Matthews v. State, Dept. of Revenue
| Decision Date | 04 April 1977 |
| Docket Number | No. 27251,27251 |
| Citation | 562 P.2d 415,193 Colo. 44 |
| Parties | Robert S. MATTHEWS, Plaintiff-Appellee, v. STATE of Colorado, DEPARTMENT OF REVENUE, Defendant-Appellant. |
| Court | Colorado Supreme Court |
Maynes & Anesi, Sarah M. Duncan, Durango, for plaintiff-appellee.
J. D. MacFarlane, Atty. Gen., Jean E. Dubofsky, Deputy Atty. Gen., Edward G. Donovan, Sol. Gen., Billy Shuman, Sp. Asst. Atty. Gen., Denver, for defendant-appellant.
The question before us is whether it is constitutionally permissible for the Colorado taxing authorities to deny a trade-in allowance in computing the use tax on a motor vehicle purchased out of state when such a credit is allowed when the vehicle is purchased in Colorado. The trial court held that such unequal treatment was discriminatory and constituted an impermissible burden on interstate commerce. U.S.Const. art. I, § 8. We agree and affirm.
'(1) On November 14, 1973, Appellant Robert S. Matthews purchased a mobile home 1 in Arizona from an Arizona retail merchant. The asking price for this mobile home was $11,500.00 which was reduced by $7,015.00 for a trade-in mobile home owned by Defendant (apparently this should read 'Appellant'), which was licensed in Colorado. Mr. Matthews paid the Arizona mobile home dealer $4,485.00 plus the trade-in mobile home, which was to be resold in the usual course of the retailer's business.
'(3) At that time and during subsequent Department of Revenue hearings, it was stated that trade-in value would be subtracted from total purchase price for use tax purposes, only if that trade-in were made in Colorado to a Colorado retailer.'
Colorado imposes a sales tax upon the 'purchase price' paid on all retail sales and purchases of tangible personalty in Colorado. Section 39--26--104(1) (a), C.R.S.1973. In a retail sale involving the exchange of property (trade-in), the statute also allows a credit for the fair market value of property exchanged if that property is to be resold in the usual course of the retailer's business. Section 39--26--104(1)(b), C.R.S.1973. However, the statutory definition of 'purchase price' precludes credit for the value of the property traded, when the sale occurs outside the state of Colorado. Section 39--29--102(7) and (9), C.R.S.1973. The statute further provides that in order for the exchanged property to qualify for the tax credit, the retailer must be licensed in and responsible for payment of sales taxes to the state of Colorado. Sections 39--26--103 and 105, C.R.S.1973.
Supplementary to the sales tax, Colorado has enacted a Use tax upon the privilege of storing, using or consuming tangible personal property in Colorado which has been purchased outside of Colorado. Section 39--26--202, C.R.S.1973. A credit against the Use tax equal to the tax paid on the purchase to another state by reason of a similar tax is allowed by statute. Section 39--26--203, C.R.S.1973. However, there is no provision for a credit for property traded or exchanged out of state as in the case of the sales tax. Regulations issued by the Department of Revenue implement the use tax and are consistent with the statutory scheme. The trial court found the regulations to be invalid.
In essence the taxpayer is objecting to paying a higher tax on an out-of-state purchase than he would have had to pay had he made the same deal in Colorado. Although the rate (three percent) is nominally the same in each instance, the in-state transaction has the benefit of having the tax levied on a lower tax base. The power of the state to levy the use tax is not questioned, rather the issue is whether the state can discriminate in favor of those who purchase from in-state retailers.
The central concern of this appeal involves the application of federal constitutional law under the Commerce Clause to the Colorado sales and use tax schemes. Although the state contends that the use tax is a separate tax and should be viewed in isolation, only the most abstract legalistic approach can justify such an argument. Use taxes are enacted primarily to equalize the tax burden as between those who purchase within and without the state. Halliburton Oil Well Cementing Co. v. Reily,373 U.S. 64 at 66, 83 S.Ct. 1201 at 1202, 10 L.Ed.2d 202 at 204 (1963); Miller Brothers Co. v. Maryland, 347 U.S. 340 at 343, 74 S.Ct. 535 at 538, 98 L.Ed. 744 at 747 (1954); Comment, The Trade-in Deduction: Discrimination under the Sales and Use Taxes, 37 N.Y.U.L.Rev. 306 (1962). The Department of Revenue virtually conceded as much in its answer brief filed in the district court. We are aware of no court where such an artificial division of the tax scheme has been accepted in determining the effects of the use tax on commerce.
The state also argues that the Interstate Commerce Clause is not applicable, or in the alternative, that any burden created on interstate commerce is too slight to merit application of the Commerce Clause. The state would have the court conclude that the Commerce Clause does not apply, without first considering the effect of the taxing scheme on interstate commerce. The court cannot properly reach such a conclusion.
The fact of the matter is that Colorado has created a tax system which discourages Coloradoans from making significant trade-in purchases (such as motor vehicles) out of state. While Colorado can have a use tax to prevent sales tax avoidance and thus equalize the tax burden among Colorado purchasers of retail products, the state cannot structure the tax system to discriminate against out-of-state purchases. Henneford v. Silas Mason Co., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814 (1937).
The Department of Revenue approaches the problem from the perspective of whether the Congress has preempted the field and deprived the state of the power to levy such taxes. This approach misapprehends the issue. The Commerce Clause, although worded in terms of what Congress shall have the power to regulate, has long since been interpreted to proscribe the burdening of interstate commerce by the states.
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