Rent-A-Center v. Tax Comm , 367 P.3d 989 ( 2016 )


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  •                                                                            FILED
    This opinion is subject to revision before final
    publication in the Pacific Reporter           UTAH APPELLATE COURTS
    JANUARY 5, 2016
    
    2016 UT 1
    IN 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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    Opinion 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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    RENT-A-CENTER WEST v. UTAH TAX COMMISSION
    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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    Opinion of the Court
    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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    RENT-A-CENTER WEST v. UTAH TAX COMMISSION
    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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    Opinion of the Court
    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.
    7