RULES AND REGULATIONS
[61 PA. CODE CHS. 9 AND 47]
Vehicle Rental Tax
[28 Pa.B. 5492] The Department of Revenue (Department), under the authority set forth in section 270 of the Tax Reform Code of 1971 (TRC) (72 P. S. § 7270), by this order adopts amendments by adding § 47.20 (relating to vehicle rental tax) and by deleting § 9.14 (relating to passenger car rental tax).
Purpose of Amendments
Currently, the Department's interpretation of Article XVI-A of the TRC (72 P. S. §§ 8601-A--8604-A) relating to passenger car rental tax (now known as Vehicle Rental Tax (VRT)) is set forth as a pronouncement and codified at § 9.14. Under the notice of proposed rulemaking, the Department received comments from the Independent Regulatory Review Commission (IRRC). As set forth in greater detail as follows, the Department has addressed the comments, and several revisions are reflected in this final rulemaking. Therefore, in addition to adopting § 47.20, the Department is deleting the pronouncement relating to passenger car rental tax which appears at § 9.14.
Explanation of Regulatory Requirements
Subsection (a) relates to definitions. The Department has developed several definitions to assist in the interpretation of this section.
Subsection (b) relates to general provisions. This subsection provides taxpayers with information regarding statutory authority for the collection of vehicle rental tax, registration, returns, payments, including direct payment permits and the applicability of the TRC.
Subsection (c) relates to scope. In accordance with section 1604-A of the TRC, paragraph (1) provides that, with respect to rental contracts involving motor vehicles designed to transport 15 or fewer passengers, a tax of 2% is imposed upon the rental payments. With respect to rental contracts involving trucks, trailers and semitrailers used in the transportation of property other than commercial freight, entered into on or after July 1, 1997, a tax of 2% is imposed upon the rental payments made on or after July 1, 1997. Paragraph (2) sets forth examples of transactions that are and are not subject to the VRT.
Subsection (d) relates to exclusions and provides that, if the rental of a motor vehicle is exempt from State Sales or Use Tax, the rental is also exempt from VRT. The subsection also details the use of an exemption certificate to support a claim for exemption.
In accordance with section 1603-A of the TRC, subsection (e) provides in paragraph (1) that an annual reconciliation report shall be filed on or before February 15 of the subsequent calendar year. Paragraph (2) provides for the date of filing, paragraph (3) sets forth the information the reconciliation report must contain, paragraph (4) details the particulars regarding refunds and paragraph (5) provides an example of how the refund process works.
Affected Parties
Persons and businesses responsible for collecting and remitting VRT may be affected by the amendments.
Comment and Response Summary
Notice of proposed rulemaking was published at 26 Pa.B. 2007 (April 27, 1996). These amendments are being adopted with changes to the proposed rulemaking to read as set forth in Annex A.
The Department did not receive comments from the public, the House Finance Committee or the Senate Finance Committee. The Department did receive comments from IRRC.
As a result of the act of May 7, 1997 (P. L. 85, No. 7) (Act 7), which in part amended Article XVI-A of the TRC, the Department is amending the proposed rulemaking as follows:
(1) The name of § 47.20 and all references in the regulation are changed from ''passenger car rental tax'' or ''PCRT'' to ''VRT.''
(2) The definition of ''rental vehicle'' was added and utilized throughout the regulation.
(3) Subsection (c) of § 47.20 relating to scope was amended to set forth the incidence of tax prior to and on or after July 1, 1997.
During its internal review of the proposal, the Department determined that an explanatory sentence should be added to § 47.20(e)(2) to specify that when an envelope containing the annual reconciliation report does not reflect a United States Postal Service postmark date, the date of receipt by the Department shall determine the date of filing.
The amendments to the proposed rulemaking in response to comments from IRRC are as follows:
(1) In response to IRRC's comment that the Department should provide a specific statutory cite within the Vehicle Code relating to licensing and title fees, the definition of ''licensing and title fees'' is amended to reference 75 Pa.C.S. §§ 1912, 1916(a), 1920 and 1952(a). A statutory reference was also added to the definition of ''PTA'' in response to an IRRC comment.
(2) Though the Department explained in the proposal that it created the term ''passenger car'' instead of using the term ''motor vehicle'' because the term ''motor vehicle'' has a specific meaning and using it in this section could create confusion, IRRC recommended that the Department only use a term defined and used in the authorizing statute for consistency with the statute and to improve the clarity of the regulation. The Department agrees with this; however, in accordance with Act 7, the term ''rental vehicle'' not ''motor vehicle'' will be used throughout the regulation.
(3) In response to a concern raised by IRRC that the definition of ''rental contract'' contained substantive regulatory provisions, the Department is amending the definition by deleting the phrase ''and the rental payments continue to be subject to the PCRT until the rental contract is terminated.'' The definition is also amended by deleting the phrase ''less than 30'' and adding ''29 or fewer consecutive'' to more closely track the statute. Finally, the Department amended the definition to clarify that if a vehicle is rented for 29 or fewer consecutive days and the use of the rental vehicle extends beyond a 29-day period without entering into a new written contract, the transaction remains a rental unless the parties enter into a written lease agreement.
(4) Within the definition of ''vehicle rental company'' IRRC questioned the use of the phrase ''. . . owns or . . .'' stating that its reading of the statute requires the reporting of owned or leased vehicles when those company motor vehicles are used for rental. Based on this rationale, IRRC also suggested that the Department amend subsection (e)(4) by deleting the word ''owns.'' Finally, IRRC suggested that the phrase ''which owns or has available for rental five or more passenger cars'' be moved to subsection (b)(2). In response to these comments, the Department is amending the definition of ''vehicle rental company'' by deleting the phrase ''which owns or has available for rental five or more passenger cars,'' and adding the phrase ''five or more'' to the first sentence in the definition. Also, subsection (e)(4) is amended by deleting the phrase ''passenger cars that the vehicle rental company owns or has available for rental.''
(5) Within subsection (b)(3), IRRC questioned the need to retain the reference to October 20, 1994 (the due date of the initial PCRT (now VRT) return) given the passage of time. The Department agrees with IRRC's observation and has deleted the date.
(6) In response to IRRC's comment regarding the applicability of the phrase ''unless otherwise specifically noted'' in subsection (b)(6), the phrase is deleted.
(7) Subsection (c)(1) provides that if a rental company fails to collect the tax, the purchaser shall pay the tax directly to the Department. IRRC indicated that though it understands the Department's concern in ensuring that all taxes are collected and remitted to the Commonwealth, it feels that in reality this requirement is unenforceable. IRRC further indicated that since most purchasers are tourists and will have no notice of the requirement, the Department should delete the sentence from the final-form regulations. IRRC did suggest, if the Department retains the sentence, that some procedure should be provided to make the remittances. Because there is no exclusion in law for tourists, the Department is unable to delete the sentence; however, a phrase is added that provides that the purchaser shall pay the tax directly to the Department on a form prescribed by the Department.
(8) IRRC indicated in its comments that the example in subsection (c)(2)(i)(A) as written, is inconsistent with the authorizing statute. IRRC stated that at the point the 14-day period of the rental agreement was exceeded (a taxable transaction), the original contract ended and the purchaser essentially entered into a new agreement for an additional 22 days, also a taxable transaction. IRRC stated that if an individual wishes to keep the vehicle longer than the time of the original contract, the rental company will close-out the original rental agreement and enter into a new agreement. It is the Department's position that not only is the example consistent with the statute but it also mirrors the reality of the market place and provides a degree of flexibility for a rental company. As written, the rental company is not required to close-out the original contract, it can simply extend it to cover the additional time period requested by the client. To clarify the Department's position, the second sentence of the example is amended to specify that the parties did not enter into a new contract.
(9) IRRC believes that since the collection of the PCRT (now VRT) has been in effect since July, 1994, there is no need for the example in subsection (c)(2)(ii)(C) that provides that the rental is not subject to VRT because the rental was entered into prior to the effective date of the PCRT now VRT. The Department agrees with IRRC and has deleted the example that was proposed at clause (C) and added a new example interpreting the new definition of rental vehicle.
IRRC comments that did not result in amendments to the regulation are as follows:
(1) IRRC indicated that part of the introductory phrase in subsection (a) ''unless the context clearly indicates otherwise'' promotes uncertainty and should be deleted. This phrase is from language that is set forth in all definition sections within the Pennsylvania Code. If the Department did not include the phrase in a regulation, it would be added by the Pennsylvania Code and Bulletin when the document was published.
(2) IRRC recommended that the Department include statutory citations in various definitions in subsection (a). All citations that were set forth in the proposal published in the Pennsylvania Bulletin will be included in the final rulemaking. It was noted in IRRC's comments that the term ''PTA,'' though defined, is not used in the regulation and should be deleted. The term is used in the definition of ''rental payment.'' With regard to IRRC's suggestion that the Department define the term ''TRC'' and provide a statutory citation, the Department references IRRC to 61 Pa. Code § 1.1 (relating to definitions) which defines specific terms, including ''TRC,'' that are used throughout Part I, of which this chapter is a part.
(3) Within subsection (b)(3) and (4), IRRC questioned the Department's use of the term ''return'' and suggests using the term ''report'' which is used in the authorizing statute. It is the Department's position that the term ''return'' has a historical meaning which the public is oriented to and that the use of the term ''report'' would cause unnecessary confusion.
(4) In the example set forth in subsection (c)(2)(i)(B), IRRC disagreed with the Department's interpretation that a vehicle damage waiver, a child's car seat and a car top carrier are part of the rental payment and therefore subject to the VRT. The Department's position is governed by section 201(g)(4) of the TRC (72 P. S. § 7201(g)(4)) which provides: ''Where there is a transfer or retention of possession or custody, whether it be termed a rental, lease, service or otherwise, of tangible personal property including, but not limited to linens, aprons, motor vehicles, trailers, tires, industrial office and construction equipment, and business machines the full consideration paid or delivered to the vendor or lessor shall be considered the purchase price, even though such consideration be separately stated and be designated as payment for processing, laundering, service, maintenance, insurance, repairs, depreciation or otherwise.'' Under this definition, the full value of the rental contract is subject to the VRT regardless of how it is designated. Therefore, a vehicle damage waiver fee, a child's car seat or a car top carrier that is included in the rental contract is also included in the purchase price subject to the vehicle rental tax. There is no statutory basis to exclude these items from tax.
(5) A final comment from IRRC suggests that the Department consider putting all of the reporting and exemption requirements in one section or area of the regulation to improve organization and ease of reference. In addition, IRRC recommended that the Department incorporate provisions which allow vehicle rental companies to remit the VRT and the $2 fee (PTA) together. The Department considers the three areas mentioned to be separate and not able to be put together in one section. Returns are used to remit the amount of tax due. Annual reconciliation reports are used to claim a refund equal to licensing and title fees. Exemptions apply to the rental customer, not the entity reporting the tax or seeking the refund. For administrative reasons, the VRT and PTA can not be remitted together. Each remittance goes into a different fund and refunds/credits are handled from separate accounts.
Finally, in subsection (d), the proposal provided that if the rental of a rental vehicle is exempt from State sales or Use Tax, the rental is also exempt from the VRT. IRRC the Department explain this position and provide a statutory citation for the exclusion. 72 P. S. § 8603-A(c) states, ''Unless otherwise noted, the provisions of Article II of this act shall apply to the tax required under this article.'' Within Article II is section 204 (72 P. S. § 7204) that provides specific exclusions from tax. These exclusions also apply to VRT.
Fiscal Impact
The Department has determined that the amendments will have no significant fiscal impact on the Commonwealth.
Paperwork
The amendments will not generate additional paperwork for the public or the Commonwealth.
Effectiveness/Sunset Date
The amendments will become effective upon final publication in the Pennsylvania Bulletin. The amendments are scheduled for review within 5 years of final publication. No sunset date has been assigned.
Contact Person
The contact person for an explanation of the final-form regulations is Anita M. Doucette, Office of Chief Counsel, Department of Revenue, Dept. 281061, Harrisburg, PA 17128-1061.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on April 11, 1996, the Department submitted a copy of the notice of proposed rulemaking, published at 26 Pa.B. 2007 (April 27, 1996) to IRRC and the Chairpersons of the House and Senate Committees on Finance for review and comment. In compliance with section 5(c) of the Regulatory Review Act, the Department also provided IRRC and the Committees with copies of all comments received, as well as other documentation.
In preparing these final-form regulations, the Department has considered all comments received from IRRC, the Committees and the public.
These final-form regulations were deemed approved by the House and Senate Committees on June 10, 1998. IRRC met on June 18, 1998, and approved the final-form regulations in accordance with section 5.1(e) of the Regulatory Review Act (71 P. S. § 745.5a(e)).
Findings
The Department finds that:
(1) Public notice of intention to adopt the regulations has been given under sections 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202) and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2.
(2) The final-form regulations are necessary and appropriate for the administration and enforcement of the authorizing statute.
Order
The Department acting under the authorizing statute, orders that:
(a) The regulations of the Department, 61 Pa. Code Chapters 9 and 47, are amended by deleting § 9.14 and by adding § 47.20 to read as set forth in Annex A.
(b) The Secretary of the Department shall submit this order and Annex A to the Office of General Counsel and the Office of Attorney General for approval as to form and legality as required by law.
(c) The Secretary of the Department shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.
(d) This order shall take effect upon publication in the Pennsylvania Bulletin.
ROBERT A. JUDGE, Sr.,
Secretary(Editor's Note: For the text of the order of the Independent Regulatory Review Commission relating to this document, see 28 Pa.B. 3338 (July 11, 1998).)
Fiscal Note: 15-376. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 61. REVENUE
PART I. DEPARTMENT OF REVENUE
Subpart A. GENERAL PROVISIONS
CHAPTER 9. REVENUE PRONOUNCEMENTS-- STATEMENTS OF POLICY § 9.14.
(Reserved).
Subpart B. GENERAL FUND REVENUES
ARTICLE II. SALES AND USE TAX
CHAPTER 47. RENTALS § 47.20. Vehicle Rental Tax.
(a) Definitions. The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise:
Licensing and title fees--Licensing and title fees imposed by 75 Pa.C.S. §§ 1912, 1916(a), 1920 and 1952(a) and collected by the Department of Transportation. The term does not include encumbrance fees.
Local sales or use tax--Sales or Use Tax imposed by a county of this Commonwealth or the city of Philadelphia and administered by the Department.
PTA--The Public Transportation Assistance Fund created by Article XXIII of the TRC (72 P. S. § 9301).
Purchaser--A person who acquires, for money or other consideration, the custody or possession of a rental vehicle under a rental contract.
Rental contract--A contract between a purchaser and a vehicle rental company for the use of a rental vehicle for 29 or fewer consecutive days. If a rental vehicle is rented for 29 or fewer consecutive days, and the use of the rental vehicle extends beyond a 29-day period without entering into a new written contract, the transaction remains a rental unless the parties enter into a written lease agreement.
Rental vehicle--A motor vehicle designed to transport 15 or fewer passengers or a truck, trailer or semitrailer used in the transportation of property other than commercial freight, that is rented without a driver. The term does not include a motorcycle, motor-driven cycle, school bus, hearse, motor home, camper or mobile home.
Rental payment--Full consideration paid or delivered or promised to be paid or delivered to the vehicle rental company under a rental contract, excluding charges for local sales or use tax, State Sales or Use Tax and PTA fees.
State Sales or Use Tax--Sales or Use Tax imposed by Article II of the TRC (72 P. S. §§ 7201--7281.2).
VRT--Vehicle Rental Tax--The tax authorized under Article XVI-A of the TRC (72 P. S. §§ 8601-A--8604-A).
Vehicle rental company--A business entity engaged in the business of renting five or more rental vehicles in this Commonwealth.
(b) General provisions.
(1) General. This section is promulgated to administer Article XVI-A of the TRC relating to the VRT.
(2) Registration. A vehicle rental company renting rental vehicles that are subject to the VRT shall register with the Department.
(3) Returns. A vehicle rental company shall report the VRT on a return prescribed by the Department. The return is due on a quarterly basis.
(4) Payment. A vehicle rental company shall make payment with the return.
(5) Direct payment permit. A purchaser cannot use a direct payment permit issued under § 34.4 (relating to direct payment permit) in conjunction with the VRT because the vehicle rental company may be entitled to a refund of the tax collected.
(6) Applicability of TRC. Article II of the TRC and regulations promulgated thereunder apply to the VRT.
(c) Scope.
(1) General. With respect to rental contracts involving motor vehicles designed to transport 15 or fewer passengers, a tax of 2% is imposed upon the rental payments. With respect to rental contracts involving trucks, trailers and semitrailers used in the transportation of property other than commercial freight, entered into on or after July 1, 1997, a tax of 2% is imposed upon the rental payments made on or after July 1, 1997. If the vehicle rental company fails to collect the applicable tax, the purchaser shall pay the tax directly to the Department on a form prescribed by the Department.
(2) Examples.
(i) The following are examples of transactions that are subject to the VRT:
(A) ''A'' rents a rental vehicle from a vehicle rental company for 14 days. Due to circumstances unforeseen at the commencement of the rental, ''A,'' without entering into a new contract, continues to use the car on a day by day basis and eventually returns the car on the 36th day. Because the transaction continues to be governed by the rental contract for the entire 36-day period, the rental payment is subject to the VRT.
(B) ''B'' rents a rental vehicle from a vehicle rental company for 10 days. The rental contract provides for an additional charge for excess mileage as well as a pick up and drop off fee. In addition, under the rental contract, ''B'' elects to obtain a vehicle damage waiver, a child's car seat and a car top carrier. Because the charges for excess mileage, a pick up and drop off fee, a vehicle damage waiver, a child's car seat and a car top carrier are all part of the rental payment, the cost of these items is subject to the VRT.
(C) ''P'' rents a rental vehicle for 7 days from ''R.'' ''R'' owns two and leases 28 of the 30 rental vehicles that it rents to others. Because ''R'' has five or more rental vehicles available for rental, ''R'' is a vehicle rental company, and the rental payment made by ''P'' is subject to the VRT.
(D) ''R'' rents a truck to transport a used living room set to ''R's'' hunting camp. The rental payments are subject to VRT as the living room set does not qualify as commercial freight.
(ii) The following are examples of transactions that are not subject to the VRT:
(A) ''Y'' rents a rental vehicle from ''E'' vehicle rental company for 28 days. Due to circumstances unforeseen at the commencement of the rental, ''Y'' wishes to use the car for a longer period of time. After using the car for 28 days, ''Y'' returns the car to ''E,'' and pays the VRT on the rental payment, and the parties terminate the rental contract. They then enter into a lease agreement under which ''Y'' leases the same car from ''E'' for 2 years. Because the second transaction is a lease agreement and not a rental, the lease payments are not subject to the VRT.
(B) ''Z'' rents a rental vehicle from ''D'' car dealership, which has only three rental vehicles available for rental. Because ''D'' has fewer than five rental vehicles available for rental, ''D'' is not a vehicle rental company and the rental payment is not subject to the VRT.
(C) ''M'' manufacturer rents a truck used exclusively to deliver ''M's'' own manufactured products to ''M's'' customers. The rental payments are not subject to VRT as ''M's'' products qualify as commercial freight.
(d) Exclusions. If the rental of a rental vehicle is exempt from State Sales or Use Tax, the rental is also exempt from the VRT. A purchaser shall support a claim for exemption from the VRT by submitting a completed Pennsylvania exemption certificate setting forth a valid basis for exemption. A purchaser may use the same exemption certificate used to claim an exemption from State sales or use tax, but the exemption certificate shall clearly indicate that the purchaser is claiming an exemption from the VRT. The purchaser shall make that indication either by checking the appropriate blocks for the VRT on the exemption certificate form or by checking the paragraph labeled ''other'' on the older exemption certificate form and explaining that an exemption is being claimed from the VRT.
(e) Annual reconciliation reports.
(1) General. A vehicle rental company that has remitted the VRT and is claiming a refund shall file an annual reconciliation report. An annual reconciliation report shall be on a form prescribed by the Department. An annual reconciliation report is not required if the vehicle rental company is not claiming a refund. An annual reconciliation report shall be filed on or before February 15 of the subsequent calendar year.
(2) Date of filing. The United States Postal Service postmark date will be used to determine the date of filing of an annual reconciliation report. When the envelope containing the report does not reflect a United States Postal Service postmark date, the date of receipt by the Department shall determine the date of filing.
(3) Contents. An annual reconciliation report shall set forth the amount of both:
(i) The VRT remitted during the previous calendar year.
(ii) The total amount of licensing and title fees imposed by the Commonwealth on a vehicle rental company's rental vehicles and paid to the Department of Transportation by the vehicle rental company in the previous calendar year.
(4) Refund. The Department will refund to a vehicle rental company that has remitted the VRT an amount, not including interest or penalties that may have been paid by the vehicle rental company, equal to the total amount of licensing and title fees paid to the Department of Transportation on the rental vehicles. The amount of refund cannot exceed the amount of the VRT remitted by the vehicle rental company in the previous calendar year.
(5) Example. ''R'' owns a vehicle rental company that ''R'' sells to ''S'' on July 30, 1995. Prior to the sale, ''R'' pays licensing and title fees on a portion of its fleet of vehicles. ''R'' also files tax returns and remits the VRT on January 20, April 20 and July 20, 1995. Under paragraph (4), ''R'' may claim a refund up to the amount of the VRT remitted by ''R'' with the three tax returns. After acquiring ownership of the vehicle rental company, ''S'' pays the licensing and title fees due between August 1 and December 31, 1995, on the other vehicles in the fleet, and remits the VRT for the third quarter on October 20, 1995. ''S'' may claim a refund of the licensing and title fees paid from August to December. The amount of the refund to ''S'' may not exceed the amount of the VRT ''S'' remitted in October. To claim a refund, both ''R'' and ''S'' shall file their respective annual reconciliation reports on or before February 15, 1996.
[Pa.B. Doc. No. 98-1793. Filed for public inspection October 30, 1998, 9:00 a.m.]
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