Gen. Motors v. CITY & CTY. OF DENVER

• Decision Date: 06 December 1999
• Docket Number: No. 98SA220.,98SA220.
• Citation: 990 P.2d 59
• Parties: GENERAL MOTORS CORPORATION, d/b/a General Motors Emissions Laboratory, Plaintiff-Appellee/Cross-Appellant, v. The CITY AND COUNTY OF DENVER, Tami A. Tanoue, as Hearing Officer for the Manager of Revenue of the City and County of Denver, State of Colorado; and Cheryl Cohen, as the Manager of Revenue of the City and County of Denver, State of Colorado, Defendants-Appellants/Cross-Appellees.
• Court: Colorado Supreme Court

990 P.2d 59

GENERAL MOTORS CORPORATION, d/b/a General Motors Emissions Laboratory, Plaintiff-Appellee/Cross-Appellant, v. The CITY AND COUNTY OF DENVER, Tami A. Tanoue, as Hearing Officer for the Manager of Revenue of the City and County of Denver, State of Colorado; and Cheryl Cohen, as the Manager of Revenue of the City and County of Denver, State of Colorado, Defendants-Appellants/Cross-Appellees.

No. 98SA220.

Supreme Court of Colorado, En Banc.

December 6, 1999.

Morrison & Foerster, LLP, Thomas H. Steele, Amy L. Silverstein, Neil I. Pomerantz, Denver, Colorado, Attorneys for Plaintiff-Appellee/Cross-Appellant.

Daniel E. Muse, City Attorney, Robert F. Strenski, Assistant City Attorney, Denver, Colorado, Attorneys for Defendants-Appellants/Cross-Appellees.

Justice KOURLIS delivered the Opinion of the Court.

In this case, we determine whether the City and County of Denver (Denver) may impose a use tax on automobiles owned by General Motors Corporation (GM) and used in Denver for 1 to 4% of their total useful life. We hold that the Commerce Clause does not prohibit such a tax, subject to the limitation that Denver's tax must be offset by a credit for any sales or use taxes on the wholesale value of the parts and materials used to construct the vehicles that GM may have incurred for purchases or uses in foreign states prior to their arrival in Denver. We then consider whether GM is entitled to either of two statutory exemptions from the Denver use tax, and hold that it is not.

I.

In 1995, the Denver Manager of Revenue conducted a tax audit of the Denver operations of GM for the period of January 1, 1989 to August 31, 1994. GM is a Delaware corporation with headquarters in Detroit, Michigan. During the audit period, GM's Powertrain Division operated the Denver Vehicle Emissions Testing Lab (the Denver Lab). The Powertrain Division brought approximately one-thousand vehicles to the Denver Lab each year, with an average of twenty to thirty vehicles at the lab each day. Following its audit of GM's Denver operations, the Manager of Revenue imposed a 3.5% use tax on approximately 82% of the vehicles that had passed through the lab between 1989 and 1994.¹ The taxed vehicles fell into three groups: emissions test vehicles, powertrain drive development vehicles, and "drive trip" test vehicles.

Emissions test vehicles, comprising 40% of the vehicles, represented the largest of the three groups. To create the emissions test vehicles, the Powertrain Division acquired current production model automobiles from GM's assembly lines in Michigan and refit the vehicles to simulate production models planned for a future year. The prototype vehicles then spent eight to twenty months in Michigan, undergoing performance stabilization and testing. Then, the Powertrain Division shipped them via common carrier to the Denver Lab. While in Denver, engineers ran the vehicles through approximately two weeks of high altitude emissions testing, both in the lab and on the roads of Denver and the surrounding mountains, before shipping the vehicles to other GM test centers in the United States and Canada. After an average test life of thirty-five months and twelve-thousand miles, during which GM occasionally brought the vehicles back to Denver, GM returned the vehicles to Michigan and either scrapped them, or sold them at auction. On average, the emissions test vehicles spent 2 to 4% of their useful lives in Denver and traveled 1.5% of their total miles in Denver.

Unlike the emissions test vehicles, the powertrain drive development vehicles, comprising 32% of the vehicles, did not undergo any testing in the Denver Lab. Rather, the Powertrain Division shipped these vehicles to the Denver Lab, where they sat for a short period— usually less than a few days— before engineers drove them into the mountains for road testing.

Lastly, drive trip test vehicles, comprising 10% of the vehicles, were vehicles that GM's engineers tested while driving on road trips across the country.² The Denver Lab served as a drop-off point for these vehicles, where lab personnel washed and performed minor maintenance on them before shipping them to other locations, usually within a matter of a few days. Both the powertrain drive development and drive trip test vehicles spent less than 1% of their useful lives and total miles in Denver.

Following its audit of these operations, Denver issued GM a notice of use tax deficiency totaling $2,868,632.96 based on the full value of the vehicles that passed through Denver. Subsequently, pursuant to this court's holding in International Business Machines Corp. v. Charnes, 198 Colo. 374, 601 P.2d 622 (1979), Denver issued a modified assessment for $1,044,199.16 based on the full value of the materials used to construct the vehicles, rather than the full retail value of the completed vehicles. This modified figure included an interest charge and a 10% tax penalty of $70,345.34 pursuant to D.R.M.C. § 53-114(a) (1993) for late remittance.

Denver provided GM with a tax credit under D.R.M.C. § 53-92(c) (1993) for any sales or use taxes paid by GM to other municipalities on the materials costs of the vehicles prior to the vehicles' arrival in Denver.³ Pursuant to that provision, however, Denver declined to credit any portion of foreign taxes paid on the value of the labor and overhead used to complete the vehicle or any taxes imposed on the vehicles after their departure from Denver. Denver calculated the proper credit to be $4,924.37, as compared to GM's total tax payments of $981,413.82 to other jurisdictions for uses before the vehicles were in Denver and after their departure.

GM contested Denver's assessment in a formal hearing before the Manager of Revenue, arguing that the use tax violated the Commerce Clause of the United States Constitution⁴ because it was not fairly apportioned and lacked a sufficient nexus to GM's initial purchase of the vehicles in Michigan. As such, GM contended that its activities should be exempt from the use tax under D.R.M.C. § 53-97(11) (1993), which excludes "[a]ll sales which the city is prohibited from taxing under the Constitution." Id. Alternatively, GM argued that its activities fell within two other municipal code exemptions. See D.R.M.C. § 53-97(9) (1993) (granting an exemption for temporary personal use within Denver); D.R.M.C. § 53-97(12) (1993) (granting an exemption for vehicles registered outside of Denver). The hearing officer affirmed the assessment of the tax in its entirety, finding that it did not violate the Commerce Clause and that GM was not entitled to claim either exemption to the tax. On review, the Denver District Court struck down the assessment, holding that GM fell within the D.R.M.C. § 53-97(9) temporary personal use exemption. In addition, anticipating an appeal concerning the application of that exemption, the district court addressed GM's constitutional arguments. The court found that Denver did not have a sufficient nexus to the Powertrain Division's original "purchase" of the parts and materials that comprised the vehicles. In addition, the court found that the tax was not "externally consistent" because it was not apportioned in a fashion that accounted for the fact that the vehicles spent only a small portion of their useful lives in Denver.

We have appellate jurisdiction pursuant to section 13-4-102(1)(b), 5 C.R.S. (1999), and we now affirm in part, reverse in part, and remand for a determination of the proper credit for the sales and use taxes paid by GM prior to the vehicles' arrival in Denver.

II.

Denver's municipal use tax is set forth in D.R.M.C. § 53-96(1) (1993), which states:

There is levied and there shall be collected and paid a tax in the amount stated in this article, by every person exercising the taxable privilege of storing, using, distributing or consuming in the city a service subject to the provisions of this article or any article of tangible personal property, purchased at retail, for said exercise of said privilege, as follows: (1) On the purchase price paid or charged upon all sales and purchases of tangible personal property.

Id. The code defines "use" as: "the exercise, for any length of time, by any person within the city of any right, power or dominion over tangible personal property or services." D.R.M.C. § 53-95(30) (1993) (emphasis added). It defines storage as "any keeping or retention of, or exercise of dominion or control over, or possession for any length of time of tangible personal property." D.R.M.C. § 53-95(23) (1993). Finally, the code defines "retail sale" as "any sale ... except a wholesale sale," D.R.M.C. § 53-95(19) (1993), where a wholesale sale is defined in relevant part as "[a] sale by wholesalers to licensed retail merchants ... or other wholesalers for resale." D.R.M.C. § 53-95(31)(a) (1993).

By these definitions, the use tax code "reflects a broad legislative intent to impose sales taxes or use taxes upon the great majority of purchases of tangible personal property." A.B. Hirschfeld Press, Inc. v. City & County of Denver, 806 P.2d 917, 920 (Colo.1991). "The definition of retail sale is broadly inclusive, encompassing all sales except wholesale sales. The use tax is to be imposed on the purchase price of all tangible personal property that is purchased at retail for use, storage, distribution or consumption." Id.

This broad scope reflects the purpose of the Code. We have previously noted that "Denver's use tax is intended to prevent individuals and businesses from purchasing property in another jurisdiction in order to avoid paying a sales tax in Denver." Winslow Constr. Co. v. City & County of Denver, 960 P.2d 685, 692 (Colo.1998). Use taxes such as this one arose shortly after the advent of sales taxes in the 1930s as a means to "safeguard State sales tax revenues from erosion by purchases of goods outside the State, and to protect local merchants from loss of business to border and other...