Opinion ID: 2586114
Heading Depth: 2
Heading Rank: 1

Heading: The Taxable Incident

Text: ¶ 9 It is well established that the tax incident for a B & O tax is generally the `act or privilege of engaging in business activities' in the taxing jurisdiction. Id. § 72.6, at 451 (quoting RCW 82.04.220). Unlike a sales tax, which taxes a specific sale of a good or service, the B & O tax is imposed on the general privilege of engaging in business. As noted above, Seattle and Tacoma both impose B & O taxes on the privilege of engaging in business activities within their respective cities. Seattle Municipal Code (SMC) 5.45.050; former Tacoma Municipal Code (TMC) 6.68.220 (1998). [1] ¶ 10 A major determinant of B & O tax liability is how the taxed activity is classified. Under the relevant codes, the tax rate is based upon the type of business activity performed by the taxed entity within the applicable city. The various types of activity include (1) engaging . . . in the business of making sales . . . at wholesale within the city, under SMC 5.45.050(C), and (2) the general classification for engaging within the city in any business activity other than or in addition to those enumerated in the above subsections, under SMC 5.45.050(G). See former TMC 6.68.220(B)(F)(2). [2] ¶ 11 The Cities imposed their B & O tax on Ford under the engaging in the business of making sales at wholesale provision. In relevant part, Seattle's provision is as follows: Upon every person engaging within the City in the business of making sales . . . at wholesale or retail . . .; as to such persons, the amount of tax with respect to such business shall be equal to the gross proceeds of such sales of the business without regard to the place of delivery of articles, commodities or merchandise sold, multiplied by the rate of two hundred fifteen one-thousandths of one percent (.00215). SMC 5.45.050(C). The City of Tacoma has a similarly worded provision in its tax code, former TMC 6.68.220(B), with the exception that its tax rate is one hundred two one-thousandths of one percent (.00102). ¶ 12 Ford contends that its activities were improperly classified because it did not make sales at wholesale within the Cities. Ford would have us construe SMC 5.45.050(C) and former TMC 6.68.220(B) narrowly, holding the taxable incident to be the actual sale of products within the respective taxing jurisdictions to dealers. Ford contends that proper application of the B & O tax ordinances would classify its business activities in the Cities under the other business activities provisions. ¶ 13 In analyzing the positions of the parties, we start with the principle that the burden is on the taxpayer to prove that a tax paid by him or her is incorrect. In other words, [t]axes are presumed to be just and legal, and the burden rests upon one assailing the tax to show its invalidity. 72 AM. JUR.2D State and Local Taxation § 1000 (2001). ¶ 14 Municipal ordinances, such as the ordinances at issue here, are local statutes that are to be construed according to the rules of statutory construction. McTavish v. City of Bellevue, 89 Wash.App. 561, 565, 949 P.2d 837 (1998). Where a statute is clear on its face, its plain meaning should be derived from the language of the statute alone. Kilian v. Atkinson, 147 Wash.2d 16, 20, 50 P.3d 638 (2002) (citing State v. Keller, 143 Wash.2d 267, 276, 19 P.3d 1030 (2001)). Constructions that would render a portion of a statute meaningless or superfluous should be avoided. Keller, 143 Wash.2d at 277, 19 P.3d 1030. Construction of a statute is a question of law that is reviewed de novo. W. Telepage, Inc. v. City of Tacoma, 140 Wash.2d 599, 607, 998 P.2d 884 (2000). However, when construing an ordinance, a reviewing court gives considerable deference to the construction of the challenged ordinance by those officials charged with its enforcement. Gen. Motors Corp. v. City of Seattle, 107 Wash.App. 42, 57, 25 P.3d 1022 (2001). ¶ 15 Here, the Cities, who enforce their own municipal codes, reach the same conclusion as the trial courts: A B & O tax on engaging in the business of wholesaling is levied upon the privilege of doing business as a wholesaler, not upon the actual sales at wholesale. We agree. A tax imposed on the actual sale of products is, by definition, a sales tax. B & O taxes, on the other hand, are not sales taxes. The Cities' municipal codes plainly tell us that their B & O taxes are imposed on the act or privilege of engaging in business activities within the City. SMC 5.45.050; former TMC 6.68.220. Therefore, the plain meaning of the statutes at issue is that the taxable incident in SMC 5.45.050(C) and former TMC 6.68.220(B) is  engaging within the City in the business of making sales . . . at wholesale, not merely making sales at wholesale. (Emphasis added.) To find otherwise would render the words engaging . . . in the business of superfluous. ¶ 16 Engaging in the business of wholesaling encompasses more business activities than merely making sales. Both Seattle and Tacoma define business within their tax code as all activities engaged in with the object of gain, benefit, or advantage to the taxpayer or to another person or class, directly or indirectly. SMC 5.30.020(G); former TMC 6.68.125 (1965). This definition is intentionally broad. See SMC 5.30.030(B)(5). The SMC offers several specific examples of activities considered engaging in business, including [s]oliciting sales, performing warranty work, and [m]eeting with customers or potential customers. SMC 5.30.030(B)(3)(c), (d), ( l ). ¶ 17 There is little question that Ford's activities fall within that broad classification. Ford does not dispute that it is in the business of making sales at wholesale. Ford also admits that it engages in activities within the Cities that are related to its business of making wholesale sales to dealers. Some of those activities are of the sorts offered as examples in the SMC. We conclude, therefore, that Ford was properly classified and taxed as one engaging in the business of wholesaling within the Cities. ¶ 18 Because we conclude that the taxable incident is engaging in the business of wholesaling and the challenged ordinances are clear on that point, it does not matter in which jurisdiction the actual sales at wholesale occur. Thus, Ford's argument that the terms of its contracts control the location of the sale is misdirected. As we observe hereafter, the location where title is transferred under the terms of a contract does not determine whether a city can impose a privilege tax. ¶ 19 Division One of the Court of Appeals has rejected an argument similar to the one Ford advances here, in the case of General Motors, 107 Wash.App. 42, 25 P.3d 1022. There, the court affirmed Seattle's imposition of the B & O tax presently before us on General Motors and the Chrysler Corporation, because the companies engaged in the business of making wholesale sales within Seattle. Although neither company engaged in direct selling activities within the city, the court found that other business activities conducted by the companies that are designed to assist the automakers in `maintain[ing] a share of the market within the city' were sufficient to subject them to Seattle's B & O tax. Id. at 48, 25 P.3d 1022 (alteration in original) (quoting SMC 5.44.022(8)). ¶ 20 That decision, which we declined to review, is consistent with our decisions in General Motors Corp. v. State, 60 Wash.2d 862, 376 P.2d 843 (1962), aff'd on other grounds, 377 U.S. 436, 84 S.Ct. 1564, 12 L.Ed.2d 430 (1964), and Field Enterprises, Inc. v. State, 47 Wash.2d 852, 289 P.2d 1010 (1955). In both, as here, goods were sold by out-of-state companies to Washington buyers and shipped free on board point of shipment. We upheld the imposition of the state B & O tax in both cases, reasoning that the substance of each transaction occurs in Washington where the customer is located. General Motors Corp., 60 Wash.2d at 876, 376 P.2d 843. In doing so, we rejected the argument that a contract specifying that title will transfer at a point out of state enabled the out-of-state seller to avoid the tax. ¶ 21 Ford cites to several cases in which courts have determined that the parties' commercial contract established where, for tax purposes, a sale is made. See, e.g., McLeod v. J.E. Dilworth Co., 322 U.S. 327, 64 S.Ct. 1023, 88 L.Ed. 1304 (1944); Weyerhaeuser Co. v. Dep't of Revenue, 106 Wash.2d 557, 723 P.2d 1141 (1986). However, these cases are neither persuasive nor relevant to the question at hand because they concerned the propriety of state and local sales taxes. Looking at the place of sale is proper in the sales tax context because the incident of tax in that situation is the individual transaction. Such is not the case where a B & O tax is involved because, as we have observed above, the B & O tax is imposed upon activities associated with the privilege of doing business in the taxing jurisdiction. ¶ 22 The B & O tax levied by the Cities is neither a sales tax nor a tax on the passage of title to property. Rather, the target of the tax in this instance is the privilege of engaging in the wholesale business in the Cities. Thus, we affirm the trial courts' conclusions that Ford is engaged in the business of making wholesale sales and was properly classified and taxed as such.