
I understand what those options are.
A person can participate in the International Registration Plan if they
operate commercial vehicles in more than one state. They must fill out a Schedule "A", listing their full
fleet with their base headquartered state.
They must also fill out a Schedule "B" declaring which state
and how many miles are traveled in each.
They pay the full fees to the base headquartered state, and that state
is responsible to distribute the monies based on miles traveled. Passenger cars and trucks do not qualify for
this option.
Allocated Fleet is used primarily for passenger car and truck fleets
traveling in more than one state. The
company declares the total number of vehicles in their fleet, and how many
miles will be traveled in what states.
The mileage stated is then divided into the total number of fleet
vehicles. This number represents how
many vehicles would have to be fully registered in each of the states traveled
in. i.e. 250 in Utah, 300 in Idaho, etc.
Hopefully, the options I have described above are correct. If not, would you please give me a call at
XXXXX.
Sincerely,
XXXXX
February 10, 1993
XXXXX
Dear XXXXX:
XXXXX is no longer with the Motor Vehicle Division. I will respond to your inquiry regarding
Allocated Fleets.
According to the International Registration Plan, Article 200,
"Allocated Vehicle" means a vehicle to which a particular
jurisdiction basic registration plate or apportioned registration plate is
attached upon payment of the jurisdiction's full basis registration fee. A portion of each fleet of one way vehicles
is "allocated" to each jurisdiction into or through which the fleet
travels (each vehicle of the fleet need not enter every jurisdiction).
Used largely by passenger vehicle rental companies, the agreement
provides for the registration of a percentage of the total number of vehicles
in each jurisdiction in which they operate.
This spreads the fees around to all jurisdictions, rather than basing in
a particular state and operating vehicles registered in the based state in
other jurisdictions. These vehicles are
transient and do travel in several locations.
Allocated vehicles are not apportioned. They are charged full registration fees. Also passenger vehicles cannot be
apportioned but any truck can be if they are not in an allocated fleet.
The information regarding allocated fleets as described in your
correspondence is accurate, but the fees are not apportioned.
If I can assist any further, please call me at XXXXX.
Sincerely,
XXXXX
March 18, 1993
XXXXX
Dear XXXXX:
During the past several years, XXXXX has submitted two separate and
distinct inventory lists to the XXXXX County Assessor's Office.
The "A" inventory list meets the usual definition of an
inventory list. As provided in Utah
Code 59-2-14, Section 1 and 2, a motor vehicle dealership is allowed to provide
the office of the Assessor with a list of "tangible personal property
present in Utah on January 1, noon, held for sale in the ordinary course of
business or for shipping to a final out of state destination within twelve
months and which constitutes the inventory of any retailer, wholesaler,
distributor processor, warehouseman, manufacturer, farmer, or livestock raiser,
is exempt from property taxation. This
exemption does not apply to inventory which is not otherwise subject to
personal property taxation."
The second list submitted by XXXXX is a list of vehicles claimed to be
located out of the state of Utah as of January 1st, yet most of these vehicles
are registered to the corporation with Utah titles as well as Utah registration
or registered out of state and list XXXXX as the owner with a Utah
address. All of the motor vehicles listed
on the "B" inventory are vehicles which move from one leasing office
to another leasing office operated by XXXXX during the course of the year.
The motor vehicles listed on the "B" inventory have been
treated from a local property tax standpoint in a similar manner as those vehicles
listed on the "A" inventory in that no local property taxes have been
paid on these vehicles in the past.
It is my understanding the International Registration Plan or IRP has
been the justification for this procedure.
The XXXXX County Assessor's Office has researched the IRP, and attached
you will find a letter from our office to the Utah State Tax Commission and a
return letter from the Tax Commission regarding the same. Quoting from the letter from XXXXX: "Used largely by passenger vehicle rental
companies, the agreement provides for the registration of a percentage of the
total number of vehicles in each jurisdiction in which they operate. This spreads the fees around to all
jurisdictions, rather than basing in a particular state and operating vehicles
registered in a based state in other jurisdictions. These vehicles are transient and do travel in several
locations."
Article 200 of the International Registration Plan deals with the issue
of registration fees, it does not deal with nor address the matter of local
property taxes. Therefore, the
appropriate state laws and Utah state Tax Commission administrative rules would
come into play when the issue of local property taxes is addressed.
Attached is a memorandum from the XXXXX County Attorney's Office
reviewing state laws and regulations regarding local property taxes. Quoting from this document, "it is
apparent that the purpose of these rules is to ensure that property registered
within XXXXX County are taxed by XXXXX County.
It should therefore be the policy of the XXXXX County Assessor's Office,
that when a motor vehicle owner presents property to be registered in XXXXX
County, it is an affirmation that the situs of the property is in XXXXX County
and should therefore, be taxed by applying these sections of the code and
administrative rules. If the property
owner desires to avoid paying local property taxes (the uniform fee) then he
must satisfactorily demonstrate to the Assessor that he has paid taxes in
another taxable area within the State or in another state for the current tax
year. (emphasis added)
I understand the procedure relating to the "B" inventory has
been utilized for a number of years.
However, I believe my predecessors have exercised discretionary
authority not granted to the office of County Assessor. There are a number of methods in which
property can become exempt from local property taxes. The Utah State Constitution lists a number of classifications of
exempt properties, the Utah State Tax Commission has outlined several
classifications through their administrative rule-making authority, and
finally, it is ultimately up to the county commission, acting as the board of
equalization to make final decisions relating to exempt properties using state
law and administrative rules as a guide in these deliberations. No where in any state law or state
administrative rule has the county assessor been granted the authority to
exempt properties from paying local property taxes.
It is therefore, the decision of the XXXXX County Assessor that all
vehicles which XXXXX seeks to have registered in XXXXX County must be assessed
the uniform fee, unless XXXXX can demonstrate the taxes were paid in another
state or another taxable area in the state of Utah for the current year. Further, it is my decision XXXXX is
domiciled in XXXXX County and the request for local registration is a
declaration that the situs of the property is in XXXXX County.
This decision is applicable, not only to XXXXX, but to all XXXXX County
motor vehicle dealers. This decision is
only applicable to the "B" inventory list and not the "A"
inventory list which is governed by existing state law as outlined earlier in
this document.
Utah State law outlines a provision for appealing this decision. According to Utah Code 59-2-1005: "(1) the county governing body shall
include a notice of procedures for appeal of any personal property valuation
with each tax notice. If personal property
is subject to a fee in lieu of tax or the uniform fee under Article XIII, Sec.
14, Utah Constitution, and the fee or tax is based upon the value of the
property, the basis of the value may be appealed to the commission. (2)
Any taxpayer dissatisfied with the taxable value of the taxpayer's
personal property may appeal by filing an application no later than 30 days
after the mailing of the tax notice.
(3) After giving reasonable
notice, the board shall hear the appeal and render a written decision. The decision shall be rendered no later than
60 days after receipt of the appeal. (4) If any taxpayer is
dissatisfied with the decision of the board, the taxpayer may file an appeal
with the commission as established in Section 59-2-1006."
Therefore, XXXXX may appeal this decision by filing an application for
review by the XXXXX County Board of Equalization with XXXXX, Clerk, XXXXX
County Board of Equalization, Third Floor, Municipal Building, Ogden, Utah
84401 by XXXXX.
Sincerely,
XXXXX
TO: XXXXX, XXXXX County Assessors Office
FROM: XXXXX, XXXXX County Attorneys Office
DATE: XXXXX
RE: XXXXX
XXXXX, known as XXXXX operates a fleet of vehicles as part of their
rental business. A considerable number
of these vehicles are registered in XXXXX County and the issue has surfaced as
to what taxes should be paid on those vehicles. XXXXX has claimed that those vehicles do not come into the State
of Utah and therefore should not be taxed as required by the Utah Code. In reviewing this problem, several factors
were considered by me prior to issuing this opinion. Initially, it is apparent that XXXXX County provides a benefit to
XXXXX by allowing them to affix license plates and registrations to their
vehicles so that they can be operated throughout the county in the course of
their vehicle rental business. In order
for XXXXX to operate these vehicles they are required to have the vehicle
registered. Certainly, it appears that
they have the right to register the vehicle in any county or in any state where
they have a business office. They have
chosen to register their vehicles here in XXXXX County.
59-2-405 of the Utah Code Annotated requires that after XXXXX, a
uniform fee is imposed on all vehicles required to be registered. That uniform fee is set at 1.7% of the value
of the motor vehicle. 59-2-104 would
allow that personal property, including motor vehicles, are going to be
assessed and taxed in the tax area where the owner is domiciled as of XXXXX
unless the owner can satisfactorily demonstrate to the County Assessor that the
property is kept in another tax area.
That section of the code would then require that the property should be
assessed in that other tax area. This
is restated in Administrative Rules R884-24-46PII. These rules further allow in G2. that XXXXX County would not be
able to charge the uniform fee on property where fees and taxes have been paid
in another state for the current tax year.
In looking at the above listed sections of the Utah Code and the
Administrative Rules, it is apparent that the purpose of these rules is to
ensure that property registered within XXXXX County is taxed by XXXXX
County. It should therefore be the
policy of the XXXXX County Assessor's Office, that when a motor vehicle owner
presents property to be registered in XXXXX County, it is an affirmation that
the situs of the property is in XXXXX County and should therefore be taxed by
applying these sections of the code and the administrative rules. If the property owner desires to avoid
paying local property taxes (the uniform fee) then he must satisfactorily
demonstrate to the Assessor that he has paid taxes in another taxable area
within the State or in another state for the current tax year.
In the case of XXXXX then, all vehicles that XXXXX seeks to have
registered in XXXXX County must be assessed the uniform fee, unless XXXXX can
demonstrate that the taxes were paid in another state or another taxable area
for the current year. The County
Assessor should assume that XXXXX is domiciled here and that the request for
local registration is an affirmation that the situs of the property is here.
If there are any further questions or problems, please feel free to
contact me.
Commissioner Joe Pacheco
Utah State Tax Commission
160 East Third South
Salt Lake City, Utah 84134
Dear Commissioner Pacheco:
The purpose of this letter is to obtain an advisory opinion from the
State Tax Commission regarding a matter relating to the taxation of motor
vehicles.
During the past several years, XXXXX County has had a motor vehicle dealer
which has submitted two separate and distinct dealer inventory lists to the
XXXXX County Assessor's office.
The "A" inventory list meets the usual definition of an
inventory list. As provided in Utah Code 59-2-114, Sections 1 and 2, "a
motor vehicle dealership is allowed to provide the office of the Assessor with
a list of "tangible personal property present in Utah on January 1, noon,
held for sale in the ordinary course of business or for shipping to a final out
of state destination within twelve months and which constitutes the inventory
of any retailer, wholesaler, distributor, processor, warehouse man,
manufacturer, farmer, or livestock raiser, is exempt from property taxation.
This exemption does not apply to inventory which is not otherwise subject to
personal property taxation."
The second list submitted by this motor vehicle dealer is a list of
vehicles claimed to be located out of the state of Utah as of January 1st, yet
most of these vehicles are registered to the motor vehicle dealer corporation
with Utah titles as well as Utah registration or registered out of state with
the motor vehicle dealership listed as the owner with a Utah address. All of
the motor vehicles listed on the "B" inventory are vehicles which
move from one leasing office to another leasing office operated by this motor
vehicle dealership during the course of the year.
The motor vehicles listed on the "B" inventory have been
treated from a local property tax standpoint in a similar manner as those
vehicles listed on the "A" inventory in that no local property taxes
are paid on these vehicles.
In order to keep this matter in proper perspective, one must be
reminded that the vehicles listed on the "B" inventory are vehicles
in this company's leased vehicle fleet, they are not vehicles which are part of
the company's sales inventory.
It is my understanding the International Registration Plan (IRP) has
been used in the past as the justification for the manner in which this
dealer's fleet has been treated. Attached you will find a XXXXX letter which
was directed to the XXXXX of the Utah State Tax Commission. On February 10,
1993, I received a reply. (Both letters are attached.) It is my understanding
the IRP addresses payment of registration fees, however it does not address property
taxes. A person can participate in the IRP if they operate commercial vehicles
in more than one state. They must fill out a Schedule "A" listing
their full fleet with their base headquartered state. They must also fill out a
Schedule "B" declaring which state and how many miles are traveled in
each state. They pay the full fees to the base headquartered state, and that
state is responsible to distribute the monies to the other states based on
miles traveled.
According to XXXXX, Assistant Director of the Utah State Motor Vehicle
Division, the IRP is used largely by passenger vehicle rental companies, the
agreement provides for the registration of a percentage of the total number of
vehicles in each jurisdiction in which they operate. This spreads the fees
around to all jurisdictions, rather than basing in a particular state and
operating vehicles registered in the based state in other jurisdictions. These
vehicles are transient and do travel in several locations."
The XXXXX County Assessor has engaged in discussions with
representatives of the XXXXX County Attorney's office. According to the County
Attorney's opinion, Utah Code Annotated 59-2-104 allows that personal property,
including motor vehicle, should be assessed and taxed in the tax area where the
owner is domiciled as of January 1st, unless the owner can satisfactorily
demonstrate to the County Assessor that the property is kept in another tax
area. This same section requires that the property should be assessed in the
other tax area.
Quoting from State Tax Commission rule R884-24-46P: "for purposes
of Section 59-2-405, personal property kept in a tax area other than that of
the domicile of the owner for more than six months of the year shall be
assessed in the other tax area." My understanding of this section would be
the vehicles registered to this motor vehicle dealer and maintained in another
state should pay the local fees in that state, if the vehicle is kept in the
other state for more than the six month time frame.
As mentioned earlier, vehicles registered in other states by this motor
vehicle dealer always lists the Ogden address of the corporation for ownership
purposes. These vehicles are listed on the "B" inventory and have
been exempted from paying the local property taxes. Again, quoting from Tax
Commission rule R884-24-46P: "No uniform fee is due on personal property
subject to the uniform fee and transferred into this state if all uniform fees
or property taxes required by the prior state have been paid for the current
year. An unexpired registration card shall serve as evidence of such
payment."
As indicated earlier, the purpose of this letter is to obtain an
advisory opinion from the State Tax Commission regarding this matter. The
following are issues we are seeking advice and counsel regarding: 1) Does the
IRP plan override any consideration of the responsibility of paying local
property taxes by the companies which are registering their fleets with the
state under the plan; 2)should the vehicles listed on the "B" inventory
be exempted from paying local property taxes in Utah, even though most of these
vehicles are registered to the motor vehicle dealer corporation with Utah
titles as well as Utah registration or registered out of state with the motor
vehicle dealership listed as the owner with a Utah address and most of these
vehicles are out of state for more than 6 months of the year; and 3) should
vehicles registered in other states by this corporation be exempted from paying
local Utah property taxes even though they have not paid local fees or taxes in
the state from which the vehicle is being transferred from.
Based upon the research of my office, the appropriate sections of the
Utah Code and administrative rules, and the opinion from the XXXXX County
Attorney, it is my belief all vehicles which any XXXXX County motor vehicle
dealer seeks to have registered and/or domiciled in XXXXX County must be
assessed the uniform fee, unless the dealer can demonstrate the current year
taxes or fees were paid in another state or another taxable area in the state
of Utah for the current year.
I appreciate your consideration of this matter. If you have any
questions or need further information, please give me a call at XXXXX.
Sincerely,
XXXXX
Prepared
by
Research
and Standards Section
Property
Tax Division
May
1995
INTRODUCTION
In
XXXXX, the Commission received a letter from XXXXX, XXXXX County Assessor,
requesting an opinion as to whether rental vehicles operated in XXXXX County
are taxable. In his letter, XXXXX cited
a particular rental agency which paid no Utah property tax on its rental
cars. The rental agency declared some
of its cars to be tax exempt as dealer inventory, and it registered the rest of
the vehicles out of state.
After
XXXXX brought this issue to light, both the XXXXX County Attorneys Office and
the Utah Attorney Generals Office issued opinions on the taxable status of
rental cars operated in Utah. The
opinions were not in complete agreement with one another, and to date, the
matter has not been resolved to the satisfaction of the assessors.
In
XXXXX, representatives of the Property Tax Division met with XXXXX from the
XXXXX County Assessors Office and other county assessors to discuss this
issue. At that meeting, the assessors
expressed an interest in exploring whether the counties could impose a tax on
rental transactions rather than rental cars.
The Property Tax Division offered to take a fresh look at the taxability
of rental fleets, and to advise the assessors whether a tax on rental transactions
is feasible. This report summarizes the
difficulties facing the assessors who are charged with the responsibility of
assessing taxable rental cars, and it evaluates the possibility of taxing
rental transactions.
SCOPE
OF THE STUDY
This
study concerns only vehicles which are part of fleets used for short term
rentals, not vehicles which are subject to long-term leases. This study also assumes that a rental car
agency may operate in more than one state, and that vehicles in the rental
fleet may operate in more than one jurisdiction. Finally, this study assumes that rental cars are generally
purchased as new cars, placed on the rental agency's lot for resale.
BACKGROUND
Unlike
most Utah vehicles, rental cars pose the potential for escaped property
tax. It is the underlying nature of the
rental car business which creates two special problems.
1. A rental car is generally purchased from the
manufacturer or dealer and placed into service as a rental car after the XXXXX
lien date. Because the vehicles was
part of the dealer's or manufacturer's inventory on January 1, it is exempt
from property tax (or uniform fee) for the first calendar year. If the vehicle is still in the rental fleet
on the following January 1, it is taxable property for the next calendar
year. The county assessor expects to
collect the property tax on any vehicle when its registration is renewed. However, it is likely that the rental car
will be retired from the rental fleet and moved to dealer inventory or sold out
of state before the registration expires.
In that case, the assessor may never have the opportunity to assess and
collect the tax.
2. Some rental car agencies operate in more
than one state. Utah law allows these
interstate agencies to register their vehicles outside of Utah even though
their vehicles are operated in Utah.
This situation creates two problems for the assessor. First, the assessor may be unsure whether
vehicles with out-of-state plates are taxable in Utah. Second, even if they are taxable, the
vehicles never come to the assessor's attention through the registration
process. Unless the assessor conducts
continuous rental agency audits, the taxable rental cars are likely to escape
taxation.
TAXABLE
STATUS OF RENTAL CARS
The
taxable status of a rental vehicle is a two part question. First, is the vehicle eligible for an
exemption from property tax as dealer inventory? If the answer is "no", the second part of the question
is whether the car has taxable situs in Utah.
INVENTORY
EXEMPTION
Under
Utah law, all property in this state is taxable unless otherwise exempted. The only permissible exemptions are those
set forth in the state constitution. Of
the exemptions stated there, the only exemption which could apply to rental
vehicles is the dealer inventory exemption.
UTAH STATE CONSTITUTION, Article XIII, Sec. 2.
To
be eligible for an inventory exemption, a vehicle must be held for sale in the
ordinary course of business on January 1, or on the assessment date as defined
in section 59-2-114(3)(a) of the Utah code. Vehicles held as part of a Utah
rental fleet on January 1 are income producing assets; they are not held as
inventory for sale in the ordinary course of business. Therefore, they do not
qualify for the inventory exemption.
A
rental car which is purchased new and placed in service as a rental car is
exempt from property tax during the first calendar year either because it was
part of dealer or manufacturer inventory on January 1 or because it was brought
into Utah after January 1. (Passenger vehicles are exempt from the proportional
tax on transitory personal property. (59-2-402(2)(b), Utah code Ann) If that
vehicle is still part of the rental car fleet on the following January 1, the
exemption no longer applies.
By
identifying the vehicles in the rental pool as of January 1, the assessor has
cleared the first hurdle to determining taxable status. But identifying the rental vehicles is a
tough job. The business owner has a
great deal of latitude to move vehicles from the rental fleet to inventory at
any time without notice to the assessor.
The owner may even shuffle rental cars from state to state at will. Practically speaking, it is nearly
impossible for the assessor to identify which vehicles were in the rental pool
on January 1, unless the owner volunteers the information.
TAX
SITUS
Assume
that the assessor successfully identifies which cars were in a rental pool on
January 1, the next step is to identify taxable situs of each vehicle. The assessor or business owner may be
tempted to rely on a vehicle's registration to determine whether it may be
taxed in Utah, but a vehicle’s registration does not determine taxability. Under Utah law, personal property owned by a
corporation doing business in Utah is taxable if it is used with the boundaries
of the authority levying the tax. Utah
State Constitution, Article XIII, Sec. 10 (emphasis added). If a rental car is owned by a company doing
business here and it is operated in Utah, it is taxable in Utah unless the
owner can prove to the assessor's satisfaction that it is used predominately in
another jurisdiction. 59-2-104 Utah Code Ann.
Registration
then is a separate issue from taxation.
the registration may provide evidence of where a vehicle is operated,
but in some cases the registration is a poor indicator of tax situs. Such is the case when a rental car agency
operates in more than one state. Under
Utah’s Motor Vehicle Act, that business owner has two registration
options. The first option is to
register under an approved reciprocal agreement such as the International
Registration Plan (IRP). If the rental
company registers under the IRP, a portion of its total fleet will be allocated
to Utah for registration purposes. The
Utah allocation is calculated by dividing the gross revenue received from Utah
rental transactions by the gross revenue received from rental transactions in
all the jurisdictions. The resulting
percentage is applied to the total number of rental vehicles owned by the
company to determine the number of vehicles that must be fully registered in
Utah. International Registration Plan, Article XI, Section 1116.
The
IRP allocates only the number of vehicles to be registered in Utah. It does not dictate which vehicles must be
registered here. Nothing prevents the
owner from registering the least expensive cars in Utah and the most expensive
cars in a state with a more favorable tax climate. Nor does the IRP preclude the owner from operating a vehicle with
out-of-state plates exclusively in Utah.
Such a vehicle is taxable here without regard to its registration.
If
the rental company does not register the rental cars under the IRP, it must
register its Utah based rental cars here. §41-1a-202(3), Utah code Ann. However, the Motor Vehicle Code imposes no
obligation on the owner to base plate any rental cars in Utah. The language of section 41-1a-202(3) allows
the owner to register the vehicles anywhere that the company does business. Consequently, a rental vehicle with
out-of-state plates may be operated predominately in Utah and therefore,
taxable in Utah.
Clearly
a vehicle's registration does not determine its tax status. Nor is it a reliable indication of tax
situs. Whether a rental car is taxable
in Utah depends upon how and where it was used. To the extent that the assessor can track the status of
individual rental cars, they should fall into one of the following categories:
1. If a vehicle is part of a rental fleet on
January 1 and it has been operated exclusively in Utah, the vehicle is taxable
in Utah. The dealer cannot avoid the
current years tax by placing the car in dealer inventory for resale after the
lien date.
2. If a vehicle is part of a rental fleet on
January 1 and it has operated in Utah and at least one other state, the vehicle
is taxable in Utah unless the owner can prove to the county assessor that the
car is kept predominately in another jurisdiction.
3. If a vehicle is part of a rental fleet on January
1 and it has been operated exclusively outside of Utah, then brought into the
owner's Utah inventory for resale after January 1, the vehicle is not taxable
in Utah. It had no taxable situs in
Utah while it served as a rental vehicle and it qualifies for an inventory
exemption from the tax on transitory personal property when it is brought into
Utah.
4. If a vehicle is part of the dealer's
inventory for resale on January 1 (or the assessment date for vehicles brought
in from out of state) the vehicle is exempt from taxation during the current
calendar year.
5. If a new vehicle is acquired by the rental
agency from manufacturer or dealer
inventory after January 1, it is exempt from taxation for the current calendar
year.
OCCUPATION
TAX AS AN ALTERNATIVE
In
the January meeting, some assessors expressed an interest in exploring whether
a transaction fee could be assessed on car rental contracts in lieu of property
tax. The assessors may be envisioning
something similar to the surcharge used in Wyoming. Under Wyoming law the registration of rental cars is not an
important issue. If rental cars are
registered under an IRP agreement, a percentage of the fleet must be plated in
Wyoming and registration fees are collected on those vehicles. Regardless of registration, the rental
agencies attach a surcharge to each rental contract. The surcharge equals 4% of the net contract price after all state
taxes and fuel tax is deducted.
Wyoming's
surcharge resembles an occupation tax, and it suggests a viable solution for
county assessors. An occupation tax is
imposed on business owners specifically for the purpose of raising
revenue. In Utah, the legislature may
expressly authorize counties to impose an occupation tax on specified
businesses or commercial operations.
Such a tax is not a property tax, nor is it a sales tax, which is a tax
imposed on the consumer or transaction.
See E. C. Olden Co. v. State Tax Commission, 168 P.2d 324 (Utah 1946).
In
imposing an occupation tax, the legislature has broad discretion to define the
class of taxpayer which is subject to the tax.
That is, the legislature can impose the tax on rental vehicle agencies
without imposing a similar tax on other businesses. Such classification does not violate the uniform and equal provision
of the constitution so long as the tax operates uniformly on all parties within
the class. See e.g. Menlove v. Salt
Lake County. 418 P.2d 227 (Utah 1966) and State v. Taylor, 541 P.2d 1124 (Utah
1975).
Over
the years, the legislature has calculated occupation taxes on the value of
stock (see Salt Lake City v. Christensen Co., 95 P. 523 (Utah 1908), gross
income (see Davis v. Ogden City, 215 P.2d 616 (1950), number of employees (see
State v. Taylor, 511 P.2D 1124 (Utah 1975), and amount of room rent (see
Menlove v. Salt Lake County, 418 P.2d 227 (1966). It is reasonable then, for the legislature to authorize the
counties to tax each rental vehicle agency on the basis of its receipts from
all local rental contracts. However, to
avoid the issue of double taxation, the tax should be imposed on the total
rental receipts minus sales tax or any other tax included in the rental
contract. For example, if a contract
includes a charge for fuel, that amount should be deducted from the total
contract amount before calculating the occupation tax because the cost of
gasoline includes tax which is paid at the pump.
Although
the legislature can grant the counties authority to impose an occupation tax on
rental car transactions, it cannot create a property tax exemption for rental
cars. Therefore, some rental vehicles
will be subject to both the occupation tax and property tax while others are
subject only to the occupation tax.
Such a discrepancy gives an unfair advantage to rental agencies which
find a way to avoid Utah property tax.
To put all rental agencies on equal footing, any Utah property taxes
paid on rental cars should be credited against the occupation tax due. Here is how that could work. The occupation tax could be calculated as a
percentage of an agency's total annual receipts from Utah rentals, minus any
sales tax, fuel and property tax. The
counties could use a self reporting tax form similar to the one found in
Appendix A to collect tax information.
For purposes of the illustration in Appendix A, the tax is called a
"Rental Vehicle Transaction Tax."
However, some other appropriate label may be selected.
From
the assessor's perspective, the occupation tax has clear advantages. All rental agencies would be treated equally
for tax purposes. Every rental car
company operating in Utah will contribute to the county's general fund either
through property tax or through the occupation tax. Escaped property taxes will no longer be an issue. The occupation tax would also counteract the
effects of current tax laws which give an unfair financial advantage to
interstate rental agencies over agencies operating strictly within Utah. Finally the assessor could audit financial
records instead of attempting to track individual cars.
CONCLUSION
The
county assessors have the responsibility of assessing taxable rental vehicles
in their counties, but no practical way of identifying them. Under current Utah law, the assessors must
either launch aggressive audit programs to identify taxable rental cars or accept
the fact that property taxes are escaping.
Alternatively, the county assessors can ask the legislature to grant
them the option to impose an occupation tax on rental car agencies. The occupation tax would be relatively easy
to administer and it would result in equitable treatment of all rental car
agencies.
This
report does not suggest a tax rate for the occupation tax. If the assessors pursue this option, they
must also propose a tax rate to the legislature. Presumably, that proposed rate will approximate the amount of
revenue that would be generated by a property tax assessed against all taxable
rental vehicles.