Does Colorado's $2-per-day vehicle rental fee restart when a short-term rental is terminated and the customer immediately signs a brand-new rental for the same vehicle?

Plain-English summary

A short-term car-rental company asked whether Colorado's $2-per-day vehicle rental fee applies to a second rental it writes after terminating a first one. The Department said yes — the second rental is subject to the fee.

Here's the setup. Colorado charges a $2 fee for each day of a "short-term vehicle rental," meaning a rental of 30 days or less (§ 43-4-804(1)(b)(I)). The statute exempts a "renewal" from the fee to the extent the renewal extends the total rental period beyond 30 days. For certain high-risk rentals, the company makes the customer return the vehicle for inspection, then closes out and bills that first rental (call it Rental No. 1). If the customer wants to keep going and the company agrees, it writes a new rental ticket (Rental No. 2) — possibly for the same vehicle.

The question was whether ending Rental No. 1 and starting Rental No. 2 counts as a "renewal" that, once the combined time passes 30 days, escapes the fee. The Department concluded it does not:

• "Renewal" means extending an existing contract, not signing a new one. The Department read the phrase "extends the rental period" to mean the original contract is extended for more time — not the total time across an initial contract plus a separate later one. It backed this with the contract-law meaning of "renewal" in Black's Law Dictionary and noted courts have found the word ambiguous (citing BSG, LLC v. CheckVelocity).
• The opposite reading leads to absurd results. If any new contract following a terminated one were a "renewal," a customer could rent 10 days, return the car, and re-rent the same type for 28 days fee-free — and rental companies couldn't know at the outset whether a later "renewal" would wipe out the fee.
• Terminated means terminated. Because Rental No. 1 is closed out and billed, Rental No. 2 is a new contract — the same, contractually, as any customer who returns a car, ends the agreement, and later rents again. The short gap in time doesn't matter.

So Rental No. 2 begins a new 30-day-or-less period and the $2/day fee applies to it. As a private letter ruling, this binds the Department only for this company and these facts.

What this means for you

Car-rental and short-term leasing companies

If you close out and bill a rental and then write a new ticket — even for the same customer and vehicle minutes later — treat the new ticket as a fresh short-term rental that owes the $2/day fee from day one. The fee-free "renewal" only applies when you keep the same contract running past 30 days, not when you end one agreement and start another.

Operators with inspection or high-risk return policies

Building an inspection-and-rewrite step into your process (terminate, inspect, bill, then issue a new agreement) means each new agreement starts its own fee clock. That may be exactly what you want for liability reasons — just know it doesn't let the customer's combined time slide past 30 days fee-free.

Accountants and tax professionals

The dividing line under § 43-4-804(1)(b)(I) is contract continuity: a true renewal extends the existing contract (and is exempt to the extent it pushes the original past 30 days); a new contract after a terminated one is not a renewal and starts a new fee period. The fee is a state transportation fee under Title 43, distinct from sales tax.

Common questions

Q: We terminated a rental and immediately wrote a new one for the same car. Does the $2/day fee apply to the new rental?
A: Yes. The new rental is a separate contract, not a "renewal" of the terminated one, so it starts a fresh short-term rental period subject to the fee.

Q: What is an exempt "renewal" then?
A: Extending an existing rental contract. The fee stops applying only to the extent that renewal stretches the original rental period beyond 30 days — it's about keeping one contract going, not signing a new one.

Q: Does the short gap between the two rentals change anything?
A: No. The Department said the brief lapse is immaterial; once the first contract is terminated by its terms, the next contract is new.

Q: Does this ruling apply to my business?
A: Not automatically. A private letter ruling binds the Department only for the taxpayer and facts it was issued to and cannot be relied upon by anyone else.

Citations and references

Statutes, rules, and authorities:
- § 43-4-804(1)(b)(I)(A), C.R.S. ($2 daily fee on short-term vehicle rentals)
- § 43-4-804(1)(b)(I)(B), C.R.S. (short-term vehicle rental = 30 days or less; renewal-beyond-30-days exemption)
- 1 CCR 201-1, Rule 24-35-103.5 (private letter ruling procedure)
- BSG, LLC v. CheckVelocity, Inc., 2012 Tenn. LEXIS 822 (ambiguity of "renewal")
- Black's Law Dictionary (8th ed.), "Renewal"

Source

• Landing page: https://tax.colorado.gov/all-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-18-006.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

PLR 18-006
July 3, 2018
XXXXXXXXXXXXXX
Attn: XXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Re: Private Letter Ruling / XXXXXXXXXXXXXX
Dear XXXXXXXXXXXXXX,
You submitted a request for a private letter ruling on behalf of your client
XXXXXXXXXXXXXX (“Company”) to the Colorado Department of Revenue
(“Department”) pursuant to Department Rule 24-35-103.5. This letter is the
Department’s private letter ruling. This ruling is binding on the Department to the
extent set forth in Department Rule 1 CCR 201-1, 24-35-103.5. It cannot be
relied upon by any taxpayer other than the taxpayer to whom the ruling is made.
Issue
1. Is the Daily Rental fee applied to [Rental No. 2], as defined below?
Conclusion
1. The Daily Rental fee is applied to [Rental No. 2].
Background
Company is in the business of short-term leasing of motor vehicles. These
leases are generally subject to the daily rental fee set forth in §43-4-804(1)(b)(I),
C.R.S. For certain high-risk rentals, Company requires a customer to return the
vehicle to the Company's office or approved vendor for inspection (“[Rental No.
1]”). Company closes out the [Rental No. 1] in the Company’s system and
Company submits an invoice to the customer for the [Rental No. 1]. If the
customer wishes to rent the vehicle after the inspection and the Company agrees
to rent the vehicle to the customer, Company will assign a new rental ticket
number to that rental (“[Rental No. 2]”). The customer may use the same
vehicle. The [Rental No. 2] is for a rental period of thirty days or less. The
treatment of [Rental No. 1] is different from the typical rental. In the latter case, a
customer may continue to use a vehicle without returning the vehicle for
inspection and the rental agreement is extended and a new rental ticket is not
written.

Discussion
Colorado assesses a fee on short-term vehicle rentals.1 The fee of $2 is
imposed on each day of a short-term vehicle rental. A short-term vehicle rental
means the rental of any motor vehicle that is rented within Colorado for a period
of not more than 30 days,2
...except that a subsequent renewal of a short-term vehicle rental is
exempt from the fee to the extent that the renewal extends the total rental
period beyond thirty days.
The question raised in this ruling is whether “renewal” refers to an extension of
the existing contract or to the creation of a new rental on the same terms and
conditions of the initial rental.3 More specifically, the issue is whether the
termination of the [Rental No. 1] and the creation of a [Rental No. 2] is a “renewal
[that] extends the total rental period beyond thirty days” within the meaning of the
statute.
The Department concludes that “renewal”, for purposes of this daily rental fee,
refers to a rental contract that is extended rather than to a new contract that
follows the expired or terminated original contract. This position is based, in part,
on the statute’s use of the phrase, “extends the rental period”. The most natural
reading of this phrase is that the initial rental contract is extended for an
additional period of time rather than referring to the total time a vehicle is rented
under the initial and a subsequent rental contracts.
A contrary conclusion would lead to absurd results. For example, if “renewal”
was interpreted to apply to a new rental contract that followed the termination of
the existing rental contract, then a customer who rents a vehicle for 10 days,
returns it to the rental company, and a day later rents the same vehicle or same
type of vehicle for 28 days, would not be obligated to pay the daily rental fee for
the 28 days because the second rental was a “renewal” of the terminated
contract and extended the total rental period for more than 30 days. This also
presents the rental company with the untenable logistical problem of determining
at the outset of the lease whether the customer may “renew” the rental at some
later date and for how long.
In the present case, the initial [Rental No. 1] is terminated. Customers are billed
for the initial rental and Company then assesses whether it wishes to enter a new
high risk rental agreement. By terminating the [Rental No. 1] rather than
continuing the rental contract and simply having the right to inspect the vehicle,
Company presumably has eliminated any argument by the customer that the
1

§43-4-804(1)(b)(I)(A), C.R.S.
§43-4-804(1)(b)(1)(B), C.R.S.
3
See, e.g., BSG, LLC v. Check Velocity, Inc., 2012 Tenn. LEXIS 822, 8-9 (Tenn. Nov. 20, 201)
(court stating that “renewal” is ambiguous and may refer to an extension of a contract or new a
contract using terms of original contract); but, see, Black’s Law Dictionary, 8th Edition,
“Renewal” means “the re-creation of a legal relationship or the replacement of an old contract
with a new contract, as opposed to the mere extension of a previous relationship or contract.”
2

2

DR 4010A (06/11/14)

customer has the right to continued use of the vehicle, as would be the case in a
typical rental contract, notwithstanding a dispute about damage or risk to the
vehicle. In any event, the [Rental No. 1] / [Rental No. 2] scenario is the same, in
contractual terms, as when a customer returns a vehicle to the rental company,
the rental agreement is terminated, and the customer later enters into a new
rental agreement.
The Department acknowledges that, in the facts described in this ruling, the
lapse in time between the termination of the [Rental No. 1] and the creation of the
[Rental No. 2] is relatively short, but that fact is immaterial in this instance. If the
initial rental contract is terminated by its own terms, then a new rental contract is
not the renewal of the original rental agreement.
Therefore, the Department rules that the [Rental No. 2] contract is not a renewal
of the [Rental No. 1] contract within the meaning of the daily rental fee statute
and that the [Rental No. 2] contract begins a new 30-day or less period for the
daily rental fee.
Miscellaneous
This ruling is premised on the assumption that Company has completely and
accurately disclosed all material facts and that all representations are true and
complete. The Department reserves the right, among others, to independently
evaluate Company’s representations and assumptions. The ruling is null and
void if any such assumption and representation is incorrect and has a material
bearing on the conclusions reached in this ruling and is subject to modification or
revocation in accordance to Department Regulation 24-35-103.5.
This ruling is binding on the Department to the extent set forth in Department
Regulation 24-35-103.5. It cannot be relied upon by any taxpayer other than the
taxpayer to whom the ruling is made.
Enclosed is a redacted version of this ruling. Pursuant to statute and regulation,
this redacted version of the ruling will be made public within 60 days of the date
of this letter. Please let me know in writing within that 60 day period whether you
have any suggestions or concerns about this redacted version of the ruling.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue
This ruling cannot be relied upon by any other taxpayer other than the
taxpayer to whom the ruling is made.

3

DR 4010A (06/11/14)