Can Utah's rental car tax be challenged as unconstitutional before the Tax Commission, and does an airport concession fee reduce the taxable rental price?

Plain-English summary

A rental car company operating at the Salt Lake City International Airport challenged Utah's newly enacted 2.5% short-term rental car tax (Utah Code Ann. § 59-12-901, from 1997's H.B. 111, effective July 1, 1997) on two fronts:

Constitutional challenge. The company argued the tax singled out rental cars for funding highway infrastructure despite (per a Utah Department of Transportation study) causing minimal highway wear compared to other vehicles, violating equal protection (citing Oklahoma Broadcasters v. Okla. Tax Comm'n, 789 P.2d 1312 (Okla. 1990)), and discriminated against interstate commerce since most of its customers were interstate travelers (citing Park 'N Fly of Texas, Inc. v. City of Houston, 327 F. Supp. 910 (S.D. Tex. 1971), and the four-prong Commerce Clause test from Marx v. Truck Renting & Leasing Ass'n, 520 So.2d 1333 (Miss. 1987)).

The Commission declined to reach the merits of any constitutional argument. It reminded the company that a legislative enactment is presumed constitutional until a court says otherwise (citing Lander v. Industrial Comm'n of Utah, 894 P.2d 552 (Ct. App. 1995)), and that the Tax Commission is not a court of general jurisdiction and has no authority to declare a statute unconstitutional (citing Avis v. Board of Review of the Indus. Comm'n, 837 P.2d 584 (Ct. App. 1992)). It would continue administering the tax as the legislature wrote it until amended or struck down by the Utah Supreme Court.

Airport concession fee exclusion. The company separately asked to exclude roughly 10% of its rental charge from the tax base — the portion representing the airport concession fee it pays Salt Lake City for the right to operate at the airport — analogizing to Phoenix v. Ariz. Rent-A-Car Systems, 851 P.2d 157 (Ariz. Tax Ct. 1993), which excluded a non-integral gasoline charge from a gross receipts tax. The Commission rejected this too: sales tax applies to the entire transaction amount charged, not just to the specific item or service sold, citing Utah Admin. Rule R861-19S-2. Since the concession fee is simply overhead the company passes through in its rental price — like any other business cost marked up into the price — and no statutory exemption covers it, the full rental charge is taxable, with no carve-out for the concession-fee portion.

What this means for you

Rental car companies and other Tax Commission petitioners

Don't expect the Tax Commission to rule on a constitutional challenge to a tax statute — it lacks jurisdiction to do that, and will simply keep enforcing the law as written pending a court decision. If you want a statute invalidated, that fight has to happen in court, not through an advisory opinion request.

Businesses trying to exclude pass-through costs/fees from the sales tax base

Sales tax generally applies to the entire amount charged for a transaction, including your own overhead and marked-up costs, unless a specific statutory exemption applies — simply arguing a particular cost component (like a concession fee, licensing fee, or similar) isn't "integral" to the core service doesn't get it excluded absent an actual exemption.

Accountants and tax professionals

This is a useful, clean precedent for two recurring procedural points: (1) Utah's Tax Commission has no authority to declare a statute unconstitutional (a jurisdictional limit worth citing when a client wants to raise a constitutional argument administratively), and (2) the tax-base default is the entire transaction amount under Rule R861-19S-2, so any exclusion argument needs to point to an actual exemption, not just a "non-integral cost" theory.

Common questions

Q: Can the Utah Tax Commission declare a tax statute unconstitutional?
A: No — it's not a court of general jurisdiction and has no authority to do so; it will keep administering the law until a court invalidates it.

Q: Can a business exclude a pass-through fee (like an airport concession fee) from the taxable rental price?
A: Not without a specific statutory exemption — sales tax applies to the entire transaction amount, including overhead costs marked up into the price.

Q: Can I rely on this 1997 ruling today?
A: Not directly — it binds the Commission only for the taxpayer and facts it addressed, and Utah's statutes and rules have been renumbered and amended repeatedly since. Verify current law before relying on it.

Citations and references

Statutes:

• Utah Code Ann. § 59-12-901 (2.5% tax on short-term motor vehicle leases/rentals not exceeding 30 days)

Rules:

• Utah Admin. Rule R861-19S-2 (sales tax applies to the transaction, not just the item or service sold)

Case law (cited by the Commission in declining jurisdiction):

• Lander v. Industrial Comm'n of Utah, 894 P.2d 552 (Ct. App. 1995) (legislative enactments presumed constitutional)
• Avis v. Board of Review of the Indus. Comm'n, 837 P.2d 584 (Ct. App. 1992) (agency lacks authority to declare a statute unconstitutional)

Case law (cited by the taxpayer; not adopted by the Commission):

• Oklahoma Broadcasters v. Okla. Tax Comm'n, 789 P.2d 1312 (Okla. 1990)
• Park 'N Fly of Texas, Inc. v. City of Houston, 327 F. Supp. 910 (S.D. Tex. 1971)
• Marx v. Truck Renting & Leasing Ass'n, 520 So.2d 1333 (Miss. 1987)
• Phoenix v. Ariz. Rent-A-Car Systems, 851 P.2d 157 (Ariz. Tax Ct. 1993)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/97-040.htm

Original ruling text

97-040

Response July 10, 1997

June 24, 1997

Re: Advisory
Opinion on Rental Car Sales Tax

Dear Ms. Reese:

We represent COMPANY A. We request an advisory opinion on the application of the sales
tax under Utah Code Ann. Section
59-12-901. This newly enacted section
was passed by the 1997 Utah Legislature as Utah House Bill 111. Section 59-12-901 imposes a 2.5 percent tax
on all short- term leases and rentals of motor vehicles not exceeding 30
days. This rental car tax is scheduled
to go into effect on July 1, 1997.

The rental car tax exempts motor vehicles: 1)
weighing over 12,001 pounds; 2) rented as a personal household goods moving
van; and 3) leased or rented for the purposes of temporarily replacing a
person's motor vehicle that is being repaired.
The Utah Tax Commission is responsible for the administration and
collection of the tax. See Utah
Code Ann. �59-12-901(3).

COMPANY A requests the Utah State Tax Commission 1)
hold the rental car tax unconstitutional and not enforce the tax; or, in the
alternative, 2) permit COMPANY to exclude 10 percent (10%) of the rental
payment amount from the tax. The 10
percent amount represents the approximate amount necessary to charge rental car
customers to cover the cost of the airport concession fee paid to Salt Lake
City. These two issues are discussed
below.

I. The Rental Car Sales Tax
Should Be Held Unconstitutional Under the Equal Protection and Commerce Clauses

COMPANY A and other rental car companies are being
singled out for payment of highway infrastructure. Based on a Utah Department of Transportation study, a copy of
which is attached as Exhibit "A", the damage and use of the highways
by rental cars compared to all other vehicles is infinitesimal. In Oklahoma Broadcasters V. Okla Tax
Comm'n, 789 P.2d 1312 (Okla. 1990), the court held that a sales tax imposed
on broadcasting media but not print media, both of which were in the same
industry, violated the equal protection clause since there was no discernible
difference between them.

Based on the reasoning in the Oklahoma case,
a sales tax imposed on rental cars, but not other highway vehicles, both of
which use the highway, should be held unconstitutional. There is no discernible difference between a
rental car and other cars or trucks used on the highways. There is also no difference between a short-term
rental car and other short-term rental cars operated by drivers whose personal
vehicles are being repaired.

The rental car sales tax also violates the commerce
clause. The tax is imposed on company A's rental operations which are part of
interstate commerce. COMPANY A is on
the premises of the Salt Lake International Airport and the majority of COMPANY
A's customers are interstate travelers who use the rental cars as part of their
interstate travel. See Park
'N Flv of Texas Inc. v. City of Houston, 327 F.Supp. 910, 921 (S.D. Texas
1971) (the court held that plaintiff Park 'N Fly and intervenor Budget Rent A
Car who operated vehicles for the loading and unloading of airport customers to
and from their off-airport lots were part of interstate commerce).

As a part of interstate commerce, COMPANY A cannot be
assessed a sales tax which discriminates between COMPANY A and other
"intrastate" vehicles. See
generally Marx v. Truck Renting & Leasing Ass'n, 520 So.2d 1333,
1345 (Miss. 1987) (sets forth four-prong commerce clause test). Yet this is precisely the result under the
sales tax under Section 59-12-901. For
example, the sales tax is imposed on COMPANY A's rental cars which are part of
interstate commerce and not on other short-term rentals of "intrastate"
vehicles for owners whose vehicles are being repaired.

II. The
10 Percent Airport Concession Fee Should Be Excluded from The Rental Payment
Amount In Applying The Rental Car Tax.

In 1987, COMPANY A entered into a Concession
Agreement with Salt Lake City Corporation for the right to operate a rental car
business on the premises of the Salt Lake City International Airport. This Concession Agreement was renewed in
1992. (See generally, Findings of Fact, Conclusions of Law, and
Final Decision dated February 3, 1997 issued by the Utah State Tax Commission in
Salt Lake County Assessor v. Salt Lake County Bd of Equalization, Car Rental
Companies, pp. 3-4.)

COMPANY A would like to exclude an amount equal to
10 percent of the rental price charged to customers for purposes of the rental
car tax under Utah Code Ann. Section 59-12-901. This amount representing ten (10) percent approximates the amount
charged rental car customers to cover the cost of the airport concession fee
paid by COMPANY A to Salt Lake City.

For example, assume an average price of a one-day rental
of a car is $180 prior to the application of only the 2.5 percent rental
tax. COMPANY A would like to remove 10
percent or $18 from the rental price before applying the tax. COMPANY A would
then remit to the Utah State Tax Commission a rental tax amount equal to $4.05
($162 x 2.5%). The rental car customer
would then pay $184.05 ($180 + $4.05) (assuming only a rental car tax was
applied).

COMPANY A makes this request due to the fact the
airport concession fee is not part of Budget's rental business but rather a fee
charged COMPANY A for the right to do business on airport premises. COMPANY A believes those amounts which are
not integral to the business of car rentals should not be included in the
rental amount which is taxed.

In Phoenix V. Ariz. Rent-A-car Systems, 851
P.2d 157 (Ariz. Tax. Ct. 1993) the court, relying on an Arizona statute, held
the sale of gasoline to returning auto renters was not an integral part of the
rental transaction and, therefore, not subject to a gross receipts tax. The court based their holding on the fact
that the sale of gasoline was not a minimal amount, could be easily calculated
and such service was not an integral part of the rental car business.

Like the Phoenix case, the airport concession
fee paid by COMPANY A is not minimal, can be easily determined and is a fee for
the right to do business on the airport and not a fee for the renting of motor
vehicles.

COMPANY A would also like to exclude the airport
concession fee from application of the sales tax under Section 59-12-103(l)(k)
and the county tourism tax under Section 59-12-603(1) (a) based on the same
reasoning above.

Please call if you have any questions.

Sincerely yours,

NAME

July
10, 1997

NAME

ADDRESS

CITY STATE ZIP

Advisory Opinion - Tax on rental car transactions.

Dear NAME,

We
have received your request concerning tax imposed by H.B. 111. You have requested that we declare the tax
unconstitutional and that we decline to impose it on that basis. At the outset, we remind you that a
legislative enactment is presumed constitutional until declared
unconstitutional by the courts. See,
e.g. Lander V. Industrial Comm'n of Utah, 894 P.2d 552 (Ct. App. 1995). The Tax Commission is not a court of general jurisdiction and it
has no authority to declare a statute unconstitutional. See Avis v.
Board of Review of the Indus. Comm'n, 837 P.2d 584 (Ct. App. 1992) and cases cited
therein. Therefore, we do not address
your constitutional arguments. We will continue
to administer the tax as directed by the legislature until the statute is
amended or ruled unconstitutional by the Utah Supreme Court.

Turning
to your second issue, we offer the following tax guidance concerning the tax
base on which this tax is applied:

We
assume that the airport concession fees are imposed on COMPANY A and passed
through to COMPANY A�s customers in the form of higher rental charges. Presumably all of COMPANY A�s
overhead costs are passed through to its customers. Sales tax, however, is a tax on the transaction, not the item or
service sold. See Utah Administrative Rule R861-19S-2. Therefore, unless some exemption applies,
the sales tax pertains to the entire amount charged for the item or service
even if that amount is marked up to cover the seller�s overhead and
profit. We find no exemption in H.B.
111 or any other section of the Utah Code that applies to exempt the concession
fee from the tax base. The entire
amount of rental charge, then, is subject to the rental tax.

Please
let us know if you have other questions.

For
the Commission,

Joe
B. Pacheco,

Commissioner