Opinion ID: 2632780
Heading Depth: 2
Heading Rank: 1

Heading: The plain meaning of RCW 82.04.500 prevents Appleway from directly imposing B & O tax on its customers

Text: ¶ 6 RCW 82.04.500 is not ambiguous and plainly says two things. First, the tax is not a tax on customers. Second, the tax is a tax on business and should be part of the operating overhead. Overhead is a well-known and well-understood term. Webster's Third New International Dictionary 1608 (2002) defines it as: those general charges or expenses in a business which cannot be charged up as belonging exclusively to any particular part of the work or product (as rent, taxes, insurance, lighting, heating, accounting and other office expenses, and depreciation). Overhead is simply the aggregate cost of doing business. By saying such taxes shall constitute a part of the operating overhead, the legislature simply considers the B & O tax a cost of doing business. RCW 82.04.500. ¶ 7 Contravening the statute's plain meaning, Appleway added $79.23 in B & O tax after Appleway and Nelson negotiated a final price of $16,822. [5] No other overhead costs  such as rent, insurance, utilities  were itemized and charged above the $16,822. Appleway treated the B & O tax as a tax on customers. Clerk's Papers (CP) at 51 (contract stating the B & O taxes have been assessed on the negotiated sales amount). Appleway's practice is explicitly forbidden by the statute. [6] ¶ 8 Appleway's defense of this add-on practice misconstrues the Court of Appeals holding, mischaracterizes court decisions, and relies on unconstitutional out-of-state statutes and ambiguous Department of Revenue (DOR) notices. Appleway claims the Court of Appeals held Appleway could add on the tax as long as it did not disclose or itemize it to the customer. Pet. for Review at 1 ([A]fter the court of appeals' decision, the Appleway dealerships remain free to pass through the B & O tax to consumers . . . but only so long as they bury the pass-through. ). Appleway's reading is flawed. First, the Court of Appeals explicitly found the add-on was improper. Appleway, 129 Wash.App. at 945, 121 P.3d 95 ([T]he plain language of the statute states that Appleway must treat the B & O tax as operating overhead and that the B & O tax cannot be treated as a tax on purchasers or customers.). Second, the Court of Appeals did not prohibit disclosure. Rather it said: Quite simply, the seller can disclose the B & O overhead charge to the purchaser, but it must be done while setting the final purchase price. The process here involved the negotiation of a price; hence, the information should have been disclosed as part of that process. Id. Appleway may itemize the tax if it is part of the final purchase price. In other words, it is lawful for Appleway to disclose a B & O charge to Nelson during the course of negotiating a purchase price or later identify any claimed element of overhead. However, Appleway may not add a B & O charge as one of several fees and taxes after Appleway and Nelson negotiated and agreed upon a final purchase price. ¶ 9 None of Appleway's cited authority is apposite, and some cases support Nelson rather than Appleway. Appleway relies heavily on Public Utility District No. 3 of Mason County v. State, 71 Wash.2d 211, 427 P.2d 713 (1967). This case is not on point. [7] It concerns whether Mason County Public Utility District (PUD) needed to include taxes levied on utilities customers in its gross income. This court said those taxes must be included in gross income. Appleway's argument seems to be since the court did not disallow the pass-through of utilities taxes there, it should not be concerned with the pass-through of B & O taxes here. But, in a statute entitled Municipal taxes  May be passed on, the legislature specifically allowed PUD to levy such taxes directly on the customers. See RCW 54.28.070 (Any such district shall have the power to add the amount of such tax to the rates or charges it makes for electricity so sold within the limits of such city or town.). Here, the legislature has said the opposite. RCW 82.04.500. [8] ¶ 10 Appleway also relies on Texaco Refining & Marketing Co. v. Commissioner of Revenue Services, 202 Conn. 583, 522 A.2d 771 (1987). This case supports Nelson rather than Appleway. This is the only case Appleway cites concerning statutory language similar to RCW 82.04.500. See Conn. Gen.Stat. § 12-599(a) (It is not the intention of the general assembly that the tax . . . be construed as a tax upon purchasers. . . .). But the Second Circuit Court of Appeals ruled the Connecticut statute unconstitutional in 1981 because it was preempted by federal law regulating oil prices. See Mobil Oil Corp. v. Dubno, 639 F.2d 919 (2d Cir.1981). The Texaco Refining court specifically noted this was why Texaco was able to pass through the tax to its purchasers. Texaco Ref. & Mktg. Co., 202 Conn. at 585 n. 5, 522 A.2d 771 (citing Mobil Oil Corp. v. Dubno, 492 F.Supp. 1004 (D.Conn.1980), aff'd in part, dismissed in part by Dubno, 639 F.2d 919). But for the Second Circuit's ruling, the statute would have prevented Texaco from passing the tax on to its customers. Conversely, RCW 82.04.500 is still good law and therefore does prevent Appleway from passing the tax on to its customers.