SALES / USE TAX - NEW HOLD HARMLESS LAW NOW IN EFFECT

As of August 5, 2009, HB09-1230 went into effect.  Under this legislation—spearheaded by CADA—dealerships are able to obtain some added protection against future sales/use tax audits related to the choice of address at which a motor vehicle is registered.  The Department of Revenue has issued a memo to counties regarding the new law as below:

HB09-1230Auto Dealers and Dealers Sales Tax Collection - Department of Revenue Memo, July 29, 2009

Background:
The choice of address determines the county where the car will be registered and titled – and therefore which taxing jurisdiction(s) sales/use taxes apply.   Because of that, in cases where there is conflicting information in the consumer’s file (credit report, business name, residence address, etc.), dealerships can be caught in audits years later if one taxing jurisdiction argues the car should have been registered at the address within its boundaries.

While existing law does include a “hold harmless” that covers dealerships for obtaining and collecting the current amount/rate of tax as provided in one of the certified databases for a particular address, it did not provide protection in an audit if the “wrong” address was used, even if provided by the consumer.  The following, prior Open Road articles have more information on the previously existing hold harmless and the third-party certified databases available:

March 26, 2008 - USE A STATE-CERTIFIED TAX DATABASE FOR SALES TAX AND RETAIN PROOF

April 2, 2008 - GROUP1 TAX LOCATER DATABASE GUIDANCE       

Re-Cap of State Statute Regarding Where a Motor Vehicle Must Be Registered:
As a re-cap of existing requirements, the state statute (CRS 42-6-139) regarding where a motor vehicle is to be registered (and titled) can be summarized generally as follows:

  • General rule = “address of the owner's residence”:
    • Except if the vehicle will be “permanently maintained at address other than the owner's residence”, then the  address where the motor vehicle is “permanently maintained”
    • A  person's “residence” shall be the person's principal or primary home or place of abode, to be determined in the same manner as residency for voter registration purposes
  • HOWEVER, IF the vehicle is “owned by a business” AND “operated primarily for business purposes”, THEN the address where the vehicle is “principally operated and maintained”
  • HOWEVER, IF the vehicle is “owned by a business” but [NOT] “operated primarily for business”, THEN the address “of the owner's residence”
    • Except if the vehicle will be “permanently maintained at address other than the owner's residence”, then the  address where the motor vehicle is “permanently maintained”

CLICK HERE for a copy of the full statute.

There are key terms in the above that are undefined, so this statute is ambiguous at best.  Because of this, and the many circumstances that arise, the purpose of this new hold harmless is to protect dealers who rely upon information provided by consumers.  Dealerships that ensure consumers are made aware of the key requirements and also obtain a signed affidavit will be held harmless for uncollected taxes based on the use of that address (excluding home-rule jurisdictions).  With that in mind, whenever there is information in the consumer-file that points to multiple addresses, dealerships should obtain this affidavit. 

  • CADA is currently developing a form for dealers to utilize.      

City/County of Denver Guidance and Declaration Form:
One key limitation of the newly enacted “address hold harmless” statue above is that it does not cover home-rule cities and counties. These jurisdictions would need to specifically adopt this at the city/county level, as many of them have done with the rate/certified database hold harmless. 

However, the City/County of Denver has provided an informational sheet related to the address of registration question – and also provided their own Declaration sheet to be signed by a consumer if/when any information in the consumer’s file points to Denver.  They include the following advice excerpted below:

Information Sheet for Automobile Dealers Licensed to Collect Denver Sales Tax, Aug. 2009

“When conflicting addresses are provided by the customer, the City and County of Denver expects the dealership to investigate the reasons for the different addresses, and document in the customer’s file the facts surrounding the address discrepancies, including the customer’s statements.In addition, a motor vehicle declaration should be completed by the customer only in cases where there are address discrepancies. (Click on the "motor vehicle declaration" link above to download the Word file of this document.)

While the City cannot agree to waive the dealership’s liability by virtue of using the motor vehicle declaration, it will look favorably upon its use as diligence by the dealership in determining where a motor vehicle should be registered and where sales tax is due.”

 

DISCLAIMER: CADA is not authorized to dispense legal advice.  While we can provide and forward the text and summaries of laws or regulations, we always advise that dealers consult legal counsel on any specifics to ensure proper compliance. This guidance does not constitute legal advice, and is only provided as general business advice based on limited information. On any specific situation or dispute, fully informed legal advice from a licensed attorney is strongly recommended.

________________________________________________________

If you have questions on any legal or regulatory topic, please contact:

 

  
Colorado Automobile Dealers Association
 290 East Speer Boulevard Denver, CO  80203
 Telephone:  303.831.1722  |  Facsimile: 303.831.4205
 www.cadaonline.org