Apollo Stereo Music Co., Inc. v. City of Aurora, 93SA206

• Decision Date: 04 April 1994
• Docket Number: No. 93SA206,93SA206
• Citation: 871 P.2d 1206
• Parties: APOLLO STEREO MUSIC COMPANY, INC. and Skyline Vending Co., Plaintiffs-Appellees, v. The CITY OF AURORA, Colorado, and John Gross, Defendants-Appellants.
• Court: Colorado Supreme Court

Page 1206

871 P.2d 1206

APOLLO STEREO MUSIC COMPANY, INC. and Skyline Vending Co. Plaintiffs-Appellees, v. The CITY OF AURORA, Colorado, and John Gross, Defendants-Appellants.

No. 93SA206.

Supreme Court of Colorado En Banc.

April 4, 1994.

Bruce G. McLellan, Lakewood, for plaintiffs-appellees.

Office of the City Atty., Charles H. Richardson, Peter Ruben Morales, Stacie Glass Evans, Aurora, for defendants-appellants.

Geoffrey T. Wilson, Gen. Counsel, Denver, for amicus curiae Colorado Mun. League.

Justice LOHR delivered the Opinion of the Court.

In a declaratory judgment action, the Adams County District Court ruled that the Aurora Retail Sales and Use Tax Ordinance imposed an income tax upon Apollo Stereo Music Company, Inc. and Skyline Vending Co. in violation of Article X, section 17, of the Colorado Constitution. We hold that as applied to these parties, the tax operates as a constitutionally permissible sales tax and not as an income tax. Accordingly, we reverse the judgment of the district court. ¹

I.

Apollo Stereo Music Company, Inc. (Apollo) and Skyline Vending Co. (Skyline) are separately engaged in the business of placing various coin-operated machines at sites owned and operated by "location owners." ² The machines are amusement devices, such as pool tables and video screen games, and do not dispense items of personal property. Apollo and Skyline service the machines, which require quarters and, in some cases, dollar bills to operate. Apollo and Skyline divide the gross proceeds from the machines equally with the location owners.

In May 1990, the City of Aurora (Aurora) assessed sales taxes against Apollo and Skyline under the Aurora Retail Sales and Use Tax Ordinance (the ordinance). Aurora, Colo., Code ch. 36, art. II, §§ 36-16 to 36-108 (1979 & Supps.). ³ The taxes were calculated upon each business's share of the gross receipts from the machines. Apollo and Skyline each appealed its assessment to Aurora's Director of Finance (Director), who reduced the amounts of the assessments. ⁴ The Director assessed $12,408.03 against Apollo and $964.11 against Skyline. These amounts were calculated principally upon the total gross sales from the machines. ⁵

Apollo and Skyline sought relief from their assessments by an action brought in Adams County District Court pursuant to C.R.C.P. 57 and 106. The C.R.C.P. 106 claim ⁶ was dismissed, and the matter was determined under C.R.C.P. 57 as a declaratory judgment action. After a non-evidentiary hearing at which the parties stipulated that the facts were not in dispute, the district court ruled that section 36-76(11) of the ordinance, under which Apollo and Skyline were taxed, operated as an income tax on gross receipts "as imposed on" Apollo and Skyline in violation of Article X, section 17, of the Colorado Constitution.

II.

A.

The City of Aurora is a home rule municipality formed pursuant to Article XX, section 6, of the Colorado Constitution. As such, Aurora is constitutionally empowered to adopt a sales tax. Berman v. City and County of Denver, 156 Colo. 538, 542-44, 400 P.2d 434, 436-37 (1965). However, home rule cities have no power to levy income taxes. City and County of Denver v. Sweet, 138 Colo. 41, 51-53, 329 P.2d 441, 446-47 (1958). Under Article X, section 17, of the Colorado Constitution, the power to levy income taxes belongs exclusively to the state. Id.

The ordinance provides that a retailer is liable for and must pay to the municipality three and one-half (3.5) per cent of all sales made by the retailer each month. Code § 36-79(a) (June 1987 Supp.). The ordinance also provides a bracketed schedule for collection of the tax from the purchaser at the time of sale. The schedule specifies that a tax of one cent is imposed on sales between fifteen and forty-two cents. Code § 36-80 (June 1987 Supp.). The section of the ordinance under which Apollo and Skyline were taxed reads as follows:

There is hereby levied and there shall be collected and paid a tax in the amount stated in section 36-80, as follows:

....

(11) Upon recreation services offered in the City. For purposes of this section recreation services shall mean all services relating to athletic or entertainment participation events including but not limited to pool, billiards, skating, tennis, bowling, health/athletic club memberships, video games and video club memberships.

Code § 36-76(11) (May, Oct. 1988 Supps.).

Apollo and Skyline contend that the tax is imposed on them based upon the gross receipts from their machines, and therefore the tax operates as an income tax. They assert that two of our previous cases, Board of Trustees, Minturn v. Foster Lumber Co., 190 Colo. 479, 548 P.2d 1276 (1976), and Mountain States Tel. and Tel. Co. v. City of Colorado Springs, 194 Colo. 404, 572 P.2d 834 (1977), support this contention. We disagree.

In Minturn, the town of Minturn had imposed what was denominated an "occupation tax" ⁷ on all construction and building materials businesses and occupations in the town. Minturn, 190 Colo. at 480, 548 P.2d at 1276. The tax was levied at a specified rate applied to "the total gross revenues derived from sales occurring within the corporate limits of the town." Id. We held that the tax was an income tax and not an occupation tax because it bore a direct relation to the income or receipts of the businesses being taxed, whereas "an occupation tax bears no such relationship." Id. at 482, 548 P.2d at 1278. We stated that an occupation tax "is a tax upon the very privilege of doing business, and does not fluctuate from month to month depending upon the financial success or sales of the enterprise." Id.

In Mountain States, the City of Colorado Springs enacted a tax, denominated an "occupation tax," upon public utilities operating within the city. Mountain States, 194 Colo. at 405, 572 P.2d at 835. Just as in Minturn, we invalidated the tax as a constitutionally impermissible income tax because the tax was based upon the gross revenues of the utilities from operations within the city. Id. at 406, 572 P.2d at 835-36.

Minturn and Mountain States are both distinguishable from the present case in that in each of those cases, the burden of paying the tax was imposed directly upon the businesses rather than upon the customers of the businesses. In Minturn, the construction and building materials businesses were required to pay the tax. Minturn, 190 Colo. at 480, 548 P.2d at 1276. In Mountain States, the utilities were required to pay the tax. Mountain States, 194 Colo. at 406, 572 P.2d at 835. Although the principal holding in each of those cases was that the tax could not be upheld as an occupation tax, we also explicitly determined that the tax was not a sales tax. Minturn, 190 Colo. at 482 n. 5, 548 P.2d at 1278 n. 5; Mountain States, 194 Colo. at 406, 572 P.2d at 835-36. In Mountain States, we concluded that the drafters of the ordinance never intended the ordinance to impose a sales tax because the incidence of the tax was on the utilities rather than on consumers. Mountain States, 194 Colo. at 406, 572 P.2d at 835-36. Neither case contains any suggestion that a municipal tax code imposing obligations on a business to collect a tax from purchasers and remit to the taxing authority based on a percentage of sales by the business would cause such a structure of taxation to be characterized as an income tax rather than a sales tax.

The incidence of the tax in the present case, in contrast to the taxes at issue in Minturn and Mountain States, was intended to fall on purchasers rather than upon businesses delivering products or services to those purchasers. The ordinance states:

It is hereby declared to be the legislative intent of the city that for the purposes of this article, every person [ ⁸ who is engaged in business in the city, and who shall deliver or cause to be delivered to the purchaser in the city, any property or services taxable hereunder is exercising a taxable privilege and shall collect the tax imposed by this article ... on the total purchase price of such tangible personal property or taxable services that are purchased, sold, leased or rented at any time by or to every customer or buyer.

Code § 36-16(a) (Dec. 1989 Supp.).

On one hand, this language suggests that because a business delivering property or services is "exercising a taxable privilege," the burden of paying the tax falls upon the business. On the other hand, the language instructs such a business to "collect the tax," suggesting that the incidence of the tax falls on the customers of the business. Despite this incongruity, when read as a whole the ordinance discloses that the drafters intended the incidence of the tax to fall on the customers of the businesses rather than on the businesses themselves. For example, the ordinance provides:

It shall be unlawful for any retailer to advertise or hold out or state to the public or to any customer, directly or indirectly, that the tax or any part thereof imposed by this division shall be assumed or absorbed by the retailer, or that it will not be added to the purchase price of the property sold, or if added, that it or any part thereof shall be refunded.

Code § 36-82(a) (June 1987 Supp.).

Furthermore, throughout the ordinance, reference is made to the "collection" of taxes by the retailer. Code §§ 36-16(a) (Dec. 1989 Supp.), 36-18 (May 1988, Dec. 1989 Supps.), 36-76 (May, Oct. 1988 Supps.), 36-79 (June 1987 Supp.), 36-83 (June 1987 Supp.). The structure of the ordinance's bracketed schedule itself indicates that the purchaser is to pay the tax at the time of the sale. Code § 36-80(1) (June 1987 Supp.). Regarding the bracketed amounts, the ordinance states:

Retailers shall add the tax imposed hereby, or the average equivalent thereof, to the purchase price or charge, showing such tax as a separate and distinct item ... and when added, such tax shall constitute a part of such price or charge and shall be a debt from the...