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General Motors Corp. v. City and County of Denver, 990 P.2d 59, 1999 CJ C.A.R. 6416

Facts

In 1995, the Denver Manager of Revenue audited GM's operations in Denver from January 1, 1989, to August 31, 1994, imposing a 3.5% use tax on approximately 82% of the vehicles that passed through GM's Denver Vehicle Emissions Testing Lab. GM contested the tax, arguing it violated the Commerce Clause due to lack of fair apportionment and insufficient nexus to its original purchase of the vehicles. The hearing officer upheld the tax, but the Denver District Court later reversed this decision, finding GM eligible for a temporary personal use exemption.

Following its audit of GM's Denver operations, the Manager of Revenue imposed a 3.5% use tax on approximately 82% of the vehicles that had passed through the lab between 1989 and 1994.

Issue

Whether the City and County of Denver could impose a use tax on automobiles owned by General Motors Corporation and used in Denver for a small percentage of their total useful life, and whether GM was entitled to any exemptions from this tax.

In this case, we determine whether the City and County of Denver (Denver) may impose a use tax on automobiles owned by General Motors Corporation (GM) and used in Denver for 1 to 4% of their total useful life.

Rule

A state tax does not violate the dormant Commerce Clause if it meets four requirements: it applies to an activity with a substantial nexus with the taxing state, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the state.

A state tax does not offend the dormant Commerce Clause if it meets four requirements: (1) it applies to an “activity with a substantial nexus with the taxing State”; (2) it is “fairly apportioned”; (3) it “does not discriminate against interstate commerce”; and (4) it is “fairly related to the services provided by the State.”

Analysis

The court found that GM's use and storage of over one-thousand vehicles per year in Denver created a sufficient nexus with the city. However, the court determined that Denver's tax was internally inconsistent because it could lead to multiple taxation, as it only credited taxes paid to other municipalities and not to other states. The court concluded that while the tax was constitutional, it must provide GM with a credit for sales and use taxes paid to other states to avoid unfair taxation.

Thus, it is GM's in-state storage, use, distribution, or consumption of automobile parts that must bear a substantial nexus with Denver.

Conclusion

The Supreme Court affirmed in part and reversed in part the lower court's decision, holding that the use tax was constitutional but required a credit for taxes paid to other jurisdictions. The case was remanded for a determination of the proper credit for GM.

We hold that the trial court's reading of the first prong of the Complete Auto test was misdirected.

Who won?

General Motors Corporation prevailed in part as the court recognized the need for a tax credit for sales and use taxes paid to other states, which the city had not provided.

GM contested Denver's assessment in a formal hearing before the Manager of Revenue, arguing that the use tax violated the Commerce Clause of the United States Constitution because it was not fairly apportioned and lacked a sufficient nexus to GM's initial purchase of the vehicles in Michigan.

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