96-060
Response
April 11, 1996
Request
Re:
XXXXX
Dear
Mr. Oveson:
As general counsel for XXXXX,
operating in Ogden and Layton, Utah, I have been asked to contact you for the
purpose of requesting an advisory opinion from the Utah State Tax Commission
concerning property tax assessments being made by the XXXXX County Assessor in
a way which XXXXX believes is improper.
By way of background, XXXXX, is a
XXXXX licensee who operates XXXXX rental agencies in many western states. XXXXX
is the XXXXX licensee for Ogden, Utah. The company also operates four used car
sales locations under the name XXXXX Car Sales in Ogden and Layton, Utah and in
Boise and Idaho Falls, Idaho. Some of the cars which XXXXX sells at its Utah
locations have been in its rental fleet, mostly out of state, and are therefore
titled and registered in the name of XXXXX. The fact that the vehicles are
registered in the name of XXXXX has created some confusion in the past as to
whether the vehicles were in the rental fleet or being held for sale by the
sales division.
Many years ago, when XXXXX was the
XXXXX County Assessor, an agreement was reached whereby XXXXX would submit to
XXXXX and XXXXX Counties three lists of its vehicles, one of its Utah rental
fleet, a second of its out of state rental fleet, and a third of its vehicles
being held for sale at one of its sales locations, whether in or out of state.
As county assessors have come and gone, this same procedure has been in effect
and still is in effect with the XXXXX County Assessor. However, XXXXX, the
current XXXXX County Assessor, is refusing to accept the above referenced lists
and is attempting, pursuant to U.C.A. 59-2405(4), to require XXXXX to pay
property taxes on those vehicles in its sales fleet which are brought into the State
of Utah for the sole purpose of being sold or held for sale.
XXXXX's position concerning this
practice is that Section 59-2-405(4) is not applicable to the vehicles which
XXXXX is bringing into the state to sell, and that such vehicles are exempt from
personal property tax under U.C.A. 559-21114, which exempts inventory and other
tangible personal property held for sale. Section 59-2-1114(3) also provides
for a different assessment date for those vehicles brought into Utah from out
of state for the purpose of being sold, being the date the vehicles are brought
into Utah. Pursuant to this section, all of XXXXX's sales fleet, whether held
in Utah on January 1 or subsequently brought into the state during the year,
are exempt from property taxation.
The XXXXX County Assessor has
determined that such vehicles are subject to property tax unless there is a
change of ownership as the vehicle enters the state. The Assessor first
targeted only those vehicles which were purchased in the State of Utah from local
dealerships, which XXXXX tries to do to give the business to Utah companies and
to facilitate its banking in Utah. However, recently the Assessor has also
targeted vehicles bought by XXXXX from out of state dealerships, placed in its
out of state rental fleet, and subsequently brought into the State of Utah to
be sold. The Assessor's apparent concern that somehow XXXXX is escaping
legitimate property taxes is ill-founded, because XXXXX's rental fleet in the
State of Utah averages only 10 to 12 vehicles, while its rental fleet
throughout the West peaks at over 4,000 vehicles. XXXXX is a well established
Utah company, proud to be a part of Utah and more than willing to pay its fair
share of Utah taxes.
The purpose of this letter is to
request an advisory opinion from the Utah State Tax Commission that it is not
necessary for vehicles to be transferred to a new owner at the time they are
brought into Utah to be sold, in order to be exempt from property taxation
under U.C.A. 59-2-1114. If there is any further information which the
Commission might need to process this request, please contact the undersigned
at your earliest convenience.
Sincerely,
XXXXX
XXXXX
Re: Advisory opinion - application of property
tax to vehicles in XXXXX’s fleets
We
have received your request for an advisory opinion pertaining to actions by the
XXXXX County Assessor to impose
property tax on certain vehicles owned by XXXXX. In addressing your request, we
confine our response to vehicles which are part of fleets used for short-term
rentals, not vehicles which are subject to long-term lease arrangements in
which the vehicle is registered to lessee over the course of the lease.
Because
XXXXX operates two businesses (retail vehicle sales and vehicle rentals) in a
number of western states, it presents special challenges to the county assessor
who is responsible for identifying and assessing all property that is taxable
in the assessor’s county. Over the
course of the year, new vehicles will be purchased for the rental fleets,
vehicles in the rental fleets may be moved from state to state, and generally
the vehicles will find their way into the dealer inventory at the end of their
life as a rental vehicle. With the
variety of transactions that are likely
to occur, sorting out taxable and non-taxable vehicles can be a difficult
task. However, we believe a two-step
analysis is useful.
The
first step in the analysis is to determine if a particular vehicle qualifies
for a property tax exemption as dealer inventory. 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 59-2-1114 (3)(a)(ii) of the Utah Code. Vehicles held as part of a rental fleet on
January 1 do not constitute tax exempt
inventory held for resale in the ordinary course of business.
Upon
identifying taxable vehicles which were held in the rental fleet on the lien
date, the second part of the analysis is to determine whether the vehicle has
taxable situs in Utah. We find that
business owners commonly rely on a vehicle’s registration as an indication of
where the vehicle may be subject to property tax, but a vehicle’s registration
does not determine its tax situs. If
XXXXX chooses to register its vehicles under an XXXXX agreement, for instance,
that agreement may result in XXXXX registering some of its Utah based vehicles
in other states. Regardless of where a
vehicle is registered, Article XIII, §10 of the state constitution imposes
property tax on all property owned by a corporation doing business in Utah if
that property is used within the boundaries of the authority levying the
tax. Therefore, a rental car which is
owned by a company doing business in Utah is taxable in Utah unless the owner
can prove to the assessor’s satisfaction that the vehicle is used predominately
in another jurisdiction. §59-2-104 (2)
Utah Code Ann.
Turning
to your question regarding vehicles which are moved from a rental fleet to
dealer inventory, we assume that each transaction will fall into one of the
following categories. First, if the
vehicle is part of a rental fleet on the lien date and operated exclusively or
predominately in Utah, the vehicle is taxable in Utah. Alternatively, if the vehicle is part of a
rental fleet on the lien date, operated exclusively or predominately outside of
Utah, then placed in dealer inventory in Utah, it is not subject to Utah
property tax because it had no taxable situs in Utah while it was part of a
rental fleet. With regard to these
non-taxable rental vehicles, we find nothing in the statutes to support a
requirement that the vehicle be transferred to a new owner as a condition of
exemption. However, the assessor may
require evidence to establish when the vehicle was transferred from the rental
fleet to inventory.
If
you have additional questions about this issue, please let us know.
For
the Commission,
Alice
Shearer,
Commissioner