Tesla Motors UT, Inc. v. Utah Tax Commission
2017 UT 18
Utah2017Background
- Tesla Motors UT, Inc. (Tesla UT), a wholly owned subsidiary of Tesla, Inc., applied for a Utah new motor vehicle dealer license to sell Tesla vehicles at a Salt Lake City storefront; the Motor Vehicle Enforcement Division denied the application.
- Initial denial rested on the Licensing Act requirement that a licensee have a "franchise" to sell the make; Tesla UT then executed a dealer agreement with Tesla and reapplied.
- The administrator again denied the application, concluding either Tesla UT lacked a franchise under the Licensing Act or, alternatively, Tesla (the manufacturer) violated the New Automobile Franchise Act by owning an interest in a dealer.
- The Utah Tax Commission affirmed the administrator, relying principally on the Franchise Act prohibition on a franchisor’s direct or indirect ownership interest in a new motor vehicle dealer.
- Tesla UT petitioned to this Court arguing statutory error (definitions and agency authority) and multiple constitutional challenges (Utah Free Market Clause, federal Due Process and Equal Protection, and dormant Commerce Clause).
Issues
| Issue | Plaintiff's Argument (Tesla UT) | Defendant's Argument (Utah/Commission) | Held |
|---|---|---|---|
| Whether Tesla UT has a "franchise" under the Licensing Act | Dealer agreement authorizes sales and satisfies Licensing Act definition of franchise | Licensing Act franchise exists but creates conflict with Franchise Act | Court: Licensing Act definition is met — Tesla UT has a franchise |
| Whether Tesla/Tesla UT relationship constitutes a "franchise" under the Franchise Act | The dealer agreement disclaims trademark/license and parent–subsidiary relationship is outside Act’s protections; statute aims to protect independent dealers | Practical use of Tesla marks and unity of marketing create a franchise under Franchise Act; statute also forbids franchisor ownership interest in dealer | Court: Relationship meets Franchise Act elements (trademark license by conduct and community of interest); statutory prohibition applies |
| Whether the Motor Vehicle Division lacked authority to consider Franchise Act violations when licensing | Enforcement of Franchise Act lies with Department of Commerce, not Division; Division exceeded authority | Division may deny licenses when applicant is in violation of any state law involving motor vehicles per Licensing Act §41-3-209(2)(c)(vii) | Court: Division did not exceed authority — it may deny licenses for violations of state motor-vehicle laws |
| Whether the statutory prohibition is unconstitutional (Free Market, Due Process/Equal Protection, Dormant Commerce) | Statute violates Utah Free Market Clause, federal Due Process/Equal Protection, and Dormant Commerce Clause as applied to Tesla UT | Statute survives review: Free Market Clause non-justiciable; Equal Protection/Due Process under rational basis; dormant Commerce arguments overlap and fail | Court: All constitutional challenges rejected; statute upheld |
Key Cases Cited
- Hughes Gen. Contractors, Inc. v. Utah Labor Comm’n, 322 P.3d 712 (Utah 2014) (standard for de novo review of legal questions)
- In re Estate of Hannifin, 311 P.3d 1016 (Utah 2013) (statutory definitions control courts’ interpretations)
- Pac. Intermountain Express Co. v. State Tax Comm’n of Utah, 329 P.2d 650 (Utah 1958) (definitions in unrelated statutes need not align)
- Romer v. Evans, 517 U.S. 620 (1996) (rational-basis review standard explanation)
- Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) (dormant Commerce Clause balancing test)