Rent-A-Center West, Inc. v. Utah State Tax Commission

FILED
This opinion is subject to revision before final
publication in the Pacific Reporter UTAH APPELLATE COURTS
JANUARY 5, 2016
2016 UT 1IN THE
SUPREME COURT OF THE STATE OF UTAH
RENT-A-CENTER WEST, INC.,
Petitioner,
v.
UTAH STATE TAX COMMISSION
Respondent.
No. 20140129
Filed January 5, 2016
Original Proceeding in this Court
Attorneys:
Steven P. Young, Nathan R. Runyan, Salt Lake City,
for petitioner
Sean D. Reyes, Att’y Gen., Gale K. Francis, Asst. Att’y Gen.,
Salt Lake City, for respondent
JUSTICE DURHAM authored the opinion of the Court, in which
CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE LEE,
and JUSTICE HIMONAS joined.
Due to her resignation from this court, JUSTICE PARRISH
did not participate herein.
JUSTICE DURHAM, opinion of the Court:
INTRODUCTION
¶1 Rent-A-Center West, Inc. appeals the Utah State Tax
Commission’s decision declaring Rent-A-Center’s optional liability
waiver fee subject to Utah sales and use tax. We reverse.
BACKGROUND
¶2 Rent-A-Center leases and sells a variety of consumer
goods, ranging from smartphones and televisions to couches and
washing machines. Rent-A-Center leases its products through rental
agreements describing the property, the payment amount, and the
RENT-A-CENTER WEST v. UTAH TAX COMMISSION
Opinion of the Court
number of payments. Customers may choose to make payments
weekly, semi-monthly, or monthly.
¶3 Customers acquire ownership of the product once they
have paid the full value of the property. Until the final payment is
made, Rent-A-Center retains ownership.
¶4 The rental agreement also contains a provision allowing
customers to accept or decline participation in an optional liability
waiver program. Customers who agree to participate in the liability
waiver program pay an extra fee—calculated as 7.5 percent of the
rental payment—each pay period. In return for paying the liability
waiver fee, customers are not required to reimburse Rent-A-Center
for any loss if the product is damaged or destroyed due to lightning,
fire, smoke, windstorm, theft, or flood. If a customer elects not to pay
the liability waiver fee or is behind on rental payments, the customer
must reimburse Rent-A-Center for the fair market value of the item,
even if an enumerated calamity occurs. The liability waiver fee does
not entitle customers to repairs or replacement items.
¶5 Participation in the liability waiver program does not
affect the amount owed for the rental payments. Both the rental
payment and the liability waiver fee are due to Rent-A-Center at the
same time. On the customers’ receipts, Rent-A-Center separately
itemizes the amount paid for the rental payment and the amount
paid for the liability waiver fee. Customers may cancel the liability
waiver payment at any time without any effect on the rental or the
rental payment. Additionally, Rent-A-Center offers an early
purchase program wherein the customer may make a lump-sum
payment ahead of schedule, and this option does not require
payment of the liability waiver fee.
¶6 Rent-A-Center charges sales tax on the rental payment but
not on the liability waiver fee. The Utah State Tax Commission
conducted an audit of Rent-A-Center for 2007–2009 and discovered
this practice. On March 23, 2010, the Commission issued a statutory
notice to Rent-A-Center, imposing taxes and interest on the amounts
Rent-A-Center charged for the liability waiver fee, totaling
$147,364.35.
¶7 Rent-A-Center contested the audit results in a formal
hearing before the Commission. The Commission found the liability
waiver fee taxable because (1) Utah Code section 59-12-103(1)(k)
taxes “amounts paid or charged for leases or rentals of tangible
personal property,” and (2) the liability waiver “fee is part of the
total rental ‘purchase price’ and ‘sales price’ as defined in Section 59-
12-102(99).”
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Cite as: 2016 UT 1Opinion of the Court
¶8 Rent-A-Center appealed. We have jurisdiction to review
the Commission’s decision under Utah Code section 78A-3-
102(3)(e)(ii).
STANDARD OF REVIEW
¶9 This court’s review of the Commission’s decision is
governed by Utah Code section 59-1-610. We “grant the commission
deference concerning its written findings of fact, applying a
substantial evidence standard on review; and . . . [grant] no
deference concerning its conclusions of law, applying a correction of
error standard.” Id.; see also Anadarko Petroleum Corp. v. Utah State Tax
Comm’n, 2015 UT 25, ¶ 8, 345 P.3d 648. Because we decide this case
purely on issues of law, we review the Commission’s decision for
correctness, granting no deference.
ANALYSIS
I. THE LIABILITY WAIVER FEE IS NOT SUBJECT TO SALES
AND USE TAX UNDER THE PLAIN TEXT
OF THE UTAH TAX CODE
¶10 The issue we are asked to decide is straightforward: is
Rent-A-Center’s liability waiver fee subject to sales and use tax
under the Utah Tax Code? The relevant portion of the statute is Utah
Code section 59-12-103(1)(k), which imposes sales tax on “amounts
paid or charged for leases or rentals of tangible personal property if
within this state the tangible personal property is: (i) stored; (ii) used;
or (iii) otherwise consumed.” 1
¶11 The Commission argues that the statute, in conjunction
with its own administrative regulation, unambiguously requires
taxation of the liability waiver fee because the fee is charged “in
connection with the rental of tangible personal property.” (emphasis
added). The Commission considered the following facts to be
important in finding the liability waiver fee taxable: (1) the liability
waiver provision is part of the rental agreement, (2) the customer
must sign both the rental agreement and the liability waiver
document, (3) the customer must be current on rental payments as
well as liability waiver fee payments in order for the waiver to be
effective, (4) the customer pays the rental payment and the liability
waiver fee at the same time, (5) the liability waiver fee is a set
1 Because we hold that these fees are not included in Utah Code
section 59-12-103(1)(k)—“amounts paid or charged for leases or
rentals of tangible personal property”—it is unnecessary to discuss
whether these fees could be encompassed within the definitions of
“purchase price” and “sales price” found in section 59-12-102(99).
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Opinion of the Court
percentage of the rental payment, and (6) the liability waiver
program is not available absent a rental.
¶12 We examine first the import of “paid for” in the statutory
language of “amounts paid . . . for leases or rentals of tangible
personal property.” We conclude that the liability waiver fee is not
contemplated by that language. Second, we examine whether the
Commission’s administrative regulation is in harmony with the
statute and determine that it impermissibly broadens the statutory
coverage and is therefore invalid.
A. The Liability Waiver Fee Is Not an Amount “Paid for” the Lease or
Rental of Tangible Personal Property Because It Does Not Affect
the Possession, Use, or Operation of the Rental Property
¶13 When we interpret a statute, “our primary goal is to evince
the true intent and purpose of the Legislature.” Marion Energy, Inc. v.
KFJ Ranch P’ship, 2011 UT 50, ¶ 14, 267 P.3d 863 (citation omitted).
The best indication of the legislature’s intent is the plain and
ordinary meaning of the statute’s terms. Anadarko Petroleum Corp. v.
Utah State Tax Comm’n, 2015 UT 25, ¶ 24, 345 P.3d 648.
¶14 Utah Code section 59-12-103(1)(k) imposes a tax on
“amounts paid or charged for leases or rentals of tangible personal
property.” The pertinent question then is what is meant by “paid or
charged for”?
¶15 “In determining the ordinary meaning of nontechnical
terms of a statute, our ‘starting point’ is the dictionary” because it “is
useful in cataloging a range of possible meanings that a statutory
term may bear.” State v. Canton, 2013 UT 44, ¶ 13, 308 P.3d 517(citation omitted). It is merely a starting point, however, because
these possible definitions “will often fail to dictate ‘what meaning a
word must bear in a particular context.’” Hi-Country Prop. Rights Grp.
v. Emmer, 2013 UT 33, ¶ 19, 304 P.3d 851 (citation omitted). Where
this is the case, we must identify the meaning of the statutory
language “based on other indicators of meaning evident in the
‘context of the statute (including, particularly, the structure and
language of the statutory scheme).’” Id. (citation omitted).
¶16 The Oxford English Dictionary defines “pay for” in quid
pro quo terms—as giving “money or other equivalent for goods or
services.” OXFORD ENGLISH DICTIONARY, www.oed.com (last visited
Dec. 29, 2015). This definition indicates that it is not enough for a
payment to merely “concern” a good or service; it must go to the
purpose or aim of the transaction. We conclude that the essence of
the transaction is the exchange of money for the right to possess, use,
or operate the product that is the subject of the rental. Cf. UTAH
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ADMIN. CODE R865-19S-32(2) (“When a lessee has the right to
possession, operation, or use of tangible personal property, the tax
applies . . . pursuant to the lease agreement . . . .”).
¶17 This interpretation is consistent with another subsection of
section 103 that taxes “amounts paid or charged for services for
repairs or renovations of tangible personal property.” UTAH CODE
§ 59-12-103(1)(g). Services for repairs or renovations are taxable
because these services are to restore or extend the product’s life and
thereby affect its possession, use, and operation.
¶18 The Commission focused on six factual findings in
rendering its decision. Supra ¶ 11. Although the findings show a
connection between the rental payments and the liability waiver
fee—the liability waiver provision is signed at the same time as the
rental agreement, payments are made on the same schedule, etc.—
none of these findings illustrate why this fee is paid for the rental
property. The liability waiver fee does not have any effect on the
customer’s possession, use, or operation of the property. It does not
entitle the customer to repairs or replacement items. Instead, the
liability waiver fee simply secures Rent-A-Center’s promise to waive
any claims it would otherwise have against the customer if damage
or destruction occurs. 2
¶19 The Commission argues that other states tax liability
waivers or similar fees. But those states have statutes with language
much broader than Utah’s. Louisiana, for example, taxes “the gross
proceeds derived from the lease or rental of tangible personal
property.” LA. STAT. ANN. § 47:302(B)(1) (2015) (emphasis added);
Rent-A-Center. E., Inc. v. Lincoln Par. Sales & Use Tax Comm’n, 60 So.
3d 95, 98–99 (La. Ct. App. 2011) (deeming an identical liability
waiver fee taxable under Louisiana’s tax code). Kentucky taxes
“gross receipts,” which include “services, for which tangible
personal property . . . [is] sold, leased, or rented.” KY. REV. STAT.
ANN. § 139.010(12)(a) (West 2015); KY. DEP’T OF REVENUE, KY. SALES
TAX FACTS (June 2011), http://goo.gl/VLQagV.
¶20 The plain language of Utah’s statute does not tax amounts
“derived from” the rental of tangible personal property, nor does it
specifically include “services, for which tangible personal property”
2 We expressly reject Rent-A-Center’s argument that because this
fee is optional and separately itemized it is not taxable. So long as
the amount paid for the product or service affects the possession,
use, or operation of a tangible good, it would be taxable under
103(1)(k), regardless of whether the fee is optional or of the location
of the charge in the contract or billing documents. See supra ¶ 16.
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Opinion of the Court
is leased. Our statute taxes only amounts paid “for” the lease or
rental of tangible personal property. Because the liability waiver fee
does not affect the possession, use, or operation of the rental
property, it is not subject to taxation under the plain language of
section 59-12-103(1)(k).
B. The Regulation’s Use of “in Connection with” Impermissibly
Broadens the Statute
¶21 We next determine whether the Commission’s regulation
is consistent with the authorizing statute. The administrative code
implementing subsection 103(1)(k) requires a lessor to “compute
sales or use tax on all amounts received or charged in connection
with a lease or rental of tangible personal property,” UTAH ADMIN.
CODE R865-19S-32(1)(a), whereas the statute requires the collection of
sales tax on “amounts paid or charged for leases or rentals of tangible
personal property,” UTAH CODE § 59-12-103(1)(k) (emphasis added).
¶22 This regulation represents the Commission’s interpretation
of the Code, and that interpretation must harmonize with the text of
the statute. Airport Hilton Ventures, Ltd. v. Utah State Tax Comm’n,
1999 UT 26, ¶ 6, 976 P.2d 1197. “[W]e will uphold the Commission’s
rule only if, inter alia, it does not ‘confer greater rights or disabilities’
than the underlying statute.” Id. ¶ 8 (citation omitted). Although we
may defer to agency fact finding or discretionary decision making,
we decide this case solely on pure questions of law and our review is
therefore de novo. Hughes Gen. Contractors, Inc. v. Utah Labor Comm’n,
2014 UT 3, ¶ 25 n.4, 322 P.3d 712.
¶23 We conclude that the administrative regulation
impermissibly broadens the language of the statute. 3 “In connection
with” encompasses a wide variety of products and services that may
be associated with the rental without actually being “for” the rental.
While the liability waiver fee might well be included under the
Commission’s expansive interpretation, it is not paid “for” the
purchase of tangible personal property and therefore is not subject to
sales and use tax under the statute. As we have determined, while
the liability waiver fee may be “derived from,” “associated with,”
“related to,” or paid “in connection with” the rental of tangible
personal property, it does not affect the use, possession, or operation
of tangible personal property and therefore does not fall under the
plain language of the statute.
3 While we need not formally hold the “in connection with”
language invalid, it must be construed in the future consistent with
our interpretation of the statute in this opinion.
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CONCLUSION
¶24 Because we conclude that Rent-A-Center’s liability waiver
fee is not “paid or charged for leases or rentals of tangible personal
property,” we reverse the Commission’s decision.
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