Daimlerchrylser Corporation v. Johnson, No. M2005-00734-COA-R3-CV (Tenn. App. 4/24/2007)
| Decision Date | 24 April 2007 |
| Docket Number | No. M2005-00734-COA-R3-CV.,M2005-00734-COA-R3-CV. |
| Parties | DAIMLERCHRYLSER CORPORATION v. RUTH E. JOHNSON, COMMISSIONER. |
| Court | Tennessee Court of Appeals |
Appeal from the Chancery Court for Davidson County; No. 02-378-I; Claudia Bonnyman, Chancellor.
Judgment of the Chancery Court Affirmed.
Patricia Head Moskal, Joseph W. Gibbs, Nashville, Tennessee; Maryann B. Gall, Columbus, Ohio, for the appellant, DaimlerChrysler Corporation.
Paul G. Summers, Attorney General and Reporter; Wyla M. Posey, Assistant Attorney General, for the appellee, Ruth E. Johnson, Commissioner of Revenue, State of Tennessee.
Patricia J. Cottrell, J., delivered the opinion of the court, in which William C. Koch, Jr., P.J., M.S., and William B. Cain, J., joined.
Trial court found automobile manufacturer was not a "motor vehicle dealer" under Tenn. Code Ann. § 67-6-510(b) and was, therefore, not entitled to a trade-in credit for sales and use tax. We affirm.
The parties agree that the sole issue in this appeal is whether the trade-in credit of Tenn. Code Ann. § 67-6-510(b) is applicable to calculate the amount of use tax owed by vehicle manufacturer DaimlerChrysler on replacement vehicles used for business purposes. This trade-in credit reduces the amount of tax owed on the replacement vehicles. If the statutory trade-in credit is applicable, when DaimlerChrysler rotates out of service a car it had been using for business purposes, then the value of the out-of-service vehicle will be used to reduce the purchase price of the replacement vehicle, and the use tax is paid on the difference between the two vehicles rather than the original full purchase price of the replacement vehicle.
DaimlerChrysler is a manufacturer of automobiles, trucks, vans and sport utility vehicles. After auditing DaimlerChrysler's sales and use tax returns for the years 1994 through 2000 ("Audit Period"), the Commissioner of Revenue issued a notice of assessment on September 2, 2000 ("First Assessment") and a second notice of assessment on September 21, 2001 ("Second Assessment"). DaimlerChrysler paid the portions of the assessments which were not in dispute.
The portions of the Commissioner's assessment disputed by DaimlerChrysler relate to the Commissioner's refusal to allow DaimlerChrysler credits under Tenn. Code Ann. §67-6-501(b)(1) for the rotation of cars used by DaimlerChrysler for business purposes. DaimlerChrysler filed suit in February of 2002 under the Taxpayer Remedies for Disputed Taxes Act, Tenn. Code Ann. § 67-1-1801 et seq., asking the court to invalidate and set aside portions of the First Assessment. DaimlerChrysler later amended the complaint to likewise contest portions of the Second Assessment relating to the credits.
The parties filed cross motions for summary judgment on the sole issue whether DaimlerChrysler was entitled to "trade-in credits" for vehicles it rotated for business use under Tenn. Code Ann. § 67-6-510(b). The trial court found DaimlerChrysler was not entitled to the statutory credit, resulting in this appeal.
The parties were able to agree that the sole issue on appeal is the applicability of the trade-in credit of Tenn. Code Ann. § 67-6-510(b). The parties also agreed to the following facts for purposes of their cross-motions for summary judgment.
DaimlerChrysler is a manufacturer of motor vehicles licensed by the Tennessee Motor Vehicle Commission as a vehicle manufacturer/distributor. During the seven year Audit Period, DaimlerChrysler had a zone office and a distribution center in Memphis, Tennessee. DaimlerChrysler also leased diagnostic equipment and signs to its dealers. For one of those years, DaimlerChrysler also owned 100% of the equity stock in two retail dealerships in Memphis.
The DaimlerChrysler activities pertinent to this case relate to the sales and promotional activities conducted by its zone office. Representatives from DaimlerChrysler visit dealerships and potential fleet customers to demonstrate and promote the sale of Chrysler vehicles. To assist its employees in these particular activities, DaimlerChrysler removed new Chrysler vehicles from its inventory at various assembly plants and assigned them for use by the zone office employees. After about twelve months of use, the vehicles were returned to inventory and sold at auction. Generally, new Chrysler vehicles were then rotated in to replace the returned vehicles.
While the vehicles were in use by the zone office, they were owned by DaimlerChrysler and each vehicle had a Manufacturer's Certificate of Origin ("MCO"). The MCO evidences the initial ownership by DaimlerChrysler of a new vehicle. These MCOs were issued by DaimlerChrysler at the assembly plants and were sent with the vehicles to the zone office. While in use the vehicles were issued manufacturer's special purpose license plates since DaimlerChrysler was registered as a manufacturer with the Shelby County, Tennessee Clerk. These plates bore a dealer designation. When the vehicles were returned to inventory, the MCOs were stamped "USED" and the vehicles were then sold at auction to dealers.
The trial court found DaimlerChrysler was not entitled to the credit based on two independent grounds. First, DaimlerChrysler was not a "motor vehicle dealer" within the meaning of Tenn. Code Ann. § 67-5-510(b). Second, in order to utilize the credit, the trial court found Tenn. Code Ann. § 67-5-510(b) required that DaimlerChrysler pay sales or use tax on the vehicles it wishes to value as trade-ins at the time the trade-ins were made. Since DaimlerChrysler failed to make these payments at the time of the trade-in, then it failed to meet the statutory requirement and was thus not entitled to the credit.
Tenn. Code Ann. § 67-6-510 provides as follows:
(a) Where used articles are taken in trade, or in a series of trades, as a credit or part payment on the sale of new or used articles, the tax levied by this chapter shall be paid on the net difference, that is, the price of the new or used article sold less the credit for the used article taken in trade.
(b) (i) A motor vehicle dealer having previously titled and registered a motor vehicle in the dealership name for business use, and having paid the appropriate sales or use tax on such vehicle, shall be allowed a trade-in credit equal to the trade-in value of such vehicle against the purchase price of a new or used vehicle purchased or extracted from such a dealer's inventory to be titled and registered as a replacement vehicle for business use, and the sales or use tax shall be paid on the net difference.
(ii) The trade-in value authorized by this subsection (b) shall be equal to the trade-in amount for the specific make and model as established by the NADA Official Used Car Guide, Southeastern Edition.
(iii) It is the legislative intent that a dealer may purchase a vehicle from the dealer's dealership's inventory and receive the same trade-in credit as if the dealer purchased the vehicle from the inventory of another dealer.
(emphasis added).
Neither party takes the position that subsection (a) has any applicability in this matter. As explained by the trial court, subsection (a) applies only when two entities are conducting a transaction "since the Department has consistently taken the position that a taxpayer may not sell to itself since there is no consideration in that transaction." Therefore subsection (a) does not apply to any transaction where there an entity seeks a trade-in credit against the "purchase" of its own inventory. In addition, subsection (a) appears to apply only to sales and would have no applicability to the current situation since the issue is whether DaimlerChrysler may get a credit on "use" as opposed to sales taxes.
Subsection (b) was added in 1995 to allow a trade-in credit against a purchase from a motor vehicle dealer's own inventory. The express legislative intent is to allow a car dealership the same trade-in credit as allowed under subsection (a), i.e., as though the trade was between two entitles. Tenn. Code Ann. § 67-6-510(b)(iii). Under subsection (b), tax is paid on the difference between the value of the vehicle that is retired from service and the price of the replacement vehicle. The reduction in tax is on the purchase of the second vehicle, not the vehicle traded in. The trade-in credit in effect reduces the value of the replacement vehicle for sales and use tax purposes.
The issue is whether vehicle manufacturers may claim the trade-in credit of Tenn. Code Ann. § 67-6-510(b). The Department argues alternatively that, even if the credit is available to manufacturers, DaimlerChrysler may not avail itself of the credit since it failed to meet the statutory requirement of having already paid tax on the vehicle "traded in."
According to DaimlerChrysler, a manufacturer is included under the definition of "motor vehicle dealer" for two reasons. First, DaimlerChrysler reasons that the natural and ordinary meaning of "motor vehicle dealer" includes one who deals in motor vehicles. Second, DaimlerChrysler argues that it fits the definition of "dealer" found in the statutory scheme at issue.
The trade-in credit statute at issue is part of the Retail Sales Tax Act, Tenn. Code Ann. § 67-6-101 et seq. Definitions are provided in Tenn. Code Ann. § 67-6-102 that are to be used in Chapter 6 "unless the context otherwise requires." "Motor vehicle dealer" is not defined. DaimlerChrysler, however, argues it meets several of the definitions of "Dealer" found in Tenn. Code Ann. § 67-6-102(12). One such definition relied on by DaimlerChrysler defines "dealer" as one who "[m]anufacturers or produces tangible personal property for sale or use in Tennessee." Tenn. Code Ann. § 67-6-102(12)(A). DaimlerChrysler argues that as a wholesale dealer it is entitled to the...
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