Supreme Court (Conn.) Holds Vehicle Renewal Registration Fees Paid Directly to the DMV by Lessees under Car Leases Qualify as Taxable Gross Receipts

In HVT, Inc. v. Law, — A.3d —-, 300 Conn. 623, 2011 WL 1413650 (Conn. 2011), the Connecticut Supreme Court found that vehicle renewal registration fees paid directly to the DMV by lessees under car leases qualify as taxable gross receipts.

The sole issue in this appeal is whether vehicle registration renewal fees (renewal fees) paid directly to the department of motor vehicles (department) by lessees under motor vehicle lease agreements (leases) qualify as the lessor’s “gross receipts” pursuant to General Statutes § 12–407(a)(9)(A), rendering them subject to sales tax under General Statutes § 12–408(1). The plaintiff, HVT, Inc., appeals from the summary judgment rendered by the trial court partially in favor of the defendant, Pamela Law, the then commissioner of revenue services, in the plaintiff’s tax appeal challenging the defendant’s assessment of a sales and use tax against the plaintiff for the audit period from April 1, 2001, through October 31, 2004 (audit period). Because we conclude that the renewal fees paid by the lessees qualify as the plaintiff’s gross receipts subject to sales tax under § 12–408(1), we affirm the judgment of the trial court. ¶ . . . The plaintiff is a Delaware corporation and a trustee of the Honda Lease Trust (trust), a Delaware business trust. American Honda Finance Corporation (American Honda), a California corporation, is the servicer of the trust. During the audit period, Connecticut Honda and Acura dealerships (dealerships) entered into approximately 10,000 to 15,000 leases with customers (lessees) pursuant to lease plan agreements between the dealerships, the trust and American Honda. The dealerships, acting under a restricted power of attorney issued by either the plaintiff or the trust, also applied for and obtained from the department original certificates of title and registrations for the leased vehicles in the name of the plaintiff or the trust. Once the dealerships had complied with the terms of the lease plan agreements, the trust assumed and maintained ownership over the leased vehicles and the leases for the duration of the lease terms. ¶ Under the leases, the lessees were responsible for submitting the vehicle registration renewal application (renewal application) and renewal fees to the department on behalf of the trust. The department would first send to the trust the renewal application, which would then be signed on behalf of the trust. The trust then forwarded the signed renewal application to the lessee, with a request to return the renewal application along with the renewal fee to the department. Upon receipt of the renewal application and the renewal fee, the department sent the vehicle registration card to the trust. The trust then forwarded the vehicle registration card to the appropriate lessee. ¶ On March 21, 2005, after conducting a sales and use tax audit of the trust for the audit period, during which the defendant concluded that the renewal fees constituted taxable gross receipts of the trust pursuant to § 12–407(a)(9)(A), she issued a deficiency assessment against the plaintiff in the amount of $124,685.55. On behalf of the trust, the plaintiff subsequently protested the tax assessment by filing a petition for reassessment. The defendant issued a final determination upholding the assessment. ¶ Thereafter, the plaintiff appealed from the deficiency assessment to the trial court, pursuant to General Statutes § 12–422, claiming that the renewal fees did not qualify as gross receipts under § 12–407(a)(9)(A) in accordance with this court’s decision in AirKaman, Inc. v. Groppo, 221 Conn. 751, 607 A.2d 410 (1992). On the parties’ cross motions for summary judgment, the trial court rendered judgment in part for the defendant, concluding that the terms of the lease agreement established that the renewal fees paid by the lessees “are part of the gross receipts attributable to the lease and are therefore subject to the sales tax.”  This appeal followed. ¶ On appeal, the plaintiff claims that the trial court improperly concluded that renewal fees paid to the department are taxable as part of its gross receipts. Primarily, the plaintiff argues that the lessees’ payment of renewal fees are expenses incidental to the lease agreement and do not qualify as gross receipts under AirKaman, Inc. The plaintiff also argues that: (1) whether the legal obligation to pay renewal fees belongs to the plaintiff or the lessees is irrelevant; (2) the trial court improperly reached its conclusion by interpreting the leases; and (3) this court should follow the legislative and administrative positions of other jurisdictions that have concluded that similar fees are not taxable. The defendant contends in response that: (1) renewal fees paid to the department by lessees are taxable gross receipts; (2) the trial court properly reached its conclusion through its interpretation of and reliance on the leases; (3) AirKaman, Inc., is inapposite; and (4) the statutory and administrative laws of other states have no bearing here. We agree with the defendant and conclude that renewal fees paid to the department by lessees are taxable gross receipts.