Opinion ID: 1405774
Heading Depth: 1
Heading Rank: 1

Heading: unlawful discrimination

Text: A B&O tax is an excise tax imposed upon the act or privilege of engaging in business activities, for which the taxing authority provides services, measured by the application of a legislatively set rate against a valuation of the operation of the business, established by some standard such as gross revenues, gross sales, gross income, or the valuation of products. P. Lorillard Co. v. Seattle, 83 Wn.2d 586, 521 P.2d 208 (1974); Greyhound Lines, Inc. v. Tacoma, 81 Wn.2d 525, 503 P.2d 117 (1972); Dravo Corp. v. Tacoma, 80 Wn.2d 590, 496 P.2d 504 (1972); RCW 82.04.220; 16 E. McQuillin, Municipal Corporations § 44.191 (3d ed. 1984); Comment, The Scope of Washington's Business & Occupation Tax, 35 Wash. L. Rev. 121 (1960). Paschen contends that the Seattle and Mercer Island B&O tax ordinances unlawfully discriminate against those who manufacture outside but sell inside the taxing jurisdiction. Seattle Municipal Code (SMC) 5.44.030 provides that [t]here is levied upon and shall be collected from and paid as hereinafter provided by every person on account and for the privilege of engaging in business activities, a license fee or occupation tax ... The tax is levied upon those engaging in extracting, manufacturing, sales, and other business  activities. The Mercer Island City Code (MICC) includes a virtually identical provision. See MICC 4.10.030. SMC 5.44.030(E) provides that the B&O tax shall be levied [u]pon every person engaging within this City in the business of ... (2) building, repairing or improving any publicly owned street, place, road, highway, bridge or trestle which is used, or to be used, primarily for foot or vehicular traffic; as to such persons the amount of tax on such business shall be equal to the gross income of the business multiplied by the rate of one hundred eighty-five (185) one-thousandths of one percent (1%). MICC 4.10.030(D) provides that the B&O tax shall be levied [u]pon every person engaging within this city in the business of ... (2) building, repairing or improving any publicly owned street, place, road, highway, bridge or trestle which is used, or to be used, primarily for foot or vehicular traffic, the amount of tax on such business shall be equal to the gross income of the business multiplied by the rate established by the city council from time to time by resolution. Each ordinance includes a multiple activities exemption whereby persons engaging in more than one type of activity will not be taxed separately for each type of activity. SMC 5.44.050 states: Every person engaging in activities which are within the purview of the provisions of two or more subsections designated A, B, C, E and F of Section 5.44.030, shall be taxable under each applicable subsection; provided, that persons taxable under subsection C of Section 5.44.030 on products sold within the City for delivery within the state shall not be taxable under Subsections A or B thereof with respect to extracting or manufacturing of such products so sold, and that persons taxable under subsection B thereof shall not be taxable under subsection A thereof with respect to extracting the ingredients of the product so manufactured. MICC 4.10.040 states: Every person engaging in activities which are within the purview of the provisions of two (2) or more subsections designated A, B, C, D, E, F, G and H of Section  4.10.030 shall be taxable under each applicable subsection; provided, that persons taxable under subsection C of said section on products sold within the city for delivery within the state shall not be taxable under subsections A and B thereof with respect to extracting or manufacturing of such products so sold, and that persons taxable under subsection B thereof shall not be taxable under subsection A thereof with respect to extracting the ingredients of the products so manufactured. Thus, each ordinance provides that persons engaging in both manufacturing and sales activity within the taxing jurisdiction may not be required to pay taxes with respect to manufacturing the products sold. Additionally, persons engaged in both manufacturing and extracting activity will not be required to pay taxes with respect to extracting. Paschen contends that these multiple activities exemption provisions unlawfully discriminate against those who manufacture outside but sell inside the taxing jurisdiction. In this case, Everett levied B&O taxes on Paschen for the actual construction of anchors and pontoons occurring within the city of Everett. In addition, Seattle and Mercer Island levied B&O taxes for the installation of the anchors and pontoons in Lake Washington. However, the Seattle and Mercer Island tax assessments were based on the entire contract price rather than just the portion relating to installation. Paschen asserts that because the manufacture of the anchors and pontoons did not occur in Seattle or Mercer Island, it can offset the taxes paid to Everett to reduce its tax liability to Seattle and Mercer Island. Paschen contends that the resulting double taxation constitutes unfair discrimination. Paschen relies on Tyler Pipe Indus. v. Washington Dep't of Rev., 483 U.S. 232, 97 L.Ed.2d 199, 107 S.Ct. 2810 (1987). In Tyler Pipe, numerous companies challenged the multiple activities exemption contained in the Washington B&O tax statute. RCW 82.04.440 provided that persons engaged in both manufacturing and wholesaling activities within the state would only be taxed on their wholesaling activities. The Supreme Court held this statute invalid  under the interstate commerce clause, stating that [t]he current B&O tax exposes manufacturing or selling activity outside the state to a multiple burden from which only the activity of manufacturing in-state and selling in-state is exempt. Tyler Pipe, 97 L.Ed.2d at 214. [1] Tyler Pipe does not require a similar result here. In Tyler Pipe, the Court invalidated Washington's multiple activities exemption statute under the interstate commerce clause of the United States Constitution. No comparable provision exists with respect to intrastate commerce in either the United States or Washington Constitutions, and intrastate commerce is not protected as is interstate commerce. Thus, Tyler Pipe cannot be advanced as a basis for invalidating the Seattle and Mercer Island B&O tax ordinances. [2] Furthermore, exposure to double taxation is not in itself evidence of unlawful discrimination. There is no constitutional prohibition against double taxation, as applied to excise taxes. Drury the Tailor v. Jenner, 12 Wn.2d 508, 514, 122 P.2d 493 (1942); Texas Co. v. Cohn, 8 Wn.2d 360, 386, 112 P.2d 522 (1941); Supply Laundry Co. v. Jenner, 178 Wash. 72, 79, 34 P.2d 363 (1934). Finally, Paschen would not be protected by the Seattle and Mercer Island multiple activities exemption ordinances even if it both manufactured and installed the anchors and pontoons in those jurisdictions. SMC 5.44.050 provides that persons taxable under SMC 5.44.030(C) are not taxable under subsections (A) and (B) of that provision. Paschen is being taxed under subsection (E). Similarly, MICC 4.10.040 provides that persons taxable under MICC 4.10.030(C) are not taxable under subsections (A) and (B) of that provision. Paschen is being taxed under subsection (D). Thus, Paschen is not being unfairly discriminated against as an out-of-city manufacturer; it would be subject to double taxation if it had manufactured the anchors and pontoons within Seattle or Mercer Island.