Penske Truck Leasing Co., L.P. v. Huddleston, 01-S-01-9001-CH00010

• Decision Date: 10 September 1990
• Docket Number: No. 01-S-01-9001-CH00010,01-S-01-9001-CH00010
• Citation: 795 S.W.2d 669
• Parties: PENSKE TRUCK LEASING CO., L.P., Assignee and Successor in Interest to Gelco Corp., Appellant, v. Joe B. HUDDLESTON, Commissioner of Revenue, State of Tennessee, Successor in Office to Charles E. Cardwell, who was Successor in Office to Dudley W. Taylor, Appellee. 795 S.W.2d 669
• Court: Tennessee Supreme Court

Page 669

795 S.W.2d 669

PENSKE TRUCK LEASING CO., L.P., Assignee and Successor in Interest to Gelco Corp., Appellant, v. Joe B. HUDDLESTON, Commissioner of Revenue, State of Tennessee, Successor in Office to Charles E Cardwell, who was Successor in Office to Dudley W. Taylor, Appellee.

No. 01-S-01-9001-CH00010.

795 S.W.2d 669

Supreme Court of Tennessee at Nashville.

Sept. 10, 1990.

Charles A. Trost, J. Leigh Griffith, Joseph A. Woodruff, Waller, Lansden, Dortch and Davis, Nashville, for appellant.

Charles W. Burson, Atty. Gen. and Reporter, William P. Sizer, Asst. Atty. Gen., Nashville, for appellee.

OPINION

COOPER, Justice.

This action was brought by Penske Truck Leasing Company, a limited partnership, to recover sales and use taxes paid under protest. The chancellor found that the taxes were properly assessed, and denied the relief sought. Plaintiff has appealed to this Court, insisting primarily that the trial court erred in holding that the sales of fuel by plaintiff to lessees were part of the gross proceeds of the lease agreements and subject to sales and use taxes.

In 1987, the Commissioner determined that plaintiff owed sales and use taxes, including interest, in the total amount of $1,238,122.79. The tax assessment was on:

(1) Advance Fuel Billings--estimated payments for future fuel purchases by long-term truck lessees who had contracted to purchase fuel from plaintiff;

(2) Fuel Reconciliations--credits or debits issued to the long-term truck lessees on monthly reconciliation of estimated payments (Advance Fuel Billings) against actual fuel purchases;

(3) Drop-in Fuel Sales--fuel sales to lessees who had not contracted to purchase fuel from plaintiff;

(4) Top-Off Fuel Sales--fuel sales to short-term truck lessees who were obligated to return the truck with a full tank of fuel; and

(5) Contract Maintenance Fuel Sales--fuel sales to non-lessees who had a truck maintenance contract with plaintiff and who had also contracted to purchase fuel from plaintiff.

Plaintiff paid the assessment under protest, and filed a request for refund. When the request for refund was denied, the present action was filed.

Prior to trial, the Commissioner admitted error in the computation of the sales and use taxes due and that, as the result, plaintiff was entitled to a refund of $494,559.79. Plaintiff, in turn, conceded that an assessment of $39,050.00 on non-revenue and maintenance items was proper. This left $704,402.00 in dispute, of which $485,152.00 was the tax on Advance Fuel Billings, $79,631.00 on Fuel Reconciliations, $66,436.00 on Top-Off Fuel Sales, $70,817.00 on Drop-in Fuel Sales, and $2,316.00 on Contract Maintenance Fuel Sales.

At trial, the Commissioner conceded that the assessments on top-off fuel sales, drop-in fuel sales, and contract maintenance fuel sales were incorrect, leaving at issue only the tax assessments on advance fuel billings and fuel reconciliations.

Plaintiff leases its vehicles to businesses and individuals under a lease and service agreement which provides for the payment of a fixed rate for use of the leased vehicle, plus a fixed mileage rate that includes the cost of maintenance. Plaintiff paid sales and use taxes on these revenues.

Under the lease and service agreement, the lessee also is given the option of purchasing fuel for the leased vehicles from plaintiff, or of purchasing fuel from other vendors. A lessee who initially agrees to lease a vehicle and to purchase fuel from plaintiff can, during the lease period, decide to change the fuel contract without any modification of the fixed lease payments or the fixed mileage payments. Likewise, if a lessee leases a vehicle and initially chooses not to purchase fuel from plaintiff, the lessee subsequently can decide to enter into a fuel agreement with plaintiff without any change in payments under the vehicle lease agreement. In those instances where a lessee chooses the option of purchasing fuel from appellant, an estimate of the fuel cost is agreed upon by the parties and the lessee makes payment in advance of actual fuel purchases (Advance Fuel Billings). These payments are reconciled monthly against actual fuel purchases (Fuel Reconciliations). Revenues generated by the fuel purchase option are accounted for by plaintiff's fuel sales division and are billed separately from the truck lease revenues.

In assessing sales and use taxes on advance fuel billings and fuel reconciliations, the Commissioner relied on Magnavox Consumer Electronics v. King, 707 S.W.2d 504 (Tenn.1986), wherein the Court held that where fuel costs are included in the agreed rental price of equipment, the entire lease payment is subject to the use...