Petition for Writ of Certiorari — United Airlines, Inc. v. City & County of Denver

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~~ Supreme Court, U.S&.

(VY) PILED

991698 APR 2 1 2000

No. ____ FENCE O6 THE GERM

IN THE

Supreme Court of the United States

UNITED AIR LINES, INC., a Delaware corporation, and

AIR WISCONSIN, INC., a Wisconsin corporation,

Petitioners,

CITY AND COUNTY OF DENVER,

a home rule City and a Colorado municipal corporation,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI

TO THE COLORADO SUPREME COURT

PETITION FOR WRIT OF CERTIORARI

PAMELA F. OLSON

Counsel of Record

ALBERT H. TURKUS

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM LLP

1440 New York Avenue,

N.W.

Washington, D.C. 20005

(202) 371-7000

Counsel for Petitioners

QUESTION PRESENTED

Whether the Colorado Supreme Court's modification

of the Denver use tax statute in an effort to preserve the

constitutionality of the statute against a Commerce Clause

challenge renders the statute unconstitutionally vague in

violation of the Due Process Clause.

PARTIES TO THE PROCEEDINGS

Petitioner United Air Lines, Inc., is a subsidiary of

UAL Corporation, a publicly owned corporation. Petitioner

Air Wisconsin, Inc., is a wholly-owned subsidiary of Air Wis

Services, Inc., a wholly-owned subsidiary of UAL Corpora-

tion.

Respondent is the City and County of Denver, a home

rule city and a Colorado municipal corporation

RULE 29.1 LISTING

Petitioner United Air Lines, Inc., is a subsidiary of

UAL Corporation, a publicly owned corporation. Petitioner

Aw Wisconsin, Inc., is a wholly-owned subsidiary of Air Wis

Services, Inc., a wholly-owned subsidiary of UAL Corpora-

tion. United Air Lines, Inc., owns, either directly or

indirectly, a 10% or more interest in the following entities:

AirLiance Materials, LLC; Atlanta Airlines Terminal

Corporation, CIMO, Inc.; DUNC, LLC: Galileo Interna-

ional, Inc.; GetThere.com; Reno Fueling Facilities Corp.;

and Skytech- Solutions, LLC.

iil

TABLE OF CONTENTS

So Gh ee l

ig Sal ig Sul Sky Aaa ae WO ARCA l

CONSTITUTIONAL PROVISIONS INVOLVED .... . l

STATUTORY PROVISIONS INVOLVED

dye ogra sy es aaa ke ee as 2

Denver's Use Tax Statute ................ 2

Smee Aareines GOOTaUOMS . 2... ww es 4

Free FVOCHOMNES GOIOW ww i cae 4

REASONS FOR GRANTING THE PETITION ...... 9

I. THE COLORADO SUPREME

COURT'S ACTION VIOLATES THIS

COURT'S MANDATES BY CAUS-

ING THE DENVER USE TAX LAWS

TO FAIL TO ESTABLISH MINIMAL

GUIDELINES FOR ADMINIS-

TRATION AND TO FAIL TO GIVE

ADEQUATE NOTICE TO TAXPAY-

Fi ek as a Se oe Se ek er oe a en a ne er i a, ee oe a oe ta ee

A. This Court has consis-

tently required that all

legislation meet basic

guarantees of due pro-

cess by providing those

charged with the law's

implementation with

appropriate guidelines

to guard against arbi-

trary enforcement and

by providing citizens

with adequate notice of

what the law requires or

set, PEE Oe oe See re 9

B. The Colorado Supreme

Court's action creates a

Statute that fails to pro-

vide minimum guide-

lines for enforcement

and administration of

the Denver use tax

Me ere eae re 1]

we The Colorado Supreme

Court's strained inter-

pretation of Denver's

use tax provisions

leaves taxpayers with-

Out adequate notice of

what is prohibited or

permitted under the

Denver use tax laws. ........ 13

THIS CASE PRESENTS QUESTIONS

OF COMPELLING IMPORTANCE

TO THE ADMINISTRATION OF

STATE TAX LAWS AFFECTING

TAXPAYERS ENGAGED IN INTER-

STATE COMMERCE ............ 18

A. The Colorado Supreme

Court's action under-

mines principles of self-

assessment and volun-

tary compliance, key

principles of state and

federal taxation ............ 18

B. The Colorado Supreme

Court's action imposes

an improper burden on

taxpayers’ participation

in interstate commerce,

an activity the Com-

merce Clause protects

from undue state inter-

WE Pics 6a 6 eee 19

CALAN bk ds ken be beeen ee wee ee

TABLE OF AUTHORITIES

Cases Page(s)

Associated Industries of Missouri y. Director of

Revenue, 918 S.W.2d 780 (Mo. 1996) .......... 16

Baggett v. Bullitt, 377 U.S. 360 (1964) ...... 12,19

Barringer v. Griffes, 1 F.3d 1331 (2d Cir. 1993)... 5

Big Mama Rag, Inc. v. United States, 631 F.2d

5050 GC. Cir, POOR... ce ve 10

Boston Stock Exchange v. State Tax Commission,

GE9 UG. SERGI). gon vcnchivcesice 20

Boutilier v. INS, 387 U.S. 118 (1967) 0... . 10

Colorado Auto Auction Services Corp. v. City

of Commerce City, 800 P.2d 998 (Colo. 1990)... 10

Connally v. General Construction Co., 269 US.

POP UTOe io ta ee ee 17

Contos v. Herbst, 278 N.W.2d 732 (Minn. 1979) . 10

Crutcher v. Kentucky, 141 U.S. 47 to} Peers 20

Dennis v. Higgins, 498 U.S. 439 (1991) ........ 20

Dominguez v. City and County of Denver,

363 P.2d 661 (Colo. 1961) ................. 16

ee Nets

Vii

Foss v. City of Rochester, 480 N.E.2d 717

8 Be. Berea rarer ire rae Pavee. 10

Garrity v. New Jersey, 385 U.S. 493 (1967) ..... 20

General Motors Corporation v. City and County

of Denver, 990 P.2d 59 (Colo. 1999) ..... passim

Gentile v. State Bar of Nevada, 501 U.S.

SI REIES £55 6c os cd eke aoe eee ber 10

Grayned vy. City of Rockford, 408 U.S.

| ae ae a yy 10

Hiatt v. City of Manitou Springs, 154 Colo. 525,

SO Ty ae ee CE cede a va ae aes 16

Kolender v. Lawson, 461 U.S. 352 (1983) ....... 11

Lonsdale v. United States, 919 F.2d 1440

Ye E , Dapaeree erie era Map Sete elo nose 10

Marbury v. Madison, 5 U.S. (1 Cranch)

SPE bs oa ik Lah ne ene ee ee 10

Missourians for Tax Justice Education Project

v. Holden, 959 S.W.2d 100 (Mo. 1997), cert.

Gemted SEA US FIG CISGS) ok cin ccvcnnces 10

State v. Golia, 222 S.E.2d 27 (Ga. 1976)........ 10

United Air Lines, Inc. v. City and County of

Denver, 973 P.2d 647 (Colo. Ct. App. 1998) .. 1,6

Vill

United States v. Harriss, 347 U.S. 612 (1954) ... 16

Village of Hoffman Estates v. F. lipside,

Hoffman Estates, Inc., 455 U.S. 489 (1982) . 10, 20

Williams v. City and County of Denver, 607

age ee COO. TOI ok nk es Peck o, 16

Statutes Page(s)

Colo. Rev. Stat. §§ 39-26-101 er Ee are 2

D.R.M.C. §§ 53-21 etseg .................... 2

DRMC. RP eee a ies aah Se 2

PAR IIE i 5b ec ieee es, passim

GN ANY 5 eel ie ose 2

8 okt >; Sa ere ee er ee passim

Oe Ee eo oboe l

{ee ee ee 1,4

U.S. Const. amend. XIV,§1............... 1,10

Other Page(s)

Webster's Third New International

pectioaery (1981) 2. kk... 13, 14

PETITION FOR WRIT OF CERTIORARI

OPINIONS BELOW

The opinion and order of the Supreme Court of

Colorado (App. la-3a and App. 1b-3b) are not reported. The

opinion of the Court of Appeals of Colorado is reported at

973 P.2d 647 (Colo. Ct. App. 1998) (App. 1d-26d). The

order of the District Court for the City and County of Denver

(App. le-7e) is not reported. The final decision and order of

the hearing officer for the Manager of Revenue of the City

and County of Denver (App. 1f-17f) is not reported.

JURISDICTION

The judgment below was entered on January 24, 2000.

The jurisdiction of this Court rests on 28 U.S.C. § 1257.

CONSTITUTIONAL PROVISIONS INVOLVED

U.S. CONST. art. I, § 8 provides: "The Congress shall

have Power . . . [t]o regulate Commerce . . . among the

several States."

U.S. CONST. amend. XIV, § 1 provides: "No State

Shall . . . deprive any person of life, liberty, or property,

without due process of law."

STATUTORY PROVISIONS INVOLVED

Relevant provisions of the Denver Revised Municipal

Code (D.R.M.C.), particularly §§ 53-92 and 53-97, are set

forth in the Appendix at 1g-12g.

STATEMENT

Denver's Use Tax Statute

Denver has adopted a sales and use tax statute, codi-

fied at D.R.M.C. §§ 53-21 er seg. The sales tax is imposed

on the purchase price paid or charged upon taxable goods and

Services purchased at retail within Denver. D.R.M.C. § 53-

25. The use tax is imposed on "the taxable privilege of

Storing, using, distributing or consuming" in Denver taxable

goods and services purchased elsewhere. D.R.M.C. § 53-96

(App. 5g-7g). These taxes are levied in addition to any

applicable State of Colorado sales and use taxes. COLO. REV.

STAT. §§ 39-26-101 ef seq.

When taxable goods or services are purchased or used

outside Denver and are therefore subject to sales or use tax

prior to entering the city, the Denver use tax still applies. In

such a case, however, D.R.M.C. § 53-92(c) provides a credit

for sales or use taxes paid to other municipal governments:

It is hereby declared to be the legisla-

tive intent of the city, acting through its duly

elected representatives, that the provisions of

this article shall apply to any person who has

already paid a retail sales tax or a use tax in

respect to the sale of a service or tangible

personal property taxable hereunder, to a

municipal corporation organized and existing

under the authority of the laws or the Constitu-

tion of any state in an amount less than the tax

imposed by this article, and who thereafter

causes a service or tangible personal property,

taxable hereunder, to be used, stored, distrib-

uted or consumed in the city, but the tax

imposed by this article shall, in such event, be

_measured by the difference between the

amount imposed by this article and the amount

previously imposed by the other municipality

on said sale. If the retail sales tax imposed

and paid fo such municipal corporation afore-

said is equal to or more than the tax imposed

by this article, no tax shall be due hereunder

for the exercise of the privilege of using,

storing, distributing or consuming such service

Or personal property in the city. (emphasis

added; App. 4g-5g).

Thus, D.R.M.C. § 53-92(c) allows a credit for sales and use

_ taxes paid fo other municipalities.

according to its plain language and the expressed legislative

intent of the Denver City Council, allow a credit for sales and

use taxes paid to other states or to their nonmunicipal local

jurisdictions, and no other statutory provision in the sales and

use tax ordinance provides for or addresses the availability of

such a credit.

It does not, however,

Denver's use tax statute exempts from taxation certain

sales, including:

All sales which the city is prohibited

from taxing under the Constitution or laws of

the United States or the Constitution of the

state. (D.R.M.C. § 53-97(11); App. 9g).

For the administration of the sales and use tax, Denver

has promulgated a form, the Denver Sales/Use Tax Return,

to be filed by taxpayers. This form provides a section for

exemptions and a separate section for credits.

The Airlines’ Operations

United Air Lines, Inc., and Air Wisconsin, Inc..

(collectively referred to as the "Airlines" in this Petition) are

interstate airline carriers of passengers and cargo. In the

course Of their operations, the Airlines purchased various

rotable aircraft parts and engines, i.e., those capable of re-

peated installation, removal, maintenance and repair, and

reinstallation. These rotable parts and engines were pur-

chased outside Denver, were typically stored, maintained. and

repaired outside Denver, and were used outside Denver for a

considerable portion of their useful lives, which can total up

to 20 years. The rotable parts and engines were shipped into

Denver during the course of their useful lives to be installed

on the Airlines’ aircraft. Many of the rotable parts installed

in Denver had been subjected to state and local sales or use

(axes in other jurisdictions before their installation in Denver.

The Proceedings Below

Beginning with the hearing before the hearing officer

for the Denver Manager of Revenue, the Airlines Challenged

the constitutionality of the Denver use tax statute because the

partial credit scheme provided in D.R.M.C. § 53-92(c) limits

the credit to taxes paid to other municipalities and does not

provide a full credit for all state and local taxes previously

paid in other states, as required by the Commerce Clause of

the United States Constitution, U.S. CONST. art. I,§ 8. See,

e.g., Barringer v. Griffes, 1 F.3d 1331 (2d Cir. 1993).

Denver's initial position in this proceeding was that its partial

credit scheme is sufficient to satisfy the Commerce Clause

“tee

because, as a municipality, it need only provide a credit for

taxes paid to other municipalities and may leave the State of

Colorado or its nonmunicipal local jurisdictions to grant a

credit for taxes paid to other states or their nonmunicipal local

jurisdictions. Denver's Brief Before the Manager of Reve-

nue, at 3-4. Denver, nevertheless, allowed a credit to the

Airlines for nonmunicipal taxes, but insisted it was not

required to do so. /d. at 3.

The hearing officer agreed with Denver and upheld the

application of the Denver use tax as written, finding that the

partial credit scheme satisfied the Commerce Clause.

Decision of the Manager of Revenue, at 6-7 (Apr. 18, 1996)

(App. 9f-11f). The Airlines appealed the hearing officer's

decision to the District Court for the City and County of

Denver. The Airlines argued the full credit is a constitutional

requirement and D.R.M.C. § 53-97(11) provides no basis for

allowing the full credit. Airlines' Opening Brief to the

District Court, at 20-25, 33-34. The Airlines asserted that,

Denver's continuing insistence that it was not required to

allow a credit for nonmunicipal taxes provided no reasonable

assurance the Commerce Clause violation would not recur.

Id. at 37. The district court concluded that the failure of the

Statute to grant more than a partial credit would cause it to

violate the Commerce Clause, but that the exemption in

D.R.M.C. § 53-97(11) provides a basis for granting the full

credit required by the Commerce Clause. District Court

Opinion, at 3-4 (Dec. 12, 1996) (App. 6e). Therefore, the

district court upheld the imposition of the use tax on the

Airlines’ rotable parts and engines.

Upon appeal to the Court of Appeals of Colorado, the

Airlines continued to argue that the statute violates the

Commerce Clause. Airlines' Opening Brief to the Court of

Appeals, at 14-16. The Airlines also argued that, given the

absence of statutory support for the application of the full

credit and the clear legislative intent to provide a partial credit

scheme, the Denver use tax cannot be construed in a manner

that is constitutional and therefore it should be invalidated.

Id. at 16-24. The Airlines also stressed the particular need

for clear guidelines in a self-assessment system of taxation,

and the statute's failure to provide those guidelines. Jd. at 25.

Denver continued to assert that it was not required to provide

the full credit and that its partial credit scheme did not violate

the Commerce Clause. Denver's Answer Brief to the Court

of Appeals, at 5-13. The court of appeals affirmed the

district court's decision. United Air Lines, Inc. v. City and

County of Denver, 973 P.2d 647 (Colo. Ct. App. 1998) (App.

1d-26d).

The Supreme Court of Colorado granted the Airlines'

petition for a writ of certiorari. Before that court, Denver

abandoned its prior defense of the partial credit scheme and

asserted instead that D.R.M.C. § 53-92(c) does not limit the

credit to municipal taxes. In support of its position, Denver

contended the term "municipality" as used in that provision

in fact includes nonmunicipalities and that the failure of the

provision to grant a credit for taxes paid to other states is

merely due "to an inadvertent omission . . . or poor draft-

ing." Denver's Answer Brief to the Colorado Supreme

Court, at 13-16. Denver also embraced the holding of the

court of appeals that any failure in the statute can be remedied

by D.R.M.C. § 53-97(11). Id. at 18. The Airlines argued

that interpreting D.R.M.C. § 53-97(11) to provide the full

credit would do violence to the Statutory language and the

legislative intent. Airlines’ Opening Brief to the Colorado

Supreme Court, at 17-22, 25-26. They argued that Denver's

_conflicting positions on the issue, both throughout the course

of this case and between this case and the General Motors

case (described below), result in confusion to taxpayers,

severely undermining the principles of self-assessment and

voluntary compliance that are fundamental to the use tax

system. /d. at 22-25; Airlines' Reply Brief to the Colorado

Supreme Court, at 5, 11-13.

On December 6, 1999, the Colorado Supreme Court

issued an order denying certiorari "as having been improvi-

dently granted." Colorado Supreme Court Order, at 1 (Dec.

6, 1999) (App. 1b). The same day, the court issued its

opinion in General Motors Corporation v. City and County of

Denver, 990 P.2d 59 (Colo. 1999) (App. 1c-37c), in which it

held that the exemption under D.R.M.C. § 53-97(11) permits

the full credit required by the Commerce Clause, thus

preserving the constitutionality of the Denver use tax.’ Ina

subsequent opinion, dated January 24, 2000, the Colorado

Supreme Court withdrew its December 6, 1999, order in this

case, reinstated the writ of certiorari, affirmed the court of

appeals’ judgment, and stated that it viewed its decision in

General Motors "as fully and completely addressing the issue

on which we granted certiorari in this case." Colorado

Supreme Court Opinion, at 2 (Jan. 24, 2000) (App. 2a).

In General Motors, the taxpayer also challenged the

constitutionality of the Denver use tax statute on various

grounds. Among the issues presented in General Motors was

whether Denver was required by the Commerce Clause to

grant the full credit. Contrary to the position it took in this

case before the Colorado Supreme Court, Denver took the

v The Colorado Supreme Court referred to the Airlines'

case in a footnote in the General Motors opinion. 990 P.2d

at 70, n.10 (App. 18c).

position in that case, before the same court, that it was not

required to grant the full credit. See 990 P.2d at 69 (App.

16c). The Colorado Supreme Court disagreed and found that

Denver's credit mechanism could cause multiple taxation and

thus, viewed by itself, the credit provision in D.R.M.C. § 53-

92(c) creates a crediting scheme that violates the Commerce

Clause. /d. (App. 17c) The Colorado Supreme Court held,

however, that "D.R.M.C. § 53-97(11) operates to save [the

crediting scheme] from such a constitutional failure," and

concluded that the exemption provision permitted the allow-

ance of the full credit required under the Commerce Clause.

990 P.2d at 70 (App. 19c).

While interpreting the exemption provided in

D.R.M.C. § 53-97(11) as protecting the credit rules of

D.R.M.C. § 53-92(c) from a constitutional challenge based

on the Commerce Clause, the Colorad6 Supreme Court

acknowledged that its action could be creating a different

constitutional problem.

Our conclusion leaves open the ques-

tion of whether the Code fails to alert taxpay-

ers of the proper credit available to them. It

could be subject to a due process challenge

because a law is void for vagueness when a

person of ordinary intelligence cannot reason-

ably determine what a statute requires or

forbids. This requirement allows people to

conduct themselves in accordance with law,

and -prevents arbitrary and discriminatory

application of the law. (990 P.2d at 70, n.11:

Citations omitted; App. 19c)

daNens

It is precisely that question that caused the Airlines to

challenge the lower courts’ reliance upon D.R.M.C. § 53-

97(11) to cure the Commerce Clause defect of the Denver use

tax statute and that the Airlines raise in this Petition.

REASONS FOR GRANTING THE PETITION

I. THE COLORADO SUPREME COURT'S AC-

TION VIOLATES THIS COURT'S MANDATES

BY CAUSING THE DENVER USE TAX LAWS

TO FAIL TO ESTABLISH MINIMAL GUIDE-

LINES FOR ADMINISTRATION AND TO FAIL

TO GIVE ADEQUATE NOTICE TO TAXPAY-

ERS.

A. This Court has consistently required that all

legislation meet basic guarantees of due

process by providing those charged with the

law's implementation with appropriate

guidelines to guard against arbitrary en-

forcement and by providing citizens with

adequate notice of what the law requires or

forbids.

From the earliest days of the republic, this Court has

required that laws be certain and intelligible to those who are

expected to comply with them and to those who are expected

to enforce them. E.g., Marbury v. Madison, 5 U.S. (1

Cranch) 137, 163 (1803). More recently, this Court has

construed the Due Process Clause of the United States

Constitution, U.S. CONST. amend. XIV, § 1, as embodying

a vagueness doctrine that requires all legislation to: (i)

provide citizens proper notice of prohibited or required

conduct; and (ii) provide minimum guidelines for enforce-

ment, thus preventing the possibility of arbitrary and discrimi-

natory enforcement. See, e.g., Gentile v. State Bar of

Nevada, 501 U.S. 1030 (1991): Grayned v. City of Rockford,

408 U.S. 104 (1972).

It is well settled that the vagueness doctrine applies to

all legislation, civil statutes as well as criminal statutes. See,

€.g., Gentile, 501 U.S. 1030; Village of Hoffman Estates v.

Flipside, Hoffman Estates, Inc., 455 U.S. 489 (1982);

Boutilier v. INS, 387 U.S. 118 (1967), including civil tax

statutes. See, e.g., Lonsdale v. United States, 919 F.2d 1440

(10th Cir. 1990). See also Big Mama Rag, Inc. v. United

States, 631 F.2d 1030 (D.C. Cir. 1980).

The Colorado Supreme Court's cure for the unconsti-

tutionality of the Denver use tax regime was to substitute a

void for vagueness defect for the Commerce Clause defect.

As written, the use tax scheme is clear in its scope and

Operation; its constitutional infirmity is that it violates the

Commerce Clause. As interpreted by the Colorado Supreme

Court, the use tax scheme no longer offends the Commerce

Clause but the mechanism by which this is achieved, a

stunningly agile reading of D.R.M.C. §§ 53-92(c) and 53-

97(11), surely violates due process guarantees.

2! See also Colorado Auto Auction Services Corp. v.

City of Commerce City, 800 P.2d 998 (Colo. 1990) (excise

tax); State v. Golia, 222 $.E.2d 27 (Ga. 1976) (beer tax);

Contos v. Herbst, 278 N.W.2d 732 (Minn. 1979) (tax on

mineral interests); Missourians for Tax Justice Educ. Project

v. Holden, 959 §.W.2d 100 (Mo. 1997), cert. denied 524

U.S. 916 (1998) (income tax); Foss v. City of Rochester, 480

N.E.2d 717 (N.Y. 1985) (property tax).

B. The Colorado Supreme Court's action

creates a statute that fails to provide mini-

mum guidelines for enforcement and admin-

istration of the Denver use tax laws.

Of the two alternative grounds for invalidating a vague

Statute, the more important consideration here is that the

statute as construed by the Colorado Supreme Court fails to

provide minimum guidelines for implementation and invites

arbitrary enforcement, which violates the Due Process

Clause. See Kolender v. Lawson, 461 U.S. 352, 358 (1983).

The Colorado Supreme Court's interpretation of

Denver's use tax statute provides no guidelines as to how it

is to be executed and enforced and leaves no indication of

how D.R.M.C. §§ 53-92(c) and 53-97(11) are to function in

concert, engendering and inviting the type of inconsistent and

arbitrary behavior exhibited by Denver in this case. For

example, while asserting before the Colorado Supreme Court

in this case that it was required to grant the full credit under

its use tax law, Denver asserted before the same court and at

the same time in General Motors that it was not required to

grant the full credit, arguing that the ordinance provided only

for a partial credit and the partial credit satisfied the Com-

merce Clause. Thus, Denver took contradictory positions on

the same issue not only at different levels of proceeding in

one case, but in two different taxpayers' cases simultaneously

pending before the same court, apparently depending on what

it viewed as expedient in each case and at each level of

proceeding.

The Colorado Supreme Court recognized, but did not

reach, the question of whether its interpretation of the Denver

use tax statute violates the Due Process Clause, but it as-

sumed no such issue would arise if "Denver grants the credits

demanded by the Constitution to any use taxpayer." 990 P.2d

at 71, n.11 (App. 19c). In light of Denver's history of

contradictory self-serving interpretations of its statute,

however, the Colorado Supreme Court's confidence that

Denver will not continue its arbitrary and discriminatory

enforcement of its use tax statute seems sorely misplaced.

In any event, this Court has rejected the efficacy of

extra-statutory oversight, either by the Constitution or by

well-meaning enforcers of the law, as a cure for a vague

statute. Baggett v. Bullitt, 377 U.S. 360, 373 (1964). The

problem created by the Colorado Supreme Court's interpreta-

tion of the statute is compounded by the fact that in our self-

assessment tax system, taxpayers, the subjects of the tax law,

are in effect also the administrators of the tax law. The

Colorado Supreme Court's interpretation of the Denver use

tax law leaves the key enforcement bodies without any

guidelines on how it is to be administered. Both taxpayers

and those charged with enforcing the law who read and rely

on the Denver use tax statute but are unaware of its constitu-

tional problems would inevitably fail to claim or to allow the

credit for taxes paid to other states or their nonmunicipal local

jurisdictions.

oe The Colorado Supreme Court's strained

interpretation of Denver's use tax provisions

leaves taxpayers without adequate notice of

what is prohibited or permitted under the

Denver use tax laws.

The Colorado Supreme Court's action also fails to

provide adequate notice of the credit scheme in the Denver

use tax, in violation of due process. Its strained interpreta-

ay WN i ta S

Se Ric CS PAUSE NEN se

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tion, tantamount to a judicial rewriting of the Denver use tax

Statute, leaves taxpayers in the dark as to what the law

requires or forbids. This is because the court's interpretation

of D.R.M.C. § 53-97(11) - that it allows the full credit

required under the Commerce Clause - is entirely beyond the

scope of a reasonably supportable statutory construction.

When a statutory interpretation is one of a number of

reasonable alternatives, even though it may not be the best or

even the better interpretation, it does not necessarily violate

the adequate notice requirement of the Due Process Clause.

In this case, however, the Colorado Supreme Court's inter-

pretation of the Denver use tax law is plainly beyond any

possible scope of reasonableness. Its reading is directly

contrary to the statutory language; in their ordinary and usual

meanings, "credit" and "exemption" are entirely different.

D.R.M.C. § 53-92(c) specifically limits the credit to taxes

paid to other municipalities, repeating the term "municipal

corporation" or "municipality" three times, but not referring

to states or nonmunicipal jurisdictions or taxes paid to them.

Furthermore, D.R.M.C. § 53-97(11) provides an

exemption; thus, if that provision were to apply to a transac-

tion, the transaction could not be subjected to the use tax at

all. If a transaction is covered by an "exemption," any

3! WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY

795 (1981) defines "exemption" as the "state of being exempt:

freedom from any charge or obligation to which others are

subject: immunity." "Exempt" is defined as "free or released

from some liability to which others are subject." /d. In

contrast, the definition for "credit" reads, among other things,

"the balance in a person's favor in an account" or "a deduc-

tion from an amount otherwise due." /d. at 532-33.

"credit" is unnecessary because the transaction is not taxed in

the first place. The Colorado Supreme Court understood that

D.R.M.C. § 53-97(11) provides for an exemption rather than

a credit and acknowledged "the use of ‘exemption’ in this

context could lead to the conclusion that GM owes no tax."

990 P.2d at 70 (App. 19c). The court avoided that logical but

undesirable result, however, by stating that "courts must

construe tax exemptions narrowly, and in favor of the taxing

authority," and by interpreting "'exemption' only to reduce

the tax owed Denver by the amount of sales and use tax paid

to other state and sub-state taxing jurisdictions," rather than

to eliminate the tax. Jd.

The Colorado Supreme Court's interpretation is also

contrary to the plainly stated legislative intent of the Denver

City Council, which enacted the partial credit scheme.

Despite the specific legislative intent to limit the credit to

municipal taxes, clearly reflected in D.R.M.C. § 53-92(c),

and despite the express language of D.R.M.C. § 53-97(11)

providing an exemption for certain sales rather than a panacea

for all constitutional defects, the Colorado Supreme Court

Stated:

It appears to us that Denver created this provi-

sion to prevent the courts from invalidating the

use tax in its entirety upon a constitutional

challenge. While not artfully drafted, the

intent is clear. (990 P.2d at 70; App. 18c).

Indeed, Denver itself had never embraced the position

that it was required to allow the full credit until the Airlines’

case reached the Colorado Supreme Court. In addition, the

Denver Sales/Use Tax Return itself provides a section for

exemptions and a separate place for credits. Thus, no reason-

able taxpayer would gather from reading D.R.M.C. §§ 53-

92(c) and 53-97(11) and examining the Denver Sales/Use Tax

Return that he is entitled to a credit for all previously paid

state and local taxes.

There is no ambiguity or vagueness on the face of

D.R.M.C. §§ 53-92(c) and 53-97(11). The ambiguity or

vagueness arises from the Colorado Supreme Court's at-

tempted revision of these provisions under the pretext of

Statutory interpretation. As a result, reasonable taxpayers

reading these provisions and trying to understand their rights

and obligations under the Denver use tax will be left with no

notice of what the proper credit is. Therefore, the Colorado

Supreme Court's action creates uncertainty where there was

none and, while curing the statute of one constitutional

violation, creates another because it leaves taxpayers without

the adequate notice required by the Due Process Clause.

Thus, the statute is still void, despite the efforts of the

Colorado Supreme Court to maintain its vitality.

The Colorado Supreme Court justified its interpreta-

tion of the statute by stating that it "attempts to construe tax

ordinances so that they are valid," citing Hiatt v. City of

Manitou Springs, 154 Colo. 525, 529, 392 P.2d 282, 284

(1964). 990 P.2d at 70 (App. 18c). But, as this Court has

clearly instructed, any construction that preserves the consti-

tutionality of the statute must still be within the range of a

reasonable reading of the statute. See United States v.

Harriss, 347 U.S. 612, 618 (1954). Thus, if the statute

cannot reasonably be construed so as to be constitutional, as

in this case, it must be declared unconstitutional. See

Even the Colorado Supreme Court has recognized that

(continued...)

Associated Industries of Missouri v. Director of Revenue, 918

S.W.2d 780 (Mo. 1996).

The Colorado Supreme Court recognized the problem

it has created with its contorted reading of the statutory

provisions, acknowledging in General Motors that its

conclusion leaves open the question of whether

the Code fails to alert taxpayers of the proper

credit available to them. It could be subject to

a due process challenge because a law is void

for vagueness when a person of ordinary

intelligence cannot reasonably determine what

a Statute requires or forbids. (990 P.2d at 70,

n.11; citations omitted; App. 19c).

The Colorado Supreme Court sidestepped this issue, however,

by noting that General Motors "does not complain of insuffi-

cient notice. Provided that Denver grants the credits de-

manded by the Constitution to any use taxpayer, the notice

issue may never arise." 990 P.2d at 71, n.11 (App. 19c).

But this approach only places taxpayers in a "Catch 22" type

of bind: Taxpayers who are aware of the constitutional

problem in the credit scheme of Denver's use tax statute are

ineligible to challenge it because they had notice of the

problem. The only taxpayers eligible to challenge the

4 (...continued)

it must not do violence to the fair meaning of language

employed by the legislature in its efforts to preserve the

constitutionality of a statute. Dominguez v. City and County

of Denver, 363 P.2d 661, 664 (Colo. 1961); Williams v. City

and County of Denver, 607 P.2d 981, 983 (Colo. 1979).

constitutionality of the use tax statute are those unaware of the

constitutional problem that they should be challenging.

A statute is void for vagueness if people of ordinary

intelligence must necessarily guess at its meaning and will

differ as to its application. Connally vy. General Construction

Co., 269 U.S. 385, 391 (1926). A taxpayer would have to be

a constitutional scholar to understand the meaning of the

Statute in question and would have to regularly read opinions

of the Colorado Supreme Court to know he is entitled to

credits from Denver for sales or use taxes paid to other states

or nonmunicipal jurisdictions. Imposition of such a require-

ment cannot be squared with any notion of due process.

Il. THIS CASE PRESENTS QUESTIONS OF COM-

PELLING IMPORTANCE TO THE ADMINIS-

TRATION OF STATE TAX LAWS AFFECTING

TAXPAYERS ENGAGED IN INTERSTATE

COMMERCE.

A. The Colorado Supreme Court's action

undermines principles of self-assessment and

voluntary compliance, key principles of state

and federal taxation.

Voluntary compliance and self-assessment are leading

principles in the administration of most types of state and

federal taxes, including the Denver use tax. These principles

require taxpayers to determine the correct amount of taxes

they owe and thus place taxpayers in the special position of

administrators of the law. In the area of tax law, therefore,

providing adequate notice to taxpayers is of particular

importance.

Denver has suggested that its actions would not

undermine self-assessment and voluntary compliance because

taxpayers may file a claim for refund for a use tax credit not

specified in D.R.M.C. § 53-92(c) or claim such a credit in an

audit and may petition the Denver District Court and possibly

the Colorado Court of Appeals for relief if the Credit is

disallowed. Denver's Answer Brief to the Colorado Supreme

Court, at 24-25. These suggestions illustrate that Denver has

confused the principles underlying self-assessment and

voluntary compliance with minimum standards for redress

from the government. Self-assessment and voluntary compli-

ance require that taxpayers know what the law requires so

they can assess themselves the correct amount of tax.

Procedures such as audits and litigation are mere mechanisms

for correcting errors and cannot be used as a coverup for

breakdowns in self-assessment occasioned by the constitu-

tional infirmity of a statute. The Colorado Supreme Court's

action does nothing to correct this state of confusion or to

ensure the harmonious administration of the tax law. To the

contrary, it would compel a contest by taxpayers.

A statute cannot impose the burden of a contest as a

matter of course; such a burden itself would be unconstitu-

tional. Well-intentioned administrators and judicial safe-

guards cannot neutralize the vice of a vague law. Baggett v.

Bullitt, 377 U.S. 360, 373 (1964). The limitation of the

credit to municipal taxes in Denver's use tax Statute imposes

an unconstitutional burden on taxpayers. That Denver may

arbitrarily choose to relieve it following a post-deprivation

proceeding does not render the statute constitutional.

B. The Colorado Supreme Court's action

imposes an improper burden on taxpayers'

participation in interstate commerce, an

activity the Commerce Clause protects from

undue state interference.

The burden on taxpayers is especially troublesome in

this case because the law involves a use tax, which is primar-

ily imposed on taxpayers engaged in interstate commerce, an

activity the Constitution protects from undue state interfer-

ence. In determining the degree of vagueness the Constitu-

tion tolerates as well as the relative importance of fair notice

and fair enforcement, this Court has stated "the most impor-

tant factor affecting the clarity that the Constitution demands

of a law" is whether the statute in question threatens to inhibit

the exercise of "constitutionally protected rights." Village of

Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S.

489, 498-99 (1982).

Participation in interstate commerce is a right pro-

tected by the Constitution. Dennis v. Higgins, 498 U.S. 439,

448 (1991) ("The Court has often described the Commerce

Clause as conferring a 'right' to engage in interstate trade free

from restrictive state regulation"); see also Boston Stock

Exchange v. State Tax Commission, 429 U.S. 318, 320

(1977); Garrity v. New Jersey, 385 U.S. 493, 500 (1967):

Crutcher v. Kentucky, 141 U.S. 47, 57 (1891). Thus, the

need for legislative clarity and fairness in state law is espe-

cially great in this case. In light of the numerous citizens and

businesses engaged in interstate commerce who are affected

by such a statute, the Court must address the action of the

Colorado Supreme Court, which created a due process

violation in its efforts to remedy a Commerce Clause viola-

tion.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted,

PAMELA F. OLSON

Counsel of Record

ALBERT H. TURKUS

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM LLP

1440 New York Avenue, N.W.

Washington, D.C. 20005

~ (202) 371-7000

Counsel for Petitioners

April 21, 2000

APPENDICES

TABLE OF CONTENTS

APPENDIX A:

Opinion of the Supreme Court, State of Colo-

rado, January 24,2000 .....................

APPENDIX B:

Order of Supreme Court, State of Colorado,

procomiber G, 1999. o.oo. ck kv nc oc ok cick cccu.

APPENDIX C:

Judgment of the Supreme Court, State of Colo-

rado in General Motors Corp. v. City and

County of Denver, No. 99SA272, December 6,

a Pe er ee ee ne eT te! em ae, 8

APPENDIX D:

Opinion of the Colorado Court of Appeals,

Apmil 30, 1998, as Modified on Denial of Re-

hearing, June 25, 1998 .....................

APPENDIX E:

Opinion of the District Court, City and County

of Denver, Colorado, December 12, 1996 ......

APPENDIX F:

Findings of Fact, Conclusions of Law, and

Final Decision and Order of the Manager of

Revenue, City and County of Denver, State of

Colorada, Apetl V6, 1900 « ..c5 6 dan catia lf

APPENDIX G:

DRIAL. 8 FIGS «4c ieee cee eevee lg

DRM 6 SSG8 34 Olt eee 4g

ot Soe eS er rr ree ey Sg

SUPREME COURT, STATE OF COLORADO

No. 98SC485 January 24, 2000

UNITED AIRLINES,-INC., a Delaware

corporation; and AIR WISCONSIN, INC..,

a Wisconsin Corporation, Petitioners,

¥.

CITY AND COUNTY OF DENVER.

a home rule city and Colorado

municipal corporation, Respondent.

Certiorari to the Colorado Court of Appeals

EN BANC AFFIRMED

Brownstein Hyatt & Farber, P.C.

Hubert A. Farbes, Jr.

Lynne M. Hufnagel

Denver, Colorado

Skadden, Arps, Slate, Meagher & Flom LLP

Pamela F. Olson

Washington, D.C.

Attorneys for Petitioners

City Attorney for City and County of Denver

Daniel E. Muse, City Attorney

Andrew W. Swain, Assistant City Attorney

Attorneys for Respondent

PER CURIAM

JUSTICE SCOTT does not participate.

Petitioners filed a Petition for Wnt of Certiorari to

review United Airlines, Inc. v. City and County of Denver, 973

P.2d 647 (Colo. App. 1998). On March 29, 1999, this Court

(Justice Scott not participating) granted the Petition for Wnt of

Certiorari as to the following issue:

Whether the Court of Appeals erred in holding

that section 53-97(11) of the Denver Revised

Municipal Code allows section 53-92(c) of the

Code to be applied so as not to violate the

Commerce Clause of the United States Consti-

tution.

On December 6, 1999, this Court issued its opinion in

General Motors Corp. v. City and County of Denver, 990 P.2d

- 59 (Colo. 1999), and simultaneously issued an order in the

instant case denying certiorari as having been improvidently

granted. The Petitioners timely filed a Petition for Rehearing,

as allowed under C.A.R. 54(b), in which they request us to

vacate the December 6, 1999 order and reinstate the previously

granted writ of certiorari. In the alternative, the Petitioners

request this Court to issue a per curiam opinion if we determine

that the General Motors decision properly disposes of the

Peititioners' constitutional challenge.

We view our decision in General Motors as fully and

completely addressing the issue on which we granted certiorari

in this case. Accordingly, the order of December 6, 1999 is

withdrawn, the writ of certiorari is reinstated, and the judgment

of the court of appeals is affirmed based on our reasoning in

3 3a

General Motors. The Petition for Rehearing is otherwise

denied.

SUPREME COURT, STATE OF COLORADO

CASE NO. 98SC485

CERTIORARI TO THE COLORADO COURT OF AP-

PEALS, 97CA0151

DISTRICT COURT, CITY & COUNTY OF DENVER.

96CV1195 |

ORDER OF COURT

UNITED AIRLINES, INC., a Delaware corporation; and AIR

WISCONSIN, INC., a Wisconsin corporation,

Petitioners,

CITY AND COUNTY OF DENVER, a home rule city and

Colorado municipal corporation,

Respondent.

Upon consideration of the Record of Appeal, together

with the written and oral arguments of counsel, and now being

sufficiently advised in the premises,

IT IS ORDERED that the Writ of Certiorari heretofore

granted be, and hereby is, DENIED as having been improvi-

dently granted.

BY THE COURT, EN BANC, DECEMBER 6, 1999.

JUSTICE SCOTT does not participate.

CA:

Maria Kayser Andrew Swain

Assistant City Attorney Assistant City Attorney

1437 Bannock St., #353 1445 Cleveland Place.

City and County Building Room 300

Denver, CO 80224 Denver, CO 80202-5306

Hubert A. Farbes

Lynne M. Hufnagel

Brownstein Hyatt Farber & Strickland, P.C.

410 17" Street, 22 Floor

Denver, CO 80202

Pamela F. Olson

Skadden, Arps, Slate, Meagher & Flom, LLP

1440 New York Avenue, N.W.

Washington, D.C. 20005

Honorable Daniel Taubman

Judge, Court of Appeals

Patrick Stanford

Clerk, Court of Appeals

Michele Ziegler

Editor of Opinions office

Court of Appeals

West Publishing Corporation

610 Opperman Dr. Bidg. D

Eagan, MN 55123-1396

Shepards, Inc.

555 Middle Creek Parkway

Colorado Springs, CO 80921-3630

Commerce Clearing House, Inc.

Court Decisions Department

P.O. Box 5490

Chicago, IL 60680-9882

GENERAL MOTORS CORPORATION, d/b/a

General Motors Emissions Laboratory,

Plaintiff-Appellee/Cross-Appellant,

The CITY AND COUNTY OF DENVER, Tami A. Tanoue, as

Hearing Officer for the Manager of Revenue of the City and

County of Denver, State of Colorado; and Cheryl Cohen, as the

Manager of Revenue of the City and County of Denver, State

of Colorado, Defendants-Appellants/Cross-Appellees.

No. 98SA220.

Supreme Court of Colorado,

En Banc.

Dec. 6, 1999.

Morrison & Foerster, LLP, Thomas H. Steele, Amy L.

Silverstein, Neil I. Pomerantz, Denver, Colorado, Attorneys for

Plaintiff-Appellee/Cross-Appellant.

Daniel E. Muse, City Attorney, Robert F. Strenski, Assistant

City Attorney, Denver, Colorado, Attorneys for Defen-

dants-Appellants/Cross-Appellees.

Justice KOURLIS delivered the Opinion of the Court.

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. We hold that the

Commerce Clause does not prohibit such a tax, subject to the

limitation that Denver's tax must be offset by a credit for any

sales or use taxes on the wholesale value of the parts and

— +

materials used to construct the vehicles thatGM may have

incurred for purchases or uses in foreign states prior to their

arrival in Denver. We then consider whether GM is entitled to

either of two statutory exemptions from the Denver use tax, and

hold that it is not.

In 1995, the Denver Manager of Revenue conducted a

tax audit of the Denver operations of GM for the period of

January 1, 1989 to August 31, 1994. GM is a Delaware

corporation with headquarters in Detroit, Michigan. During the

audit period, GM's Powertrain Division operated the Denver

Vehicle Emissions Testing Lab (the Denver Lab). The

Powertrain Division brought approximately one-thousand

vehicles to the Denver Lab each year, with an average of

twenty to thirty vehicles at the lab each day. 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.' The taxed

vehicles fell into three groups: emissions test vehicles,

powertrain drive development vehicles, and "drive trip” test

vehicles.

Emissions test vehicles, comprising 40% of the vehi-

cles, represented the largest of the three groups. To create the

emissions test vehicles, the Powertrain Division acquired

current production model automobiles from GM's assembly

lines in Michigan and refit the vehicles to simulate production

models planned for a future year. The prototype vehicles then

spent eight to twenty months in Michigan, undergoing perfor-

GM does not contest the tax imposed by Denver on the other 18%

of the vehicles that passed through the Denver Lab.

mance stabilization and testing. Then, the Powertrain Division

shipped them via common carrier to the Denver Lab. While in

Denver, engineers ran the vehicles through approximately two

weeks of high altitude emissions testing, both in the lab and on

the roads of Denver and the surrounding mountains, before

shipping the vehicles to other GM test centers in the United

States and Canada. After an average test life of thirty-five

months and twelve-thousand miles, during which GM occa-

sionally brought the vehicles back to Denver, GM returned the

vehicles to Michigan and either scrapped them, or sold them at

auction. On average, the emissions test vehicles spent 2 to 4%

of their useful lives in Denver and traveled 1.5% of their total

miles in Denver.

Unlike the emissions test vehicles, the powertrain drive

development vehicles, comprising 32% of the vehicles, did not

undergo any testing in the Denver Lab. Rather, the Powertrain

Division shipped these vehicles to the Denver Lab, where they

sat for a short period—usually less than a few days—before

engineers drove them into the mountains for road testing.

Lastly, drive trip test vehicles, comprising 10% of the

vehicles, were vehicles that GM's engineers tested while

driving on road trips across the country.2, The Denver Lab

served as a drop-off point for these vehicles, where lab person-

nel washed and performed minor maintenance on them before

shipping them to other locations, usually within a matter of a

few days. Both the powertrain drive development and drive

tnp test vehicles spent less than 1% of their useful lives and

total miles in Denver.

: See supra note 1.

Following its audit of these operations, Denver issued

GM anotice of use tax deficiency totaling $2,868,632.96 based

on the full value of the vehicles that passed through Denver.

Subsequently, pursuant to this court's holding in /nternational

Business Machines Corp. v. Charnes, 198 Colo. 374, 601 P.2d

622 (1979), Denver issued a modified assessment for

$1,044,199.16 based on the full value of the materials used to

construct the vehicles, rather than the full retail value of the

completed vehicles. This modified figure included an interest

charge and a 10% tax penalty of $70,345.34 pursuant to

D.R.M.C. § 53-114(a) (1993) for late remittance.

Denver provided GM with a tax credit under D.R.M.C.

§ 53-92(c) (1993) for any sales or use taxes paid by GM to

other municipalities on the materials costs of the vehicles prior

to the vehicles’ arrival in Denver.’ Pursuant to that provision,

. D.R.M.C. § 53-92(c) states:

It is hereby to be the legislative intent of the city...that the

provisions of this article shall apply to any person who

has already paid a retail sales tax or a use tax in respect

to the sale or a service or tangible personal property

taxable hereunder, to a municipal corporation organized

and existing under the authority of the laws or the

Constitution of any state in an amount less than the tax

imposed by this article, and who thereafter causes a

service or tangible personal property, taxable hereunder,

to be used, stored, distributed or consumed in the city,

but the tax imposed by this article shall, in such event, be

measured by the difference between the amount imposed

by this article and the amount previously imposed by the

other municipality on said sale. If the retail sales tax

imposed and paid to such municipal corporation afore-

said is equal to or more than the tax imposed by this

article, no tax shall be due hereunder for the exercise of

(continued...)

however, Denver declined to credit any portion of foreign taxes

paid on the value of the labor and overhead used to complete

the vehicle or any taxes imposed on the vehicles after their

departure from Denver. Denver calculated the proper credit to

be $4,924.37, as compared to GM's total tax payments of

$981,413.82 to other jurisdictions for uses before the vehicles

were in Denver and after their departure.

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 Constitu-

tion* because it was not fairly apportioned and lacked a

sufficient nexus to GM's initial purchase of the vehicles in

Michigan. As such, GM contended that its activities should be

exempt from the use tax under D.R.M.C. § 53-97(11) (1993),

which excludes "[a]ll sales which the city is prohibited from

taxing under the Constitution." /d. Alternatively, GM argued

that its activities fell within two other municipal code exemp-

tions. See D.R.M.C. § 53-97(9) (1993) (granting an exemption

for temporary personal use within Denver); D.R.M.C. §

53-97(12) (1993) (granting an exemption for vehicles regis-

tered outside of Denver). The hearing officer affirmed the

assessment of the tax in its entirety, finding that it did not

violate the Commerce Clause and that GM was not entitled to

. (...continued)

the privilege of using, storing, distributing or consuming

such service or personal property in the city.

Id.

. See U.S. Const. art. I, § 8, cl. 3 (stating that Congress shall have

the power to "regulate Commerce with foreign Nations, and

among the several States, and with the Indian Tribes").

claim either exemption to the tax. On review, the Denver

District Court struck down the assessment, holding that GM

fell within the D.R.M.C. § 53-97(9) temporary personal use

exemption. In addition, anticipating an appeal concerning the

application of that exemption, the district court addressed GM's

constitutional arguments. The court found that Denver did not

have a sufficient nexus to the Powertrain Division's original

"purchase" of the parts and materials that comprised the

vehicles. In addition, the court found that the tax was not

"externally consistent" because it was not apportioned in a

fashion that accounted for the fact that the vehicles spent only

a small portion of their useful lives in Denver.

We have appellate jurisdiction pursuant to section

13-4-102(1)(b). 5 C.R.S. (1999), and we now affirm in part,

reverse in part, and remand for a determination of the proper

credit for the sales and use taxes paid by GM pnor to the

vehicles’ arrival in Denver.

Denver's municipal use tax is set forth in D.R.M.C. §

53-96(1) (1993), which states:

There is levied and there shall be col-

lected and paid a tax in the amount stated in this

article, by every person exercising the taxable

privilege of storing, using, distributing or con-

suming in the city a service subject to the

provisions of this article or any article of tangi-

ble personal property, purchased at retail, for

said exercise of said privilege, as follows: (1)

~—._ On the purchase price paid or charged upon all

sales and purchases of tangible personal property.

Id. The code defines "use" as: "the exercise, for any length of

time, by any person within the city of any right, power or

dominion over tangible personal property or services."

D.R.M.C. § 53-95(30) (1993) (emphasis added). It defines

storage as "any keeping or retention of, or exercise of dominion

_ or control over, or possession for any length of time of tangible

personal property." D.R.M.C. § 53-95(23) (1993). Finally,

the code defines "retail sale" as "any sale ... except a wholesale

sale," D.R.M.C. § 53-95(19) (1993), where a wholesale sale is

defined in relevant part as "[a] sale by wholesalers to licensed

retail merchants ... or other wholesalers for resale.” D.R.M.C.

§ 53-95(31)(a) (1993). —~

By these definitions, the use tax code "reflects a broad

legislative intent to impose sales taxes or use taxes upon the

great majority of purchases of tangible personal property.” A.B.

Hirschfeld Press, Inc. v. City & County of Denver, 806 P.2d

917, 920 (Colo. 1991). "The definition of retail sale is broadly

inclusive, encompassing all sales except wholesale sales. The

use tax 1s to be imposed on the purchase price of all tangible

personal property that is purchased at retail for use, storage,

distribution or consumption.” /d.

This broad scope reflects the purpose of the Code. We

have previously noted that "Denver's use tax is intended to

prevent individuals and businesses from purchasing property in

another jurisdiction in order to avoid paying a sales tax in

Denver." Winslow Constr. Co. v. City & County of Denver, 960

P.2d 685, 692 (Colo.1998). Use taxes such as this one arose

shortly after the advent of sales taxes in the 1930s as a means

to "safeguard State sales tax revenues from erosion by pur-

chases of goods outside the State, and to protect local mer-

chants from loss of business to border and other States that

either have no sales tax or whose sales tax rate is lower than

that of the merchant's State." 2 Jerome R. Hellerstein & Walter

Hellerstein, State Taxation 4 16.01 (1992) [hereinafter 2

Hellerstein & Hellerstein].

The United States Supreme Court has upheld the

constitutionality of these so-called "compensating use taxes"

since their inception, based on the theory that the taxes fall

upon an in-state event: the use, storage, consumption, or

distribution of property within the state. See McLeod v. J.E.

Dilworth Co., 322 U.S. 327, 330, 64 S.Ct. 1023, 88 L.Ed.1304

(1944) ("A sales tax is a tax on the freedom of purchase.... A

use tax 1s a tax upon the enjoyment of that which was pur-

chased."); Henneford v. Silas Mason Co., 300 U.S. 577,

587-88, 57 S.Ct. 524, 81 L.Ed. 814 (1937) (upholding the

constitutionality of an early California use tax).

As Denver recognized in its modified tax assessment,

under Colorado law, the use tax base is not the retail value of

GM's vehicles, but rather the value of the component parts. See

International Bus. Machs. Corp. v. Charnes, 198 Colo. 374,

379, 601 P.2d 622, 626 (1979). In JBM, we noted that when

a manufacturer withdraws a product from its inventory for its

own use, the parts and materials that the manufacturer used to

build that product no longer qualify for a manufacturing

exemption to the Colorado sales and use tax. See id. at 378,

601 P.2d at 625. As such, at the time of the withdrawal, the

original wholesale purchase is converted to a retail purchase for

purposes of the use tax. See id. at 378-79, 601 P.2d at 625-26.

Because the original exempt purchases were for parts and

materials, in JBM we held that the Colorado Department of

Revenue could tax the value of the parts and materials, but not

the "full finished cost" of the completed product. See id. at

379, 601 P.2d at 626. We noted that taxing the full finished

cost would "have the effect of taxing the company's labor and

overhead," and thus, would effectively operate as a "value

added tax." Jd. at 377, 601 P.2d at 624-25. In other words,

such a value-added tax would exceed the intended purposes of

the use tax because it would more than offset the sales tax

revenues due to Colorado if the taxpayer purchased the parts

and materials in-state.

__ The parties do not dispute that the Denver use tax, if

constitutional, applies on its face to the parts and materials in

GM's test vehicles. Their dispute concerns first, whether the

tax as applied is constitutional under the dormant Commerce

Clause; and second, whether, even if the tax is constitutional,

it nonetheless cannot be collected because of statutory exemp-

tions to the use tax.

Ill.

We turm first to the constitutionality of the tax under the

Commerce Clause. In this regard, we conduct a de novo

review of the district court's constitutional determinations. See

People v. District Court, 953 P.2d 184, 187 n. 4 (Colo.1998)

("A constitutional standard is a question of law subject to de

novo review on appeal.").

Although states may tax intrastate commerce as they

deem fit, the Constitution imposes limitations on the exercise

of state taxing power over interstate commerce. The United

States Supreme Court explained the constitutional origin of

these limitations in Oklahoma Tax Commission vy. Jefferson

Lines, Inc., 514 U.S. 175, 115 S.Ct. 1331, 131 L.Ed.2d 261

(1995):

10c

Despite the express grant to Congress of

the power to "regulate Commerce...among the

several States,” U.S. Const., Art. I, § 8, cl. 3,

we have consistently held this language to

contain further, negative command, known as

the dormant Commerce Clause, prohibiting

certain state taxation even when Congress has

failed to legislate on the subject. We have

understood this construction to serve the Com-

merce Clause's purpose of preventing a State

from retreating into economic isolation or

jeopardizing the welfare of the Nation as a

whole, as it would do if it were free to place

burdens on the flow of commerce across its

borders that commerce wholly within those

borders would not bear. The provision thus

reflect[s] a central concern of the Framers that

was an immediate reason for calling the Consti-

tutional Convention: the conviction that in

order to succeed, the new Union would have to

avoid the tendencies toward economic

Balkanization that had plagued relations among

the Colonies and later among the States under

the Articles of Confederation.

Id. at 179-80, 115 S.Ct. 1331 (some citations and internal

quotation marks omitted). The dormant Commerce Clause

does not, however, "immunize" interstate commerce and its

instrumentalities from state taxation: indeed, "[f]requently it

has been said that interstate business must pay its way."

Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U.S. 157,

165, 74 S.Ct. 396, 98 L.Ed. 583 (1954).

lle

Under the Supreme Court's holding in Complete Auto

Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d

326 (1977), 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."° Jd. at 279, 97 S.Ct. 1076. The district

court held that Denver's tax violated the first two prongs of this

test.

We turn then to the first prong of the Complete Auto

test: whether, in this case, Denver's use tax applies to an

"activity with a substantial nexus with the taxing State." /d. at

279, 97 S.Ct. 1076. Under this test, a jurisdiction may impose

a tax obligation so long as "facts demonstrate some definite

link, some minimum connection, between the State and the

person it seeks to tax." National Geographic Soc'y v. Califor-

nia Bd. of Equalization, 430 U.S. 551, 561, 97 S.Ct. 1386, 51

L.Ed.2d 631 (1977) (internal quotation marks omitted).

: Local taxing authorities, like states, are subject to the negative

Commerce Clause and the Complete Auto test. See Dean Milk Co

v. City of Madison, 340 U.S. 349, 353-57, 71 S.Ct. 295, 95 L.Ed.

329 (1951) (striking Madison's sale of milk ordinance on Com-

merce Clause grounds); Burbank-Glendale-Pasadna Airport Auth.

v. City of Burbank, 64 Cal.App.4" 1217, 76 Cal. Rptr. 2d 297,

300-01 (1998) (denying a Commerce Clause challenge to a city's

parking tax); Allegro Servs., Ltd v. Metropolitan Pier & Exposition

Auth., 172 Ill.2d 243, 216 Ill. Dec. 689, 665 N.E.2nd 1246, 1256-

60 (1996) (upholding an airport departure tax imposed by the

Metropolitan Pier and Exposition Authority).

12c

As this test suggests, the "sufficient nexus" requirement

does not pose a particularly difficult hurdle for most state taxes.

For instance, in Standard Pressed Steel Co. v. Department of

Revenue of Washington, 419 U.S. 560, 95 S.Ct. 706, 42

L.Ed.2d 719 (1975), the Supreme Court upheld an

unapportioned gross receipts tax that Washington State

imposed on the in-state sales of an out-of-state corporation,

even though the company had only a single full-time employee

working from his home in Washington. Standard Pressed Steel

argued that its "in-state activities were so thin and inconsequen-

tial as to make the tax" unconstitutional, but the Court charac-

terized this argument as "verg[ing] on the fnvolous." /d. at

562, 95 S.Ct. 706. The Court noted that the full-time em-

ployee "made possible the realization and continuance of

valuable contractual relations” between Standard Pressed Steel

and a large in-state corporation, the Boeing Company. /d.; see

also Talbots, Inc. v. Schwartzberg, 928 P.2d 822, 825

(Colo.App.1996) (holding that the Denver municipal use tax

met the first prong of Complete Auto where Denver imposed it

upon catalog mailings from a department store having two

retail outlets in Denver).

In fact, it is only where a state's contacts with interstate

commerce are truly de minimis that the first prong of Complete

Auto will operate to invalidate a tax. See, e.g., Quill Corp. v.

North Dakota, 504 U.S. 298, 317-18, 112 S.Ct. 1904, 119

L.Ed.2d 91 (1992) (concluding that a mail order business's lack

of any physical presence in the state precluded the state from

collecting a use tax); United Air Lines, Inc. v. Mahin, 410 U.S.

623, 631, 93 S.Ct. 1186, 35 L.Ed.2d 545 (1973) (stating in

dicta that a state would have an insufficient nexus to tax an

airplane's consumption of fuel based solely on the aircraft's

flight over the state); National Bellas Hess, Inc. v. Department

of Revenue of Illinois, 386 U.S. 753, 758-60, 87 S.Ct. 1389, 18

13c

L.Ed.2d 505 (1967) (holding that a state had an insufficient

nexus to require an out-of-state mail order firm to collect and

pay use taxes where the firm's only contacts with the state

constituted catalogs and merchandise mailed to state residents),

overruled in part on other grounds by Quill Corp., 504 U.S. at

306-08, 112 S.Ct. 1904.

Here, in considering the first prong of Complete Auto,

the district court held:

There is no doubt General Motors has a

presence in the City and County of Denver, the

question 1s whether there is a substantial nexus

between the City and the sale of parts which the

City now wishes to tax.

The City's argument fails to establish

that there is a substantial nexus between the

City and the transaction that it wishes to tax.

(emphasis added). We hold that the trial court's reading of the

first prong of the Complete Auto test was misdirected. The use

tax does not tax the out-of-state sale of parts; rather, its

incidence falls upon the in-state storage, use, distribution, or

consumption of those parts. See D.R.M.C. § 53-96(1) (impos-

ing Denver's use tax on the privilege of storing, using, distribut-

ing, Or consuming property within the city); Henneford v. Silas

Mason Co., 300 U.S. 577, 587, 57 S.Ct. 524, 81 L.Ed. 814

(1937) (rejecting a challenge that a use tax violated the Com-

merce Clause where the challenge asserted that the tax "though

in form upon the use, was in fact upon the foreign sale, and not

upon the use at all, the form being a subterfuge"). Thus, it is

GM's in-state storage, use, distribution, or consumption of

14c

automobile parts that must bear a substantial nexus with

Denver. See Complete Auto, 430 U.S. at 279, 97 S.Ct..1076.

On this point, we find that GM's use and storage of over

one-thousand vehicles per year, with the company's corre-

sponding employment of state residents and its operation of the

Denver Lab facilities, created a sufficient nexus with Denver.

Thus, we conclude that Denver's imposition of the use tax did

not violate the first prong of the Complete Auto test.

We tum then to the second prong of Complete Auto, and

the more difficult question in this case: whether Denver's use

tax is "fairly apportioned.” /d. at 279, 97 S.Ct. 1076. The

"central purpose" of this prong is to " ‘ensure that each State

taxes only its fair share of an interstate transaction.’ "

Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 514 U.S. 175,

184, 115 S.Ct. 1331, 131 L.Ed.2d 261 (1995) (quoting

Goldberg v. Sweet, 488 U.S. 252, 260-61, 109 S.Ct. 582, 102

L.Ed.2d 607 (1989)). In Jefferson Lines, the Supreme Court

observed:

This principle of fair share is the lineal

descendant of [the] prohibition of multiple

taxation, which is threatened whenever one

State's act of overreaching combines with the

possibility that another State will claim its fair

share of the value taxed: the portion of value by

which one State exceeded its fair share would

be taxed again by a State properly laying claim

to it.

15c

Jefferson Lines, 514 U.S. at 184-85, 115 S.Ct. 1331. The

Supreme Court examines the "threat of malapportionment" by

making two somewhat interrelated inquiries: "whether the tax

is internally consistent’ and, if so, whether it is ‘externally

consistent’ as well." /d. at 185, 115 S.Ct. 1331. We examine

each of these requirements in turn.

A state tax is internally consistent if it is structured" so

that if every State were to impose an identical tax, no multiple

taxation would result." Goldberg, 488 U.S. at 261, 109 S.Ct.

582.

A failure of internal consistency shows

as a matter of law that a State is attempting to

take more than its fair share of taxes from the

interstate transaction, since allowing such a tax

in one State would place interstate commerce at

the mercy of those remaining States that might

impose an identical tax.

Jefferson Lines, 514 U.S. at 185, 115 S.Ct. 1331. To avoid

multiple taxation, a tax upon interstate commerce must either

be apportioned to relate the tax to the activity taking place

within the taxing state or it must allow a credit for other similar

taxes paid by the taxpayer in other jurisdictions. See Goldberg,

488 U.S. at 264, 109 S.Ct. 582. Either method is equally

suitable as a means of meeting the "fairly apportioned" prong

of Complete Auto. See Jefferson Lines, 514 U.S. at 195, 115

S.Ct. 1331 (rejecting "the idea that a particular apportionment

formula must be used simply because it would be possible to

use it"). Furthermore, the fairly apportioned test "does not

require [the] State to adopt a tax which would ‘pose genuine

administrative burdens.'" Goldberg, 488 U.S. at 264, 109 S.Ct.

16c

582 (quoting American Trucking Ass'ns, Inc. v. Scheiner, 483

U.S. 266, 296, 107 S.Ct. 2829, 97 L.Ed.2d 226 (1987)).

Indeed, as we discuss further infra, to avoid the burdens

of administering fractional apportionment mechanisms, the

overwhelming majority of states meet the “internal consis-

tency” test by providing a credit for sales or use taxes paid to

other states. See Walter Hellerstein, /s "/nternal Consistency"

Foolish?: Reflections On An Emerging Commerce Clause

Restraint On State Taxation, 87 Mich. L.Rev. 138, 160 (1988);

see also Barringer v. Griffes, | F.3d 1331, 1336 (2d Cir.1993)

(observing that “where the Supreme Court examines compen-

sating use taxes under the internal consistency test, such taxes

have been upheld as fairly apportioned when they provided for

a credit, but have been rejected where no credit was allowed for

taxes paid to other states"). However, the crediting structure

must be designed properly. Internal consistency requires that

states impose identical taxes when viewed in the aggregate—as

a collection of state and sub-state taxing jurisdictions. In other

words, the interstate taxpayer should never pay more sales or

use tax than the intrastate taxpayer.°

The City and County of Denver's municipal code offers

tax credits for sales and use taxes imposed by other municipali-

ties, see D.R.M.C. § 53- 92(c), and the Colorado sales and use

tax affords a similar credit for sales and use taxes imposed by

other states. See § 39-26-203(1(k), 11 C.R.S. (1999). Denver

argues that the establishment of identical tax crediting schemes

throughout the country would not lead to the assessment of an

unconstitutional tax burden on interstate taxpayers. We

: Denver need not credit sales and use taxes paid for uses in other

states after departure of the automobiles from Colorado. See

D.R.M.C § 53-92(c)

17c

disagree, and find Denver's taxing structure to be internally

inconsistent because Denver's credit mechanism could cause

multiple taxation even if every state and municipality were to

impose a taxing scheme similar to the one present in Colorado

and Denver.’

For example, if Colorado imposed a 1% sales or use tax

and Denver a 2% tax, a purchaser or user would owe a 3% total

tax. Similarly, if Michigan collected a 2% sales or use tax and

Detroit a 1% tax, a purchaser or user in Detroit would pay a 3%

total tax. However, a user who purchased the item in Detroit

would be subject to an additional 1% tax upon the storage or

use of the item in Denver because section 53-92(c) only credits

taxes paid to other municipalities. Thus, Denver's use tax

could burden interstate commerce if every other state and

municipality employed the same tax structure as Colorado and

Denver, but imposed different tax rates.*

Although when viewed in isolation section 53-92(c)

provides an internally inconsistent crediting scheme, D.R.M.C.

53-97(11) operates to save it from such a constitutional failure.’

: A statute may violate the "internal consistency” doctrine if the tax

subjects a multi-state taxpayer to the risk of multiple taxation. See

American Trucking Ass'ns. Inc v. Sheiner, 483 U.S. 266, 284-85,

107 S.Ct. 2829, 97 L.Ed.2d 226 (1987); 1 Jerome R. Hellerstein

& Walter Hellerstein, State Taxation 4 4.06[1]{a] (1993) [hereinaf-

ter 1 Hellerstein & Hellerstein).

¥ We recognize that United States Case Law does not require that

states and municipalities examine the laws of all other states when

establishing taxes. We provide this example to demonstrate that

Denver's use tax scheme permits multiple taxation.

: GM argues that D.R.M.C. § 53-97(11) should exempt it from all

(continued...)

18c

"There shall be exempt from taxation under the provisions of

this article...(11)[a]ll sales which the city is prohibited from

taxing under the Constitution or laws of the United States or

the Constitution of the state." D.R.M.C. 53-97(11). It appears

to us that Denver created this provision to prevent the courts

from invalidating the use tax in its entirety upon a constitu-

tional challenge. While not artfully drafted, the intent is clear.

This court attempts to construe tax ordinances so that

they are valid. See Hiatt v. City of Manitou Springs, 154 Colo.

525, 529, 392 P.2d 282, 284 (1964). In reviewing the interplay

of the same Denver municipal code provisions, the court of

appeals stated that "a taxpayer may seek an exemption from the

use tax if Denver fails to give full credit for taxes paid in other

taxing jurisdictions, including states, counties, and municipali-

ties.” United Air Lines, Inc. v. City and County of Denver, 973

P.2d 647, 654 (Colo.App.1998), cert. denied as improvidently

granted, No. 98SC485 (Colo. Dec. 6, 1999).'° We agree with

the court of appeals’ analysis.

On its face, D.R.M.C. § 53-97(11)'s language exempts

"[a]ll sales." The use tax portion of the code uses "purchases"

and "sales" interchangeably. See D.R.M.C. § 53-95(21)(1993)

(...continued)

tax because of the unconstitutional crediting scheme. We find this

interpretation to be incorrect. Denver may lawfully tax GM's use

of the automobiles in Denver, but it must tax GM in a constitu-

tional manner.

” We granted certiorari in United on March 29, 1999 contemporane-

ously with our receipt of the briefs in this case. After a closer

investigation of the issues presented, we determine that we

improvidently granted certiorari in United and accordingly now

dismiss it.

— ose | | j

19c

(defining "/s/ale or purchase or sale and purchase."). Conse-

quently, section 53-97(11) exempts all constitutionally pro-

tected sales and purchases. Although Denver seeks to tax

GM's use of the automobiles in Denver, not their sale or

purchase, Denver bases the amount of tax on the purchase price

paid. This tax determination, and the placement of the exemp-

tions within the use tax portion of its code convince us that

Denver intended this exemption to apply to its use tax.

We understand that the use of "exemption" in this

context could lead to the conclusion that GM owes no tax.

However, courts must construe tax exemptions narrowly, and

in favor of the taxing authority. See Security Life & Accident

Co. v. Heckers, 177 Colo. 455, 458, 495 P.2d 225, 226-27

(1972); Regidnal Transp. Dist. v. Charnes, 660 P.2d 24, 25

(Colo.App.1982). Thus, we interpret "exemption" only to

reduce the tax owed Denver by the amount of sales and use tax

paid to other state and sub-state taxing jurisdictions.'!

4 Our conclusion leaves open the question of whether the Code fails

to alert taxpayers of the proper credit available to them. It could

be subject to a due process challenge because a law is void for

vagueness when a person of ordinary intelligence cannot reason-

ably determine what a statute requires or forbids. See People v.

Nissen, 650 P.2d 547, 550 (Colo.1982); Missourians for Tax

Justice Educ. Project v. Holden, 959 S.W.2d 100, 105 (Mo.1997).

This requirement allows people to conduct themselves in accor-

dance with law, and prevents arbitrary and discriminatory

application of the law. See Nissen, 650 P.2d at 550; Missourians,

959 S.W.2d at 105.

Here, GM does not complain of insufficient notice.

Provided that Denver grants the credits demanded by the

Constitution to any use taxpayer, the notice issue may

never arise.

20c

Our interpretation of D.R.M.C. § 53-97(11) saves

Denver's use tax from constitutional invalidity. However,

Denver must provide GM with a credit for the sales and use

taxes paid to other states and their subdivisions such that GM

will pay no more tax on the automobiles than it would have

paid by purchasing the component parts in the City and County

of Denver, State of Colorado.

We turn then to a consideration of whether the use tax

comports with the requirements of external consistency. In

contrast to internal consistency, external consistency "looks not

to the logical consequences of cloning, but to the economic

justification for the State's claim upon the value taxed, to

discover whether a State's tax reaches beyond that portion of

value that is fairly attributable to economic activity within the

taxing State." Oklahoma Tax Comm'n v. Jefferson Lines, Inc.,

514 U.S. 175, 185, 115 S.Ct. 1331, 131 L.Ed.2d 261 (1995).

In other words, the state may only impose a tax on interstate

activity that "reasonably reflects the in-state component of the

activity being taxed." Goldberg v. Sweet, 488 U.S. 252, 262,

109 S.Ct. 582, 102 L.Ed.2d 607 (1989).

Evaluation of external consistency requires an examina-

tion of "the in-state business activity which triggers the taxable

event and the practical or economic effect of the tax on that

interstate activity." Jd. at 262, 109 S.Ct. 582. If there is a

threat of "real multiple taxation,” the state may be engaging in

"impermissible overreaching." Jefferson Lines, 514 U.S. at

185, 115 S.Ct. 1331. No internally consistent sales tax has

failed the external consistency test for lack of further apportion-

ment. See id. at 192, 115 S.Ct. 1331.

De er Tee ee

al Plas otal Lal ae

ee eae Basia

2lc

In the context of income taxes or taxes on gross

receipts, apportionment must take into account the location

where revenue is generated. See id. at 186-90, 115 S.Ct. 1331.

Similar apportionment of sales and use taxes would present

substantial administration and collection difficulties. See, e.g.,

KSS Transp. Corp. v. Baldwin, 9 N.J.Tax 273, 284 (1987)

("Due to the nature of the sales and use tax, it is impractical to

apportion this tax."); 2 Hellerstein & Hellerstein § 18.04[1]. In

a likely effort to avoid the foreseeable administration and

collection difficulties of such a system, forty-four of forty-five

states that impose sales and use taxes employ crediting mecha-

nisms to prevent multiple taxation on sales and use taxes. See

2 Hellerstein & Hellerstein 4 18.08[1]; American Bar Associa-

tion Section on Taxation Sales and Use Tax Deskbook, 1998-99

Edition (1998). As the Supreme Court has noted:

"These credit provisions create a na-

tional system under which the first state of

purchase or use imposes the tax. Thereafter, no

other state taxes the transaction unless there has

been no prior tax imposed ... or if the tax rate of

the prior taxing state is less, in which case the

subsequent taxing state imposes a tax measured

only by the differential rate."

Jefferson Lines, 514 U.S. at 194, 115 S.Ct. 1331 (quoting KSS

Transp. Corp., 9 N.J.Tax at 285). Without exception, and as

GM's state taxation expert testified in the administrative

hearing below, the Supreme Court has "commented

favorably"’” on the States' use of crediting mechanisms as a

° 2 Hellerstein & Hellerstein J 18.04(1). Walter Hellerstein, who

co-authored this two-volume treatise with his father, is a promi-

(continued...)

22c

means of avoiding multiple taxation problems. See, e.g.,

Goldberg, 488 U.S. at 264, 109 S.Ct. 582 (holding that a tax on

interstate telephone calls does not violate the external consis-

tency requirement because "[t]o the extent that other States’

telecommunications taxes pose a risk of multiple taxation, the

(...continued)

nent commentator on state taxation law and was an expert witness

for General Motors in this case. The Hellersteins' work contains

the following hypothetical railroad examples:

[R]ailroad cars and other equipment

passing through a State, whether or not

there is loading or unloading in the

State, should, at least theoretically, be

subject to use tax within the States if

the tax is fairly apportioned, although

as stated below, apportionment is not

a viable, practical solution to such a

tax.

By the same token, a railroad trans-

porting passenger cars through a State

would appear to be subject to a prop-

erly apportioned use tax, even though

no stops are made in the State to re-

ceive or discharge passengers. How-

ever, sales and use taxes do not readily

lend themselves to apportionment

among the States. Instead, the States

allow credits against their use taxes for

sales or use taxes imposed by other

States. The Supreme Court has com-

mented favorably on the allowance of

such credits as a way of eliminating

multiple sales-use taxation of interstate

commerce.

2 Hellerstein & Hellerstein § 18.04[1] (foomotes omitted).

23c

credit provision contained in the Tax Act operates to avoid

actual multiple taxation."); D.H. Holmes Co. v. McNamara,

486 US. 24, 31, 108 S.Ct. 1619, 100 L.Ed.2d 21 (1988) ("We

have no doubt that the second ... element ] of [Complete Auto

is] satisfied. The Louisiana taxing scheme is fairly appor-

tioned, for it provides a credit against its use tax for sales taxes

that have been paid in other States."); Tyler Pipe Indus., Inc.

v. Washington State Dep't of Revenue, 483 U.S. 232, 245 n. 13,

107 S.Ct. 2810, 97 L.Ed.2d 199 (1987) ("Many States provide

tax credits that alleviate or eliminate the potential multiple

taxation that results when two or more sovereigns have

jurisdiction to tax parts of the same chain of commercial

events.").!>

Contrary to GM's arguments here, the external consis-

tency requirement does not require that sales and use taxes be

apportioned based on the length of time tangible property

remains in the taxing jurisdiction. For instance, in Director of

Revenue v. Superior Aircraft Leasing Co., 734 S.W.2d 504

(Mo.1987), the Missouri Supreme Court upheld the imposition

of a Missouri use tax on an aircraft that was leased to an Ohio

company and hangared and maintained in Ohio. See id- at

507-08. The Missouri court noted that the plane spent 17.7%

of its total flight hours in Missouri, and stayed there for periods

ranging from two to nine days. See id.; see also United Air

Lines, Inc. v. Mahin, 410 U.S. 623, 93 S.Ct. 1186, 35 L.Ed.2d

545 (1973) (upholding Illinois’ imposition of a use tax on the

The Court has also endorsed apportionment formulas based on the

number of miles a bus, train, or truck has traveled within a taxing

jurisdiction. See Goldberg, 488 U.S. at 264, 109 S.Ct. 582.

However, the Court has noted that these cases "all dealt with the

movement of large physical objects over identifiable routes, where

it was practicable to keep track of the distance actually traveled

within the taxing State." /d.

24c

full value of fuel stored in Illinois for two to twelve days prior

to its loading onto commercial aircraft).

Similarly, the Vermont Supreme Court in Whitcomb

Constr. Corp. v. Commissioner of Taxes, 144 Vt. 466, 479

A.2d 164 (1984) upheld Vermont's imposition of a use tax on

the full value of a New Hampshire-owned. aircraft that spent

17% of its flight time in Vermont. Jd. at 165. The Vermont

Supreme Court overruled a tral court's decision that had

apportioned the taxpayer's liability based on the amount of time

the aircraft spent in Vermont:

The Commerce Clause does not require

apportionment in addition to a tax credit. The

rule of Complete Auto ... requinng a tax on

interstate commerce to be "fairly apportioned”

is satisfied here. The state has provided a tax

credit in lieu of apportionment. This credit, not

unlike a proportionate tax, eliminates the possi-

bility of cumulative use tax liability. The

Vermont legislature has chosen not to incorpo-

rate apportionment within the use tax scheme.

This Court, therefore, is without power to

impose such a requirement. We agree with the

Commissioner that apportionment of this tax is

neither constitutionally required nor legisla-

tively authorized.

Id. at 168 (citation omitted). This principle reflects the notion

that use taxes actually compensate for a sale that took place

in another jurisdiction. Hence, it is irrelevant for purposes of

a use tax, just as it is irrelevant for purposes of a sales tax, how

long the property remains in the taxing jurisdiction. See

Jefferson Lines, 514 U.S. at 186, 115 S.Ct. 1331.

25c

Thus, use taxes are externally consistent if the contested

tax contains a credit that operates to eliminate multiple taxa-

tion. This rule holds true regardless of how long the property

remains in the taxing jurisdiction. If the use tax in question

contains an effective credit, it is externally consistent. Like the

Vermont Supreme Court, we decline to impose an apportion-

ment requirement where the responsible legislative body has

chosen not to enact one.

For purposes of our de novo review, we apply the third

and fourth prongs of the Complete Auto test, which the parties

did not vigorously contest before the Manager of Revenue and ©

upon which the district court did not rule. We find that

Denver's tax comports with both requirements because

D.R.M.C. § 53-97(11) prevents any discrimination, and the tax

bears a substantial nexus to the services provided by Denver to

GM.

Under the third prong of Complete Auto, we hold that

Denver's use tax does not discriminate against interstate

commerce. See Complete Auto Transit, Inc. v. Brady, 430 U.S.

274, 279, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). A state may

not allocate tax burdens between insiders and outsiders in a

facially discriminatory manner. See American Trucking Ass'ns

v. Scheiner, 483 U.S. 266, 281, 107 S.Ct. 2829, 97 L.Ed.2d 226

(1987). Denver's use tax equally applies to state residents and

"outsiders." See D.R.M.C. § 53-96. By providing a credit for

all sales and use taxes paid to other states, Denver's use tax

does not discriminate against interstate commerce.

26c

Under the fourth and final prong of Complete Auto,

Denver's use tax must be "fairly related to the services provided

by the State." Complete Auto, 430 U.S. at 279, 97 S.Ct. 1076.

"The purpose of this test is to ensure that a State's tax burden is

not placed upon persons who do not benefit from services

provided by the State." Goldberg, 488 U.S. at 266-67, 109

S.Ct. 582. The taxpayer enjoys a "wide range” of benefits

from the state including "police and fire protection, the use of

public roads and mass transit, and the other advantages of

civilized society." Jd. at 267, 109 S.Ct. 582. However, the

imposed tax "need not be limited to the costs of the services

incurred by the State on account of [the taxed] activity.” Id.”

‘(T]he simple but controlling question is whether the state has

given anything for which it can ask return.” Colonial Pipeline

Co. v. Traigle, 421 U.S. 100, 109, 95 S.Ct. 1538, 44 L.Ed.2d 1

(1975) (quoting General Motors Corp. v. Washington, 377 US.

436, 441, 84 S.Ct. 1564, 12 L.Ed.2d 430 (1964), overruled on

other grounds by Tyler Pipe Indus., Inc. v. Washington State

Dep't of Revenue, 483 U.S. 232, 242, 107 S.Ct. 2810, 97

L.Ed.2d 199 (1987)).

Here, GM's use of automobiles at its Denver Lab and on

the streets of Denver was afforded all of the benefits that

Denver provides to its other citizens—including fire and police

protection, social services, utilities, road construction and

maintenance, and all the “other advantages of civilized soci-

ety.” Goldberg, 488 U.S. at 267, 109 S.Ct. 582. Thus, we find

that Denver's decision to impose a use tax, amounting to a

one-time cost of approximately $300 per vehicle that GM

brought to Denver, was fairly related to the services provided

by Denver.

In sum, we find that Denver's assessment of its use tax

on the vehicles that GM brought into Denver violates the

27c

dormant Comm«

Court set forth irre Clause under the test that the Supreme

imposition of a g-omplete Auto because it could result in the

an in-state taxpayater tax on an out-of-state taxpayer than on

stances. Hower for the same product under certain circum-

saving Denver's el, We interpret D.R.M.C. § 53-97(11) as

collect only sucht tax from that flaw by requiring that Denver

ingly, provided t@X as constitutionally permissible. Accord-

is entitled. we ho?t Denver affords GM the credits to which it

scrutiny. | that Denver's use tax survives constitutional

IV.

We now

two statutory exeonsider whether GM qualifies for either of

are applicable taptions to Denver's use tax that GM contends

D.R.M.C. § §3.ts use of automobiles within Denver. See

D.R.M.C. § 53-<7(9) (temporary personal use exemption);

(12) (registered vehicle exemption).

"[T)here

exemption.” Me:4 Strong presumption in Colorado against tax

Colo. 49, 57, 49! Verde Co. v. Board of County Comm'rs, 178

v. Heckers, 182 P.2d 229, 233-34 (1972); see also Hagood

Thus. the "burde 00. 337, 348, 513 P.2d 208, 214 (1973).

to clearly establi is on the taxpayer who claims an exemption

& Accident Co, 2 the nght to such exemption,” Security Life

226 (1972), and Heckers, 177 Colo. 455, 458, 495 P.2d 225,

favor of the tax€ "exemption will be strictly construed in

Charnes. 660 P28 authority." Regional Transp. Dist. v.

§ 53-117(e) (1924, 25 (Colo.App.1982); see also D.R.M.C.

3) (placing the burden of proving that an

. apply to a given tax assessment on the

exemption shou

taxpayer).

28c

The district court held that GM was entitled to an

exemption under the temporary personal use exemption of

D.R.M.C. § 53-97(9), which states:

There shall be exempt from taxation

under the provisions of this article the follow-

ing:

(9) Sales'* of tangible personal property pur-

chased outside the city for use, storage, distri-

bution or consumption outside the city by a

nonresident of the city while the property 1s

temporarily within the city for the purchaser's

own personal use, storage or consumption.

Id. (footnote added). GM contends, and the district court

agreed, that this exemption includes businesses“ that use

property temporarily within Denver for internal business

purposes, where there is no immediate financial gain to the

business from the use.

In response, Denver first argued to the tral court that

this exemption does not apply because GM resides in Denver

" The plain meaning of "sales" in this exemption suggests that it

does not exempt "uses" of tangible personal property. However,

an almost identical section appears in the sales tax portion of the

DRM.C. See D. R.M.C.§ 53-26 (1993). The location of §

$3-97-within the use tax article—and the presence of a simular list

of exemptions in the sales tax article convince us that the exemp-

tions contained in § 53-97 apply to the “taxable privilege of

storing, using, distributing or consuming ... tangible personal

property.” D.R.M.C. § 53-96.

29c

and does not qualify as a "nonresident." It further argues here

that the internal use of property by a business is a commercial

or business use regardless of whether there is immediate

financial gain from the use, and that the district court should

have deferred to the Manager of Revenue's administrative

interpretation of the exemption to this effect. In support of its

contentions, the city indicates that the purpose of the exemption

was to encourage people to travel to Denver without fear of

being taxed during temporary visits, and to exempt personal

uses of goods that would be difficult to track. We conclude

that Denver has the better of these arguments.'°

The use of "nonresident" in section 53-97 raises the

question of whether GM meets the requirements of the exemp-

tion. If "nonresident" includes companies, we must then

decide which ones are subject to taxation.'®

In the context of a use tax, we find it significant that

Denver elected to use "nonresident" rather than "nonresident

person” or "nonresident individual." Because Denver failed to

- This construction of D.R.M.C. § 53-97(9) thereby comports with

the longstanding interpretation of the Manager of Revenue_and

affords due deference to that interpretation. See City and County

of Denver v. Industrial Comm'n, 690 P.2d 199, 203 (Colo.1984)

(noting that this court gives deference to the construction of a

statute by administrative officials charged with its enforcement);

Schlagel v. Hoelsken, 162 Colo. 142, 147, 425 P.2d 39, 42 (1967)

("{I)n interpreting [a] statute we must look to the long-continuing

contemporaneous construction of the act by the ... public officials

charged with its administration.").

* Some states specifically define the term "nonresident" so to avoid :

any confusion. See N.J.Rev.Stat.§ 54:32B-11(2). The D.R.M.C.

does not offer such guidance.

30¢

include modifying terms, it must have intended the term to

include some businesses. Colorado case law buttresses this

conclusion. In Rocky Mountain Prestress, Inc. v. Johnson, a

use tax case, this court interpreted the clause, "for his own use,"

contained in a previous version of section 53-97(9). 194 Colo.

560, 565, 574 P.2d 88, 91-92(1978). Had Denver interpreted

"nonresident" to apply only to natural persons, Rocky Mountain

Prestress would not have turned on the phrase, "for his own

use,” because the exemption would have be inapplicable to

companies. As a result, companies may be "nonresidents" for

purposes of the use tax.

Many courts indicate that a corporation is a resident

only of the state where incorporated. See /nternational Serv.

Ins. Co. v. Ross, 169 Colo. 451, 457 P.2d 917 (1969) (applying

the above rule in denying a motion for change of venue, but

placing some weight on the out-of-state location of the com-

pany's home office); New York Life Ins. Co. v. Pike, 51 Colo.

238, 117 P. 899 (1911); 36 Am.Jur.2d Foreign Corporations

§ 37 (1968). The Supreme Court of Rhode Island addressed a

similar use of “nonresident” in Great Lakes Dredge & Dock

Co. v. Norberg, 117 R.1. 600, 369 A.2d 1101 (1977). The

Rhode Island use tax exemption exempted "[p]roperty pur-

chased by the user while a non-resident of [Rhode Island], and

brought into the state by him for his own use.” See id. at 1105

(quoting R.1. Gen. Laws § 44-18-36 (1970)) (emphasis added).

Stating that the definition of “residence” for purposes of service

of process, venue, or federal diversity is not applicable to the

use tax context, the Rhode Island court interpreted "nonresi-

dent” to "imply an absence of significant contacts and a lack of

consistent operation in th{e] state.” Great Lakes, 369 A.2d at

1107 (finding that a corporation qualified to do business in

Rhode Island which conducted business there for several years

was not within the intended meaning of the term "nonresident"

i a an i ee en

3lc

as used in the exemption). We agree with that definition of

"nonresident."

"({R]jesident’ has many meanings in law, largely

determined by the statutory context in which it is used.”

Black's Law Dictionary 1309 (6th ed.1990). States developed

use taxes to protect state sales tax revenues, and to protect local

merchants from loss of business to other states. See 2

Hellerstein & Hellerstein 4 16.01.

If "nonresident" is literally construed to refer only to

companies incorporated here, the result is absurd. Only those

companies incorporated in Colorado'’ would be precluded from

utilizing the exemption regardless of their actual operating

locales. On the other hand, all other businesses would meet

the nonresident requirement regardless of the extent of their

Denver business operations. Such a result makes little sense.

Denver surely intended to tax those businesses that have

substantial activity in the city. The law must be tied to some

degree of Denver activity, and the place of incorporation seems

to be of little significance. As the Denver code employs the

term “nonresident” in section 53-97(9), GM's Denver opera-

tions clearly fail the nonresidency requirement. Therefore,GM

does not qualify for the exemption.

Although the above examination eliminates GM's

ability to seek reflige in section 53-97(9), we further address

and clanfy our previous interpretation of "personal use." We

considered the definition of personal use in Rocky Mountain

Prestress, Inc. v. Johnson, 194 Colo. 560, 574 P.2d 88 (1978).

Companies incorporate in states, not cities or counties, further

demonstrating that “nonresident” must apply to something other

than domicile.

32c

In that case, Rocky Mountain Prestress (RMP), a construction

company, brought mobile cranes into Denver for its own use in

the construction of buildings. See id. at 564, 574 P.2d at 91.

Denver attempted to impose its use tax upon the value of the

crane services, and RMP argued that it was exempt under the

temporary use exemption.'* See id. at 564-65, 574 P.2d at 91.

We held that Denver could not tax the value of the crane

services under the use tax, but rather could tax only the retail

value of the cranes. See id. at 565, 574 P.2d at 92. More

importantly for purposes of this case, we held that the tempo-

rary use exemption was inapplicable to the facts of that case:

When the purposes to be accomplished

by the enactment of a use tax are considered, it

is clear that "for his own use” must be construed

to mean "for his personal use." If this were not

the case, the exemption would frustrate an

essential purpose of the use tax, the recoupment

of lost sales tax revenue. Since the use of the

cranes in fulfillment of a construction contract

cannot be considered to be a personal use, the

use tax applies.

Id. at 565, 574 P.2d at 91-92. Hence, a business may not claim

the personal use exemption if the use furthers the fulfillment of

a business purpose.

- When we decided Rocky Mountain Prestress, D.R.M.C. § 53-

97(9) did not include "personal." Denver added the term

later-presumably to conform with our interpretation. The

amendment supports the interpretation of the Manager of Revenue

that "personal use" excludes "business uses.”

LP ide en sah aS GH.

Pa RS eC a Na SE Dist iS Sas

33c

We conclude that the nature of the use, rather than

length of use, is dispositive on the issue of whether a use is

personal. Inthe context of Rocky Mountain Prestress, the fact

that the taxpayer used its property directly in a construction

contract supported the notion that its use was for business

purposes, not personal use. Here, GM used over one-thousand

automobiles per year in an enterprise that was clearly commer-

cial: to develop new automobile models that GM could sell to

future customers. Accordingly, we hold that GM was not

entitled to the exemption contained in D.R.M.C. § 53- 97(9)

because it was not a nonresident and its use was not personal.

The second exemption that GM contends is applicable

to its use of the automobiles in Denver is the registered vehicle

exemption in D.R.M.C. § 53- 97(12). | That exemption

excludes from taxation "[s]ales of automotive vehicles'’ as

defined in this article that are registered and required by state

law to be registered outside the city." /d.

The code defines "sales", in part, as follows:

The code defines automotive vehicle as: any vehicle or device in,

upon or by which any person or property is or may be transported

or drawn upon a public highway, or any device used or designed

for aviation or flight in the air. Automotive vehicle includes, but

is not limited to, motor vehicles, trailers, semi-trailers or mobile

homes. Automotive vehicle shall not include devices moved by

human power.

D.R.M.C. § 53-95(1) (1993).

34c

Sale...includes installment and credit purchases

and sales and the exchange of property or

services that are taxable under the terms of this

article as well as the purchase and sale thereof

for money; and every transaction conditional or

otherwise, based upon consideration constitutes

a sale.

D.R.M.C. § 53-95(21) (emphasis added).

GM contends that this court should impute a sale of

vehicles to have occurred when GM removed the vehicles from

its inventory and used them for its own purposes, and that it

should therefore fall within the "sale of automotive vehicle"

language of the D.R.M.C. § 53-97(12) exemption. Such an

approach, however, would be inconsistent with ourholding in

International Business Machines Corp. v. Charnes, 198 Colo.

374, 601 P.2d 622 (1979). In that case, we held that a previ-

ously applicable use tax exemption for wholesale purchases of

parts and materials was no longer available when the company

removed the items from inventory for its own use. See id. at

378-79, 601 P.2d at 625. Thus, we did not "impute" a subse-

quent sale of parts and materials, but simply recharacterized the

original sale.

As such, the relevant sale for purposes of use tax

analysis is GM's original purchase of parts and materials—a

transaction that is not a "sale[ ] of [an] automotive vehicle[ ]."

§ 53-97(12); see also Rocky Mountain Prestress, 194 Colo. at

563-64, 574 P.2d at 90-91 (discussing when a "fictional

purchase at retail” might be appropriate for purposes of the

Denver use tax).

BRE Sin LR ha coe CR eu rethshitak elas

Sold eee Ea tebed.

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35c

The Manager of Revenue ruled that GM was not

entitled to this exemption, because: (1) the assessment at issue

in this case was not for GM's purchase of automotive vehicles,

but rather was for its purchase of parts and materials; and (2)

GM failed to introduce evidence establishing that another

jurisdiction required GM's vehicles to be registered outside of

Denver. The district court affirmed this ruling, holding that:

The Denver tax is imposed on the com-

ponent parts of the vehicles, not the value of the

vehicle. This is not simply form over sub-

stance. The value of the "vehicles," after all

parts and labor are combined, is much higher

than the component parts before the vehicle is

assembled.

The exemption is not applicable to the

present situation.

Given the strong presumption against the application of

exemptions and the fact that the burden of proof rests on the

taxpayer to establish its nght to an exemption—a burden that

GM failed to carry here—we conclude that the Manager of

Revenue and the district court correctly denied GM the benefit

of the D.R.M.C. § 53-97(12) exemption.

We conclude that Denver's assessment of its use tax

upon GM was both constitutional and authorized by ordinance

if Denver applies the appropriate sales and use tax credit to its

tax assessment. We turn then to GM's final contention: that

the Manager of Revenue should have waived GM's 10% late

payment penalty because GM reasonably and in good faith

36c

believed that the vehicles at issue were not subject to the City's

use tax. In support of this position, GM cites the court of

appeals’ recent decision in United Air Lines, 973 P.2d at 655

("If the hearing officer determined that the imposition of

penalties was mandatory, she erred in not considering whether

the airlines have shown good cause to warrant waiver of such

penalties."). The Manager of Revenue upheld the penalty, and

the district court did not address the issue.

D.R.M.C.§ 53-114(a) authorizes the Manager of

Revenue to impose a 10% penalty on taxpayers who fail to

report and pay their tax liabilities in a timely fashion. That

provision states: "In any case in which a taxpayer fails to file

a return or pay over the tax within the time required by this

article, but without the intent to defraud, there shall be added as

a penalty ten (10) percent of the total amount of the deficiency

..." § 53-114(a). The ordinance clearly contemplates that a

penalty may be assessed even in cases where the taxpayer has

no intent to defraud. See id.,; see also Western Elec. Co. v.

Weed, 185 Colo. 340, 355, 524 P.2d 1369, 1376-77 (1974)

(determining the application of a similar tax penalty provision.

"Appellants argue that the statute was not intended to ..

penalize a taxpayer who has a good faith dispute on a legal

question. The statute, however, in plain and clear language,

imposes the penalty upon an intentional but non- fraudulent

avoidance of the tax."). Perhaps to mitigate the potentially

harsh effect of this section, D.R.M.C.§ 53-133 (1993) autho-

rizes the Manager of Revenue to waive the tax penalty "for

good cause shown." See id. Here, the circumstances become

even more complex because we have concluded that Denver's

past interpretation of the credit mechanism was unconstitu-

tional.

Beaty ar ae ese fa Sts

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37c

The distnct court failed to reach the penalty issue

because it found Denver's use tax wholly unconstitutional.

Ordinarily the district court first evaluates the imposition of a

penalty by the Manager of Revenue. In light of our decision

here, we remand the case to the district court for its findings

and conclusions on the penalty issue.

VI.

We affirm the district court's ruling that GM was not

entitled to the D.R.M.C.§ 53-97(12) registered vehicle exemp-

tion, but reverse the district court's holding concerning the

constitutionality of Denver's use tax assessment and the

applicability of the D.R.M.C. § 53-97(9) temporary personal

use exemption. We remand this case to the district court for

determination of the appropriate credit in accordance with the

principles we set forth today and for a decision concerning

imposition of any penalty.

Justice SCOTT does not participate.

}

;

UNITED AIR LINES, INC., a Delaware corporation;

and Air Wisconsin, Inc., a Wisconsin corporation,

Plaintiffs-Appellants,

CITY AND COUNTY OF DENVER,

a home rule city and a Colorado municipal corporation,

Defendant-Appellee.

No. 97CA0151.

Colorado Court of Appeals,

Div. II.

April 30, 1998.

As Modified on Denial of Rehearing

June 25, 1998.

Certiorari Granted March 29, 1999.

Skadden, Arps. Slate, Meagher & Flom, L.L.P., Pamela

F. Olson, Washington, D.C., for Plaintiffs-Appellants,

Brownstein, Hyatt, Farber & Strickland, P.C., Hubert A.

Farbes, Jr., Lynne M. Hufnagel, Denver, for Plain-

tiffs-Appellants.

Daniel E. Muse, City Attorney, Maria Kayser, Assistant

City Attorney, Office of the City Attorney, Denver, for

Defendant-Appellee.

Opinion by Judge TAUBMAN.

Plaintiffs. United Air Lines, Inc., and Air Wisconsin

d/b/a United Express (collectively the airlines), appeal the

judgment in favor of defendant, City and County of Denver,

upholding the constitutionality of the Denver use tax as applied

to the airlines, and the subsequent assessment of penalties

imposed pursuant to Denver Revised Municipal Code (Denver

Code) § 53-114(a). We disagree with the airlines’ contention

that the ordinance as applied violated their rights under the

Commerce Clause, but agree that the imposition of penalties

must be reversed.

The parties stipulated to the following facts. Denver

audited the airlines and assessed a use tax on the storage, use,

distribution, and consumption in Denver of rotable aircraft

parts, i.e., parts which can be used more than once after

rehabilitation and repair. The audit period for United Airlines

was from January 1, 1991 through June 30, 1994. Air Wiscon-

sin's audit period was from July 1, 1991 through December 31.

1993. There is no dispute that both airlines stored, used,

consumed, or distributed such parts in Denver during the

periods in question.

Air Wisconsin conducted operations at Stapleton

International Airport for commercial passenger flights between

Denver and Aspen. Colorado. Those flights were the only

flights conducted out of Denver by Air Wisconsin. During the

audit period, Air Wisconsin purchased aircraft parts from

suppliers outside of Denver that were either shipped to Denver

or installed on aircraft outside of Denver but subsequently

removed in Denver. Air Wisconsin paid Denver use tax based

upon the total value of aircraft parts shipped into Denver less

the value of parts transported or shipped out of Denver. Air

Wisconsin received an assessment from the Denver Manager of

Revenue based upon the aforementioned audit for unpaid-use

- POLS (HO be 6 Garr ee gy

+ «. ie eee tim ae ee bee Bs

taxes for deprec

Denver during tt

against Air Wisc

jurisdiction.

ted values of all airplane parts shipped into

audit period. No other use tax was assessed

nsin's aircraft parts by any other state or local

United A.. ——

from Stapleton j,lines also conducted its air carrier operations

from the Denver ernational Airport. It received an assessment

of the use tax ovanager of Revenue based upon a calculation

of all rotable aire’ by United Airlines for depreciated values

; ift parts shipped into Denver during the audit

period. Thecalc, -—w.

id to Cali forn ation included a credit for sales or use taxes

” | state and local taxing jurisdictions to the

extent such taxes

vere paid for particular parts equal to, or less

than, the amount P 4 -P q

)f use tax due to Denver for the same parts.

- ~~ oe ‘administrative hearings, the hearing officer,

eit ssneenntvet Manager of Revenue, concluded that

upheld the impos of the use tax was constitutional and

53-114(a). Moro” of penalties pursuant to Denver Code §

et Tenens Rey; Pecifically, the hearing officer concluded

> oantons tel ed Municipal Code § 53-92(c), which gives

ss aanieiad ise tax for sales or use taxes previously paid

etme. eliminlities: did not violate the Commerce Clause

es both the potential for, and the actuality of,

ae ae tr interstate than intrastate goods.

The hea, officer determined that, because the

ordinance . credit, vision prevents Denver from assessing a

higher tax Bais interstate articles when a taxpayer has paid

taxes to other ™ nicipalities, Denver's use tax does not run

afoul of the C1 merce Clause. The hearing officer then

pos —s that. i the alternative, Denver Revised Municipal

Code § 53-97(1 ) nonetheless insulates the use tax from

constitutional att.) necause it exempts from the tax all sales

- (ee ah 4

which Denver is otherwise prohibited from taxing under the

Constitution of the United States.

Ina consolidated appeal pursuant to C.R.C.P. 106(a)(4),

the trial court affirmed the decisions of the hearing officer. The

trial court, construing all provisions of the use tax together,

determined that Denver Code § 53-97(11) exempts from the

use tax all sales and purchases which Denver is otherwise

prohibited from taxing under the Commerce Clause. Under the

trial court's construction, the goods of the airlines passing in

interstate commerce would be subject to the same tax as

intrastate goods. Thus, so construing the ordinance, the trial

court found it constitutional.

This appeal followed.

I. Standing and Mootness

At the outset. we address Denver's contention that

because neither airline has suffered a cognizable injury, neither

has standing to challenge the constitutionality of the use tax

ordinance. More specifically, Denver argues that because Air

Wisconsin had no potential tax liability to any other jurisdic-

tion regarding the aircraft parts in question, it suffered no legal

injury and, therefore. does not have standing to challenge the

ordinance. Similarly, Denver argues that because United

Airlines received a credit for all other taxes paid on its parts,

including taxes paid to the state of California, it likewise does

not have a cognizable legal injury.

Although both Denver and the trial court have ad-

dressed standing, we presume, based upon their reliance on

City of Mesquite v. Aladdin's Castle, Inc., 455 U.S. 283, 102

S.Ct. 1070, 71 L.Ed.2d 152 (1982), that the challenge is also

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premised upon the doctrine of mootness. We disagree with

both contentions.

Contrary to United's separate contention, an appellee

may, without filing a notice of cross-appeal, raise arguments in

support of a judgment which would not increase his or her

rights under the judgment, whether or not the trial court has

ruled on those arguments. City of Delta v. Thompson, 37

Colo.App. 205, 548 P.2d 1292 (1975).

Similarly, the failure to file a cross-appeal does not

preclude review of jurisdiction by an appellate court. Best v.

La Plata Planning Commission, 701 P.2d 91 (Colo.App.1984).

The question of jurisdiction may be raised at any stage of the

litigation, including for the first time on appeal. See 5050 S

Broadway Corp. v. Arapahoe County Board of Commissioners.

815 P.2d 966 (Colo.App.1991).

Accordingly, we address Denver's contentions concern-

ing standing and mootness.

A. Standing

Denver contends that, because Air Wisconsin has not

suffered an injury in fact, review of the constitutionality of the

use tax ordinance is precluded. We are not persuaded.

The conventional inquiry on standing is whether a

plaintiff has suffered injury in fact to a legally protected interest

as contemplated by statutory or constitutional provisions. /n re

Application for Water Rights of Turkey Canon Ranch Limited

Liability Co., 937 P.2d 739 (Colo.1997).

Therefore, if a party suffers no injury in fact, or suffers

injury in fact but not from the violation of a legal right, no

relief can be afforded, and the case should be dismissed for lack

of standing. Wimberly v. Ettenberg, 194 Colo. 163, 570 P.2d

535 (1977).

A complaining party may satisfy the actual injury

requirement by demonstrating that the challenged action has

caused, or threatens to cause, economic injury. The injury must

be direct and palpable. Hughey v. Jefferson County Board of

Commissioners, 921 P.2d 76 (Colo.App. 1996).

Here, it is undisputed that Air Wisconsin had not been

taxed in other jurisdictions. However, even though Air

Wisconsin had not been subject to multiple taxation under

Denver's use tax, it nonetheless was, and continues to be,

subject to the penalties and interest assessed against it pursuant

to Denver Code § 53-114(a). Such injury is both direct and

palpable and. therefore, satisfies the first requirement for

standing. Further, because the party who bears the financial

burden of a tax is the party aggrieved, the second requirement

of standing is also met. See Hughey v. Jefferson County Board

of Commissioners, supra

B. Mootness

Denver next contends that United Airlines is precluded

from seeking review in this matter because Denver's voluntary

decision to credit United Airlines for state and local taxes paid

in California has made United Airline's challenge moot. Again,

we disagree.

Appellate courts will not generally render opinions on

the merits of an appeal when issues presented in the litigation

SASSOON IA GEN PS PITAL es ANITS PCIE | 8H

;

become moot because of subsequent events. A case is moot

when a judgment would have no practical effect upon an

existing controversy, or would not put an end to any uncer-

tainty. Freedom From Religion Foundation, Inc. v. Romer, 921

P.2d 84 (Colo.App. 1996).

However, a defendant's voluntary cessation of a

challenged practice does not deprive a court of its power to

determine the legality of the practice. This is so because there

is no certainty that the defendant will not resume the chal-

lenged practice once the action is dismissed, thereby effectively

defeating the court's intervention in the dispute. See City of

Mesquite v. Aladdin's Castle, Inc., supra.

Here, United Airlines was taxed by both state and local

taxing jurisdictions of California. Because the plain language

of Denver Code § 53- 92(c) allows a credit only for sales or use

taxes imposed by other municipalities, United Airlines would

have been subjected to multiple taxation, absent a credit for

state and county taxes. However, Denver "interpreted" its

ordinance so as to provide a credit to United Airlines for the

amount of taxes paid to both state and local taxing jurisdictions

of California. Thus, although Denver's voluntary action

effectively eliminated any economic injury from disparate

taxation, such voluntary action does not moot United Airlines’

challenge.

Denver cannot effectively avoid constitutional inquiry

concerning the ordinance through voluntary cessation of

challenged conduct. See City of Mesquite v. Aladdin's Castle,

Inc., supra; Byrne v. Title Board, 907 P.2d 570 (Colo.1995)

(appeal from Title Board's refusal to conduct hearing within

48-hour period not rendered moot, even after elector received

hearing, because there was no reason to believe that, in the

future, under similar circumstances, elector would be able to

obtain review before board within 48 hours).

Further, we note that United Airlines, like Air Wiscon-

sin, suffered economic injury because it was, and continues to

be, subject to the penalties and interest assessed against it.

Thus, neither lack of standing nor mootness precludes our

review. a

II. Commerce Clause Challenge to Use Tax

The airlines challenge the trial court's ruling upholding

the constitutionality of the use tax. Specifically, they contend

that Denver's use tax violates the Commerce Clause because it

discriminates unfairly against its rotable aircraft parts which

pass in interstate commerce. We do not agree.

At the outset, we note that, in their appellate brief. the

airlines maintain that because Denver "has not cross-appealed

the District Court's decision that the Denver Use Tax is

unconstitutional on its face,. . . this issue is not properly before

the Court... .". Contrary to the airlines’ contention, the trial

court did not rule the use tax ordinance unconstitutional on its

face. Thus, we address only the constitutionality of the

ordinance as applied.

The Commerce Clause, although phrased merely as a

grant of authority to Congress to regulate commerce among the

several states, contains a negative command forbidding the

individual states from discriminating against interstate trade.

More specifically, the clause prohibits economic protectionism,

1.e., regulatory measures designed to benefit in-state economic

interests by burdening out-of-state competition. New Energy

Co. v. Limbach, 486 U.S. 269, 108 S.Ct. 1803, 100 L.Ed.2d

302 (1988).

However, a use tax is valid if it is a compensatory tax

designed to compensate a state or municipality for revenue lost

when residents purchase out-of-state goods for use within the

state. D.H. Holmes Co. v. McNamara, 486 U.S. 24, 108 S.Ct.

1619, 100 L.Ed.2d 21 (1988). Thus, a valid compensatory tax

may not impose greater tax liability on interstate articles than

on intrastate articles. Associated Industries v. Lohman, 511

U.S. 641, 114. S.Ct. 1815, 128 L.Ed.2d 639 (1994).

A use tax which does not allow a credit for taxes paid

to other taxing jurisdictions violates the Commerce Clause

because it imposes only a single tax on intrastate purchases, but

results in payment of multiple taxes on interstate purchases.

Associated Industries v. Lohman, supra.

A state tax on interstate commerce, such as Denver's

use tax, does not violate the Commerce Clause if the tax: (1)

is applied to an activity with a substantial nexus with the taxing

state; (2) is fairly apportioned; (3) does not discriminate

against interstate commerce; and (4) is fairly related to the

services provided by the taxing state. Complete Auto Transit,

Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326

(1977); Riverton Produce Co. v. State, 871 P.2d 1213

(Colo.1994). The airlines’ challenge here concerns only steps

two and three of this test.

A facially neutral statute may violate the Commerce

Clause if the state enforces it in a manner that favors intrastate

carriers Over interstate carriers. Amerada Hess Corp. v.

Director, Division of Taxation, 490 U.S. 66, 109 S.Ct. 1617,

104 L.Ed.2d 58 (1989); Riverton Produce Co. v. State, supra.

10d

When determining the constitutionality of an ordinance,

a court is guided by basic rules of statutory construction. First,

an ordinance Is typically presumed to be constitutional, and the

party attacking the ordinance has the burden to establish that

the ordinance is unconstitutional beyond a reasonable doubt.

See Denver Publishing Co. v. City of Aurora, 896 P.2d 306

(Colo.1995y. See also Gibson, Beyond a Reasonable Doubt:

Colorado's Standard for Reviewing a Statute's Constitutional-

ity, 23 Colo. Law. 835 (April 1994) (discussing origin of

beyond a reasonable doubt standard).

Second, if a challenged ordinance lends itself to

alternate constructions, one of which is constitutional, the

constitutional interpretation must be adopted. See People ex

rel. City of Arvada v. Nissen, 650 P.2d 547 (Colo.1982). Itis .

the duty of a court to construe an ordinance so as not to

invalidate it. Hiatt vy. Manitou Springs, 154 Colo. 525, 392

P.2d 282 (1984).

Additionally, a tax ordinance, just like a statute, should

be construed to give consistent, harmonious, and sensible effect

to all its parts. See Walgreen Co. v. Charnes, 819 P.2d 1039

(Colo.1991).

: Denver Code § 53-92(c) provides:

It is hereby declared to be the legislative intent

of the city, acting through its duly elected

representatives, that the provision of this article

shall apply to any person who has already paid

a retail sales tax or a use tax in respect to the

sale of a service or tangible personal property

taxable hereunder, to a municipal corporation

organized and existing under the authority of

11d

the laws or the Constitution of any state in an

amount less than the tax imposed by this article,

and who thereafter causes a service or tangible

personal property, taxable hereunder, to be

used, stored, distributed or consumed in the

city, but the tax imposed by this article shall, in

such event, be measured by the difference

between the amount imposed by this article and

the amount previously imposed by the other

municipality on said sale. If the retail sales tax

imposed and paid to such municipal corpora-

tion aforesaid is equal to or more than the tax

imposed by this article, no tax shall be due

hereunder for the exercise of the privilege or

using, storing, distributing or consuming such

service of personal property in the city.

Denver Revised Municipal Code § 53-96(1) provides

that Denver's use tax is levied on the "purchase price paid or

charged upon all sales and purchases" of tangible personal

property. However, Denver exempts from the use tax, "[a]ll

sales which the city is prohibited from taxing under the -

Constitution or laws of the United States or the Constitution of

the state." Denver Revised Municipal Code § 53-97(11). Thus,

on its face, the exemption to the use tax applies only to sales

while the tax itself applies to both sales and purchases.

However, the ordinance is subject to two conflicting

interpretations. The airlines, based upon the plain language of

the ordinance, interpret the use tax to allow a credit only for

taxes paid to other municipal corporations and not for taxes

paid to other states and non-municipal local governments. The

other construction, adopted by the trial court, interprets the use

tax provision as a whole to comport with the Commerce

12d

Clause. Specifically, the trial court construed the use tax as

exempting from the tax all sales and purchases which are

otherwise prohibited from being taxed under the constitution or

laws of the United States. In our view, the trial court's interpre-

tation is correct. Such a construction is consistent with the

supreme court's mandate in both Hiatt v. Manitou Springs,

supra, and People ex rel. City of Arvada v. Nissen, supra.

Significantly, the ordinance defines the terms, "sale,"

“purchase,” and "sale and purchase" identically. Denver

Revised Municipal Code § 53-95(21) provides:

The term ‘sale,’ purchase,’ or 'sale and purchase’

includes transactions whereby the acquisition of

tangible personal property was effected by (a)

the transfer, conditionally or absolutely, of title

or possession or both of the tangible personal

property; or (b) a lease, hire or rental of, or a

grant of a license to use (including royalty

agreements) tangible personal property. . . .

Thus, construing these provisions of the ordinance

together, Denver Code § 53- 91(11) exempts from taxation all

sales and purchases which Denver is otherwise constitutionally

prohibited from taxing.

Accordingly, a taxpayer may seek an exemption from

the use tax if Denver fails to give full credit for taxes paid in

other taxing jurisdictions, including states, counties, and

municipalities. Under this construction, the tax liability would

be the same on the airlines’ rotable aircraft parts as on intrastate

purchases. Additionally, since the ordinance provides a credit

against the use tax for taxes paid in other states, the use tax is

fairly apportioned. See D.H. Holmes Co. v. McNamara, supra.

13d

Thus, as applied, the Denver ordinance use tax was

fairly apportioned and does not discriminate against interstate

commerce. Therefore, the ordinance does not violate the

Commerce Clause.

Associated Industries v. Director of Revenue, 918

S.W.2d 780 (Mo.1996), decided on remand from Associated

Industries v. Lohman, supra, does not persuade us to the

contrary. There, Missouri's supreme court struck down an

entire use tax ordinance as violative of the Commerce Clause

because it imposed an additional 1 1/2% use tax on all transac-

tions subject to it, thereby impermissibly discriminating against

interstate commerce. The court rejected the argument that an

exemption in the ordinance for, "property, the storage, use, or

consumption of which this state is prohibited from taxing under

the Constitution.. of the United States," saved the ordinance

from otherwise violating the constitution. The court concluded:

The exemption . . . is defined by ‘property.’

presumably a certain discernible type of prop-

erty . . . the Supreme Court's exception to the

use tax [in Associated Industries of Misseuri v.

Lohman ] is based not on the inherent nature of

the property in question, but rather on local

sales tax rates.

Unlike in Associated Industries, here the exemption is

not based upon the inherent nature of the property, but rather on

how the use tax in general applies to sales, or more specifically,

sales and purchases. Thus, in our view, the exemption allows

the ordinance to be applied within constitutional bounds unlike

the nature of the exemption in Associated Industries, supra.

14d

Because this construction permits credit for taxes paid

to other taxing jurisdictions apart from municipalities, we need

not determine whether Denver's lateral tax credit structure

violates the Commerce Clause.

III. Penalties

The airlines also contend that the trial court erred in

upholding the penalties assessed pursuant to Denver Revised

Municipal Code § 53-114(a) because they have demonstrated

good cause as required by the Denver Revised Municipal Code

§ 53-133. However, the record is ambiguous as to whether the

hearing officer concluded that the imposition of penalties was

required by Denver Code § 53-114 or whether she exercised her

discretion in upholding the assessment of penalties against the

airlines.

If the hearing officer determined that the imposition of

penalties was mandatory, she erred in not considering whether

the airlines have shown good cause to warrant waiver of such

penalties. In the alternative, even if we assume arguendo, that

the hearing officer did in fact exercise her discretion in uphold-

ing the penalties, there are no findings in regard to waiver for

good cause, and thus, we must remand the matter for the entry

of findings on that issue.

Here, the hearing officer found that, under Denver Code

§ 53-114(a), the imposition of penalties against the airlines is

automatic, the penalties resulted from an audit that revealed

taxes were due which were not paid, and Denver Code § 53-133

did not mandate the waiver of penalties.

Under these circumstances, we conclude that the matter

must be remanded for factual findings regarding whether good

15d

cause existed to waive the 10% penalty against the airlines. See

Boice v. Industrial Claim Appeals Office, 800 P.2d 1339

(Colo.App. 1990) (where findings of fact and conclusions of law

insufficient and it is unclear whether proper legal standard

applied, remand for clarification and further findings is neces-

sary). The hearing officer may, in his or her discretion, allow

the parties to submit additional evidence concerning the issue.

The judgment is affirmed in all respects except as to the

portion thereof upholding the imposition of penalties. That

portion of the judgment is reversed, and the cause is remanded

for further remand to the hearing officer to resolve the issue

concerning

waiver of penalties consistent with this opinion.

Judge CASEBOLT concurs.

Judge BRIGGS specially concurs.

Judge BRIGGS specially concurring.

While I concur in the outcome, I write separately for

two reasons. First, [ cannot join the opinion without expressing

my concerns with a familiar litany: The party challenging a

legislative enactment must present proof beyond a reasonable

doubt the enactment is unconstitutional. Second, my concur-

rence is driven, not just by what issues are raised, but also by

what is not raised.

When rejecting a constitutional challenge, Colorado

appellate opinions typically begin by referencing the supposed

requirement of "proof beyond a reasonable doubt." However,

16d

the supreme court has never actually applied the requirement as

a basis for rejecting a constitutional challenge. I do not take the

reference as literally adding a step to be applied in a proper

constitutional analysis. Nor do I believe it should be added and

applied, particularly in its present incantation.

When added to an opinion addressing the constitutional-

ity of a legislative enactment, the requirement of proof beyond

a reasonable doubt appears innocent enough. However, it

subtly mutates the accepted beginning point for a constitutional

analysis, creating an additional and final step which, even when

taken properly, is treacherous. More importantly, it is a step

seldom, if ever, properly taken.

The genesis of the phrase is the familiar observation that

a court, when addressing the constitutionality of a legislative

enactment, must accord deference to a co-equal and representa-

tive branch of government. This but recognizes that the

structures of our national, state, and local governments are

based on the doctrine of separation of powers. In this system,

the courts must recognize the political and administrative

responsibilities of the legislature and must not, even negatively,

undertake to legislate. See generally H. Hart & A. Sacks, The

Legal Process: Basic Problems in the Making and Application

of Law (W. Eskridge & Frickey eds.1994); J. Thayer, The

Origin and Scope of The American Doctrine of Constitutional

Law, 7 Harv. L.Rev. 129 (1893).

A principle long ago derived from this deference is that

a legislative enactment is presumed to be constitutional. See

Ogden v. Saunders, 12 Wheat. 213, 25 U.S. 213, 6 L.Ed. 606

(1827); People ex rel. Tucker v. Rucker, 5 Colo. 455 (1880).

17d

This rephrasing of general deference as a derivative presump-

tion merely creates an obvious beginning point for a constitu-

tional analysis: Unless persuaded otherwise, a court will not

strike down a legislative enactment as unconstitutional. The

presumption retains the necessary sensitivity to the court's task.

See Blodgett v. Holden, 275 U.S. 142, 48 S.Ct. 105, 72 L.Ed.

206 (1927)(resolving a constitutional challenge to a legislative

enactment is the gravest and most delicate duty that a court is

called on to perform.). At the same time, courts also retain the

inherent authority, and duty, to determine independently

whether a legislative enactment violates a constitutional right

or prohibition. See Marbury v. Madison, 5 U.S. (1 Cranch)

137, 2 L.Ed. 60 (1803); Pena v. District Court, 681 P.2d 953

(Colo.1984). Hence, in converting deference into a presump-

tion, nothing untoward has occurred.

The next derivative step, also taken long ago, was to

espouse that a legislative enactment must be "proved unconsti-

tutional beyond a reasonable doubt." See Alexander v. People,

7 Colo. 155, 2 P. 894, 896 (1884); see also Ogden v. Saunders,

supra. Despite its benign appearance, the result is to extend

necessary deference to an extreme degree, while at the same

time creating analytical difficulties.

Typically, with a presumption of constitutionality as a

Starting point, a court proceeds with its analysis by articulating

and applying an appropriate standard of review. For example,

in addressing a substantive due process or equal protection

challenge, a court must first determine whether the challenged

legislative enactment creates a suspect class or affects a

fundamental constitutional right. Lorenz v. State, 928 P.2d

1274 (Colo.1996). If so, then the court must "strictly scruti-

18d

nize" the challenged provision to determine whether it is

narrowly tailored to achieve a compelling governmental

interest. If not, then the court need only determine whether the

enactment bears a "rational relationship" to a legitimate

governmental purpose. People v. Young, 859 P.2d 814

(Colo.1993).

The court next applies the appropriate standard of

review, such as by striking a proper balance between competing

interests. See Cole v. State, 673 P.2d 345 (Colo.1983). Finally,

having applied the standard of review, the court comes to its

conclusion. Ifit is persuaded the enactment is unconstitutional,

the presumption of constitutionality has been overcome.

This would seem to be the end of the analysis. How-

ever, by requiring that the court's conclusion be based on "proof

beyond a reasonable doubt,” a court creates "something more

than a mere form of language." See J. Thayer, supra, 7 Harv.

L.Rev. at 143. No longer is it sufficient that the court is

persuaded a legislative enactment is unconstitutional. Having

otherwise completed its analysis and reached that conclusion,

the court must now additionally determine whether it is

convinced of its decision by a degree of certainty, or firmness

of conviction, that is "beyond a reasonable doubt." It is this

additional step that raises several concerns.

Requiring a court to be persuaded that a legislative

enactment is unconstitutional "beyond a reasonable doubt" is an

extreme degree of deference, one that itself is not, and has

never been, free of doubt. Among the concerns raised by such

a degree of deference is its failure to recognize that members of

a legislative branch may vote for a law because it is politically

19d

expedient to do so, even though they doubt or at least question

the enactment's constitutionality. Further, requiring such an

extreme degree of certainty is not without impact on the

constitutional rights of citizens. See generally G. Lawson & C.

Moore, The Executive Power of Constitutional Interpretation,

81 Iowa L.Rev. 1267 (1995-96); J. Thayer, supra.

In addition, the requirement places a heavier burden of

persuasion on citizens in our state courts than on those in our

federal courts. When the identical challenge is raised under our

federal constitution in state and federal courts, it is not clear

why the burden of persuasion should vary.

The requirement of proof beyond a reasonable doubt has

never provided the expressed basis for striking down a legisla-

tive enactment in any of our state's appellate opinions. The

very fact that many decisions upholding legislative enactments

have been far from unanimous arguably indicates that our

courts often have not actually deferred to such an extreme

degree. Indeed, it would be surprising to see any appellate

court that was firmly convinced a legislative enactment was

unconstitutional nevertheless conclude the statute must be

upheld because the majority was not convinced "beyond a

reasonable doubt."

Apart from the questionable wisdom in theory of adding

"proof beyond a reasonable doubt" as an additional and final

step in a constitutional analysis, the more serious concern

comes in practice. The requirement has simply not been

properly applied. The three most common misapplications are:

1) misstating what should be, at best, a heightened burden of

persuasion as an evidentiary burden of proof; 2) merging what

20d

should be, at best, the last step in a constitutional analysis into

an earlier step; or~3) espousing the litany, but then never

applying it.

It is typical to state both that a legislative enactment is

presumed to be constitutional and that the burden of "proof" is

"beyond a reasonable doubt." This resembles nothing so much

as the presumption of innocence and burden of proof involved

in a criminal case--an evidentiary burden of proof.

The purpose of a constitutional analysis is of course not

to make factual findings. Some underlying factual disputes

may have to be resolved. However, no heightened standard of

proof applies, and the ultimate purpose is still the resolution of

a constitutional challenge through legal analysis.

Even when the challenge is to the constitutionality of a

legislative enactment as applied, the "evidence" required for the

legal analysis is often undisputed, consisting of no more than

the legislative enactment, a factual context, and perhaps some

uncontested legislative history. The "evidence" may even take

the form of mere rational speculation. See F.C.C. v. Beach

Communications, Inc., 508 U.S. 307, 315, 113 S.Ct. 2096,

2102, 124 L.Ed.2d 211, 222 (1993)("[A] legislative choice is

not subject to courtroom factfinding and may be based on

rational speculation unsupported by evidence or empirical

data."). When the challenge is that a legislative enactment is

facially overbroad, the underlying facts may become even less

important. See People ex rel. Tooley v. Seven Thirty-Five East

Colfax, Inc., 697 P.2d 348 (Colo.1985).

21d

Nevertheless, because of the striking similarities, the

two unrelated analyses, one legal and one factual, are easily

confused. The unfortunate result can be a misdirected focus in

a constitutional analysis on the "evidence" presented, thus

improperly implying that a question of fact controls and must

be resolved. See generally L. Gibson, Beyond A Reasonable

Doubt: Colorado's Standard For Reviewing A Statute's

Constitutionality, 23 Colo. Law..835 (April 1994)("Colorado

courts do not find statutes unconstitutional absent evidence

beyond a reasonable doubt." (emphasis added)).

To the contrary, the court's ultimate degree of certainty,

or firmness of conviction, in a conclusion resolving a constitu-

tional challenge does not result from the evidence, or "proof,"

presented. It results from the force, or persuasiveness, of legal

argument.

The confusion does not end there. It is not unusual to

see this supposedly final analytical step in a constitutional

analysis instead merged into the earlier steps of selecting and

applying an appropriate standard of review, such as "rational

relationship" or "strict scrutiny.”

When this happens, no longer does the lesser standard

of "rational relationship" merely require that a legislative

enactment be upheld so long as the governmental classification

is based on differences that are real and not illusory and is

rationally related to a legitimate governmental interest. Under

the merged "rational relationship" test, the challenging party

must also "prove" the enactment unconstitutional "beyond a

reasonable doubt." Colorado Auto Auction Services Corp. v.

City of Commerce City, 800 P.2d 998, 1004 (Colo.1990).

22d

Conversely, if the classification affects a fundamental

right or suspect class, under the merged test the consequence is

not just to subject the enactment to "strict scrutiny" in order to

determine if it is narrowly tailored to achieve a compelling

governmental interest. In addition, the "burden of proof" shifts

to the government, not just to come forward with justification

for the enactment, but also to prove the constitutionality of the

enactment-- albeit by some unarticulated degree of certainty

apparently less than "beyond a reasonable doubt." See

Rickstrew v. People, 822 P.2d 505 (Colo.1991); see also

Denver Publishing Co. v. City of Aurora, 896 P.2d 306

(Colo.1995). ;

What is of interest in this merging of separate analytical

steps is that the deference to which a co-equal branch of

government is entitled appears and disappears, case by case,

depending on the nature of the constitutional right or classifica-

tion asserted. While it may be appropriate to vary the standard

of review in a constitutional analysis on such bases, it is unclear

why the respect and sensitivity to which each branch of

government is entitled should be anything less than invariable.

“

The final, and most common, use of the litany is simply

to state at the outset of the legal analysis that a challenge to the

constitutionality of a legislative enactment requires proof

beyond a reasonable doubt. The supposed requirement is then

never mentioned again.

Its purpose is never explained. Because the supposed

constitutional principle is typically recited and ignored in

opinions in which the challenged legislative enactment is

upheld, it appears as no more than a thinly-veiled rationaliza-

23d

tion. Whatever the purpose, its use in this manner neither adds

to nor clarifies a constitutional analysis.

I recognize the United States Supreme Court first

formulated the incantation. Context, however, is critical. It

was not until Marbury v. Madison, supra, that the Court had

even addressed the issue of judicial authority to review the

constitutionality of legislative declarations. The decision in

Marbury hardly quieted the debate. See generally J. Thayer,

supra.

It is thus not surprising that an extremely sensitive and

cautious Supreme Court, in Ogden v. Saunders, supra, 25 U.S.

at 270, found it politically astute to add an additional observa-

tion: "It is but a decent respect due to the wisdom, the integ-

rity, and the patriotism of the legislative body, by which any

law is passed, to presume in favor of its validity, until its

violation of the constitution is proved beyond a reasonable

doubt."

However, it is likewise not surprising that the United

States Supreme Court has not uttered the phrase as part of a

constitutional analysis in more than half acentury. See Adkins

v. Children's Hospital, 261 U.S. 525, 43 S.Ct. 394, 67 L.Ed.

785 (1923). In its place, the Supreme Court has returned to a

simple expression of deference. See Walters v. National Ass'n

of Radiation Survivors, 473 U.S. 305, 105 S.Ct. 3180, 87

L.Ed.2d 220 (1985).

24d

The parties have raised no issue concerning the frame-

work for analyzing the constitutional issue before us. Repeat-

ing the litany of "proof beyond a reasonable doubt" has not

impacted the result we reach in this case. As already noted, it

has not impacted the result in any published case--thus far.

I nevertheless write separately because it is, after all, a

constitutional principle we are supposedly espousing. It has

impact on the perception of our state's appellate courts:

[Appellate opinions] serve to uphold the moral

power of the courts, without which the judiciary

would be ineffectual. ... [T]he prestige of the

judiciary . . . is related to the quality of the

opinions of the courts as statements of reason-

ing. When the reasoning of an opinion fails

adequately to support the decision in a case, it is

the entire judicial process that suffers.

One of the most intense . . . controversies in

recent American jurisprudence has centered

precisely on the point of adequate judicial

reasoning in reaching decisions. ... The rea-

sons of decision become constitutional princi-

ples, and as principles they acquire a force of

their own. ... [T]hey stand around ‘like a

loaded weapon’ waiting to be fired when the

constitutional occasion arises.

C. Miller, The Supreme Court and the Uses of History, pp.

11-14 (1969); see also R. Aldisert, The Judicial Process Ch.

25d

3, §4(1976)(discussing the role of judicial rules and principles).

What is important in the final analysis, constitutional or

otherwise, is that appellate courts articulate principles and

standards that are needed and useful. It is debatable whether

requiring any heightened degree of deference is either. Cf

Walters v. National Ass'n of Radiation Survivors, supra. Even

if both, requiring that a constitutional challenge rest on "proof

beyond a reasonable doubt” is neither.

II.

United asserts a violation only of the Commerce Clause.

It does not, for example, assert that the Denver Municipal

Code, so interpreted, violates due process by failing to give fair

advance notice of just what activities and properties are subject

to taxation. Hence, our review is limited to the single issue

raised on appeal.

In construing Denver's taxing scheme not to violate the

Commerce Clause, the majority relies on the exemption from

sales and use taxes set forth in Denver Revised Municipal Code

§ 53-91(11). It exempts "[a]ll sales which the city is prohibited

from taxing under the constitution or laws of the United States

or the Constitution of the state." The majority construes this to

exempt from taxation all sales and purchases that Denver is

otherwise constitutionally prohibited from taxing.

Like the majority, | am persuaded (although perhaps not

beyond a reasonable doubt) that this construction reflects

Denver's intent. So construed, the exemption necessarily

defeats any constitutional challenge to any tax on any sale or

any purchase. If a court determines a particular application of

§ 53-96(1) would otherwise violate the Commerce Clause,

26d

under § 53-97(11) it must construe § 53-96(1) to exclude that

application. It thus becomes a tautology to say that the tax

imposed under the Denver Municipal Code does not violate the

Commerce Clause.

Therefore, in light of the limited issue before us, I concur.

DISTRICT COURT, CITY AND COUNTY OF DENVER,

COLORADO

Case No. 96 CV 1195, Courtroom 11

UNITED AIR LINES, INC., a Delaware corporation authonzed

to transact business 1n the State of Colorado; and

AIR WISCONSIN, INC., a Wisconsin corporation authorized

to transact business in the State of Colorado,

Plaintiffs,

CITY AND COUNTY OF DENVER, a home rule City and a

Colorado municipal corporation,

Defendant.

THE COURT, having considered plaintiffs’ opening

brief, defendant's response, the reply, the record of the proceed-

ings below, the court file and relevant authorities, and being

sufficiently advised in the premises, finds, concludes and

orders as follows:

.. Pursuant to C.R.C.P. 106(a)(4) each plaintiff

appeals the Final Decision of hearing officer Tami A. Tanoue

dated February 10, 1996 upholding the application of the City

and County of Denver ("Denver") use tax to plaintiffs’ opera-

tions during periods between 1991 and 1994. Plaintiffs

contend here, as they did at the administrative level, that the

application of the Denver use tax to their operations violates

2e:

the commerce clause of the United States Constitution on its

face and as applied. The Court rejects that contention and

affirms the decisions of the hearing officer.

4. The material facts are not in dispute and are set

forth in the Stipulation of Fact attached to the hearing officer's

decision in each case. They will be alluded to as necessary to

resolve the issues presented.

3. At all material times Denver had adopted both

a sales tax and a use tax. The sales tax, Denver Revised

Municipal Code ("Code") § 53-25, applies to taxable goods and

services purchased at retail within Denver. The Denver use tax,

Code §§ 53-91 through 138, applies to taxable goods and

services previously purchased (or purchased and used) outside

of Denver, but which are brought into Denver for storage, use,

distribution or consumption. The use tax is complementary to

the sales tax. That is, it is designed to compensate Denver for

lost sales taxes when items of tangible personal property are

purchased elsewhere and are then brought into Denver for use.

The sales tax and the use tax are each 3.5%.

Code § 53-92(c) provides the taxpayer is entitled to a

credit against the use tax, up to the full amount of the use tax,

for sales and use taxes already paid to a municipal corporation

of another state. Code §53-97(11) provides an exemption from

the use tax for: "All sales which the city is prohibited from

taxing under the Constitution or laws of the United States or

the Constitution of the state."

4. At all material times the State of Colorado has

had a similar retail sales tax and use tax scheme. The Colorado

sales and use taxes are each 3%. See C.R.S. §39-26-106 and

§39-26-202 respectively. Colorado also grants a credit up to

the full amount of the 3% use tax for sales and use taxes which

have previously been paid to another state on the same article

of tangible personal property. See §39-26-203(1)(k).

a Plaintiffs’ primary contention here, as at the

administrative level, is that the Denver use tax, which plaintiff's

correctly contend must be considered in the context of the state

tax scheme described above, see Associated Industnes of

Missouri v. Lohman, 511 U.S. __,128 L.Ed.2d 639 (1994),

violates the commerce clause of the United States Constitution

because it fails to give the taxpayer credit against the use tax

for all state and local taxes previously paid on the same article

of property. Consequently, plaintiffs contend, the Denver use

tax places a greater tax burden on interstate purchases than on

local purchases in violation of the commerce clause.

6. In determining whether local sales and use taxes

violate the commerce clause, the United States Supreme Court

has applied a four-part test first articulated in Complete Auto

Transit, Inc., v. Brady, 430 U.S. 274 (1977). The test requires

that the tax: (1) be applied to an activity with sufficient nexus

to the taxing state; (2) be fairly apportioned; (3) not discrimi-

nate against interstate commerce; and (4) be fairly related to the

services provided by the state. The prong at issue here is the

apportionment prong.

us In determining whether a tax is fairly appor-

tioned the United States Supreme Court requires inter alia that

it be "internally consistent." See Goldberg v. Sweet, 488 US.

252, 261 (1989). A tax is internally consistent if it is so

structured that if every state were to impose the same tax, no

multiple taxation would result. Id.

8. Although the internal consistency test has been

frequently applied by the United States Supreme Court there

has been some division within the Court as to what it requires

and whether it should be applied at all. See generally,

Hellerstein, ‘Internal Consistency’ Foolish? Reflections on a

Commerce Clause Restraint _on State Taxation, 87 Mich.

L.Rev. 138 (1988). It is reasonably clear, however, that a use

tax which does not give adequate credit for other state and loca!

taxes paid on the same article fails the test. Barnnger v.

Griffes, 1 F.3d 1331, 1336-7 (2d Cir. 1993); see also

Hellerstein. supra. at 159-162; Multistate Tax Compact (of

which Colorado is a member, granting full credit against use

tax for state and local taxes paid in another state); cf., D.H.

Holmes Co. v. McNamara, 100 L.Ed.2d 21, 28 (1988) (use tax

is fairly apportioned when it credits tax paid in other states).

The reason is fairly straightforward: a state or local use tax

which does not give such credit violates the commerce clause

because it imposes only a single tax on an intrastate purchase,

but multiple taxes on an interstate purchase of the same article.

9. Although no authority dealing directly with

lateral credits has been presented, applying the general princi-

ples above the Court disagrees with Denver that lateral credits

att he state and local level avoid the multiple taxation problem.

First, there is nothing in the stipulated facts to suggest that the

Colorado state tax credit applies in all instances where the

Denver use tax is imposed. In fact, Denver's voluntarily

crediting United Air Lines ("UAL") with taxes paid to the state

of California suggests to the contrary. In addition, the lateral

credit scheme would not effect full credit for state and local

taxes paid where, for example, another state's combined sales

and use tax rates exceeded the Denver use tax rate of 3.5%, and

the other state's combined local tax rate was less than the

Colorado use tax rate of 3%. In such case, even if lateral

credits were given, the interstate purchaser would pay a greater

tax than the local purchaser of the same article because the

lateral credits would not be sufficient to fully offset the

combined Colorado and Denver use tax.

10. The Court rejects Denver's contention that the

plaintiffs lack standing to assert a commerce clause challenge

because they have not been subject to actual multiple taxation.

Where, as here, the taxing scheme creates a substantial nsk of

multiple taxation depending upon the tax schemes in 49 other

States, its constitutionality should not depend upon the shifting

complexities of the tax codes of those other states. See Armco,

Inc. v. Hardesty, 467 U.S. 638, 81 L.Ed.2d 540 (1984). That

reasonable expectation of a commerce cause violation pre-

sented by the Denver use tax 1s sufficient to support a chal-

lenge. See City of Mesquite v. Alladin's Castle, Inc., 455 U.S.

283 (1982).

11. In summary, the Court concludes that absent

some provision in the Code to permit application of the Denver

use tax in a constitutional manner, that tax violates the com-

merce clause of the United States Constitution.

12. In her Final Decision in the UAL case the

hearing officer concluded that even assuming the system of

lateral credits was not sufficient to meet the internal inconsis-

tency test, Code §53-97(11) saves the use tax from a challenge

under the commerce clause because it exempts from the use tax

all sales which Denver is prohibited from taxing under the

constitution of the United States. (Final Decision at §11.) The

Court agrees and rejects plaintiffs’ contention that §53-97(11)

applies only to types of sales, or the kinds of goods and

services which can be taxed in Denver and has nothing to do

with credits.

, In construing an ordinance the Court should

adopt a construction which renders the ordinance constitutional

without doing violence to the fair meaning of the language.

See Dominguez v. Denver, 147 Colo. 233, 238 (Colo. 1981).

While §53-97(11) does not expressly provide full credit for sale

and use taxes previously paid, the Court concludes that

construing that provision in the context of the use tax article as

a whole, §53-97(11) permits that result. The use tax is levied

only: "upon the purchase price paid or charged upon all sales

and purchases of tangible personal property." Section 53-96(I).

(Emphasis added.) "Sale and purchase" has the same definition

as "sale." Section 53-95(21). Code §53-97(11) exempts from

the use tax: "all sales [sales and purchases] which the city is

prohibited from taxing under the Constitution or laws of the

United States or the Constitution of the state." (Emphasis

added.) The Court construes "sales" in § 53-97(11) to include

the onginal "sale and purchase" of the tangible personal

property which tnggers the levying of the use tax under §59-

96(1). This construction permits the taxpayer to go through the

fairly simple procedure of seeking an exemption from the use

tax where that tax has failed to give full credit for taxes paid in

other states.

14. To the extent that plaintiffs’ argument that the

Denver use tax violates the principle of lateral credits because

of Denver's dual capacity as a city and county is not resolved

by the above ruling, the Court rejects it as being without merit.

There is no evidence that Denver was ever legally authorized

to impose a use tax as a county.

15. The Court rejects UAL's argument that a

sufficient nexus does not exist between Denver and the use of

UAL parts in Denver to justify imposition of the use tax on

those parts. There is insufficient evidence in the record for the

hearing officer to have made such a determination.

16. UAL contends that the hearing officer erred in

rejecting its request for waiver of the 10% penalty because,

UAL contends, it had good cause for its tax return positions.

The Court disagrees. Section 53-114 of the Code provides for

a 10% penalty for failure to pay the use tax when due. Section

53-133 gives the Manager of Revenue discretion to waive the

penalty for "good cause shown." There is, however, no

evidence in the record of any factual showing of good cause

before the manager to support UAL's claim that it is entitled to

a waiver of the penalty. Thus, there was no record upon which

the hearing officer could determine whether the manager

abused her discretion. Under the Code, waiver is not an issue

that either the hearing officer or the Court decides de novo.

17. The Final Decision of the hearing officer as to

each plaintiff is affirmed.

Dated this _12 day of December, 1996.

BY THE COURT:

John N. McMullen

District Court Judge

ec: All parties.

BEFORE THE MANAGER OF REVENUE

OF THE CITY AND COUNTY OF DENVER

STATE OF COLORADO

In re:

United Air Lines, Inc., Petitioner

Account No. 2518(5)

Case No. 951007

FINDINGS OF FACT, CONCLUSIONS OF LAW,

AND FINAL DECISION AND ORDER

A. Introduction.

1. This matter comes before the Manager of

Revenue of the City and County of Denver, State of Colorado,

acting by the undersigned duly appointed hearing officer

pursuant to the Denver Revised Municipal Code and the Rules

Governing Hearings Before the Manager of Revenue.

2. Thematterisapetition for review dated October

23, 1995 of an assessment dated October 6, 1995 of use taxes,

penalties, and interest against the Petitioner, United Air Lines,

Inc. As pertinent here, the assessment pertains to United's

purchase of aircraft parts, including parts which can be used

more than once after rehabilitation and repair.

3. The hearing was onginally scheduled for

December 18, 1995, but was continued to April 1, 1996 at

United's request. United was represented at the hearing by

Pamela F. Olson, Skadden, Arps, Slate, Meagher & Flom, and

Hubert A. Farbes, Jr., Brownstein Hyatt Farber & Stnckland,

P.C.; Denver was represented at the hearing by Maria Kayser,

Denver Assistant City Attorney.

4. No factual evidence was presented at the

hearing. The parties presented a document entitled "Stipulation

of Fact." A copy of the Stipulation is attached hereto as

Appendix A. During the hearing, the parties amended Para-

graph 5 of the Stipulation to clarify that the Manager of

Revenue has actually credited the Petitioner for sales or use

taxes paid to both state and local taxing junsdictions in

California. Each party also presented a brief concerning the

matter.

5. Atthe hearing, Denver amended its assessment

as provided in Exhibit 1, a copy of which is attached hereto.

The amendment reflects the credit referred to above.

B. Issues raised by United.

1. Atthe hearing, or in its brief, United raised the

following issues concerning the assessment:

a. TheD.R.M.C.'s use tax provisions, on their

face, violate the Com

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