Court Opinion

ID: 3189232
Source: CourtListenerOpinion
Date Created: 2016-03-28 19:11:51.176855+00
Date Added: 2024-06-11T12:06:32.356097
License: Public Domain

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON
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STATE OF WASHINGTON,
DEPARTMENT OF REVENUE,                          UNPUBLISHED OPINION

                    Appellant.                  FILED: March 28, 2016

      Spearman, C.J. — The Washington State Department of Revenue (DOR)

assessed use tax on Morpho Detection Inc.'s (Morpho) installation of security

systems for the Transportation Security Administration (TSA) in the Seattle-

Tacoma (Sea-Tac) and Spokane airports. Morpho paid the assessment and

sought a refund under RCW 82.32.180, claiming that it was not a "consumer" and

therefore not subject to the use tax. The trial court granted summary judgment

and held that the contractor was not subject to the tax because it performed no

work "under, upon, or above real property of or for the United States." RCW

82.04.180(6). DOR appeals.

      We conclude that as a matter of law, Morpho is a "consumer" and

therefore subject to the use tax under RCW 82.12.020. Accordingly, we reverse

and remand for entry of partial summary judgment in favor of DOR.
No. 73663-9-1/2

                                      FACTS

      Morpho Detection Systems (Morpho) had two national contracts with the

Transportation Security Administration (TSA) to manufacture and install

explosive detection systems in airports, including the Sea-Tac and Spokane

International Airports. The TSA issued a solicitation on November 3, 2001, for

contractors capable of manufacturing and installing such systems. At that time,

Morpho was one of two companies with explosive detection products already

certified by the federal government. Morpho responded to TSA's request for

proposals, describing the products as well as the planning, installation,

maintenance, and training services it had to offer.

       Morpho was awarded the contract and began manufacturing and installing

explosive detection systems across the country, seeking to meet TSA's deadline

of December 31, 2001. Morpho continued to negotiate terms with the federal

government and the parties entered into two contracts for the manufacture and

"site installation support" that set up a price-per-system that included system

assembly and provided the government with the ability to order additional

services. Clerk's Papers (CP) at 206.

       Morpho assembled and installed 41 systems at Sea-Tac and 5 at the

Spokane airport, receiving over $48 million from the federal governmentfor its

work. DOR performed an audit on Morpho's activities at the airports for the

period of January 1, 2002 to March 31, 2006. Based on this audit, DOR
No. 73663-9-1/3

assessed a total tax of $5,423,645, including $4,191,799 in use tax. The amount

of the tax was calculated based on the value of the personal property that

Morpho had installed at the airports.

       Morpho appealed the assessment to DOR's internal appeals division. The

appeals division affirmed that Morpho owed use tax for installing the systems at

the two airports. The decision was based primarily upon finding that Morpho

"installed" the systems. CP at 659-70. The appeals division also interpreted RCW

82.12.020 and RCW 82.04.190(6) as requiring the tax to be collected when the

business conducted is for the United States, even if not conducted on United

States' property.

       Morpho challenged the assessment before the Federal Aviation

Administration's Office of Dispute Resolution for Acquisition (ODRA). Morpho

argued that Washington's use tax was an "after-imposed tax" that should have

been TSA's responsibility, not the contactor's. CP at 593. The ODRA disagreed,

and found that it was not an after-imposed tax and affirmed DOR's interpretation

of RCW 82.04.190(6). Morpho appealed the issue to the D.C. Circuit Court of

Appeals. The Circuit Court denied the petition, holding that because Washington

had not changed its definition of "consumer" since 1975, it was reasonable that

Morpho should have known that it might be subject to use tax for its activities in

Washington. Morpho Detection. Inc. v. Transp. Sec. Admin., 717 F.3d 975, 982

(D.C.Cir.2013).
No. 73663-9-1/4

       Morpho then brought a tax refund claim in Thurston County Superior Court

under RCW 82.32.180. Morpho moved for summary judgment on the issue of

whether it fell under the definition of a "consumer" in RCW 82.04.190(6) and was

therefore subject to the use tax. DOR cross-moved for partial summary judgment

on the same issues. The trial court agreed with Morpho that the term "of or for"

as used in RCW 82.04.190(6) modifies the term "real property." Verbatim Report

of Proceedings (VRP) at 30. Thus, in order to meet the statutory definition of a

"consumer," the work done by Morpho had to have been done either on real

property "of the United States," i.e., owned by the United States or real property

"for the United States," i.e., property in which the United States held a lesser

property interest, such as "a lease, a license, an easement or something of that

issue." VRP at 31. Because it was undisputed that the United States neither

owned nor held a lesser property interest in Sea-Tac or the Spokane airport, the

trial court ruled that Morpho was not a consumer and not subject to the use tax.

DOR appeals the trial court's order granting summary judgment in Morpho's

favor and the denial of its motion for partial summary judgment.

                                   DISCUSSION

       Because this case involves questions of statutory interpretation and

review of a summary judgment order, our review is de novo. Flight Options. LLC

v. Dep't. of Revenue. 172 Wn.2d 487, 495, 259 P.3d 234 (2011) (citing Lamtec

Corp. v. Dep't of Revenue. 170 Wn.2d 838, 842, 246 P.3d 788 (2011)). Statutory
No. 73663-9-1/5

interpretation begins with the statute's plain meaning. Lake v. Woodcreek

Homeowners Ass'n, 169 Wn.2d 516, 526, 243 P.3d 1283 (2010). We discern

plain meaning from the ordinary meaning of the language at issue, the statute's

context, related provisions, and the statutory scheme as a whole, jd. (citing State

v. Engel. 166 Wn.2d 572, 578, 210 P.3d 1007 (2009)). While we look to the

broader statutory context for guidance, we must not add words where the

legislature has chosen not to place them and we must construe statutes such

that all of the language is given effect, jd. Ifthe statute is unambiguous after a

review of the plain meaning, the court's inquiry is at an end. jd.

       When a statute is ambiguous, however, we will "resort to principles of

statutory construction, legislative history, and relevant case law to assist in [its

interpretation]." Yousoufian v. Office of King County Exec. 152 Wn.2d 421, 434,

98 P.3d 463 (2004) (quoting State v. Watson. 146 Wn.2d 947, 955, 51 P.3d 66

(2002)). "[A] statute is ambiguous if it can be reasonably interpreted in more than

one way." ]d at 433-34, (quoting Vashon Island Comm. for Self-Gov't v. Wash-

State Boundary Review Bd.. 127 Wn.2d 759, 771, 903 P.2d 953 (1995)).

However, a statute is not ambiguous simply because different interpretations are

possible and we are not obliged to discern any ambiguity by imagining a variety

of alternative interpretations. American Continental Ins. Co. v. Steen, 151 Wn.2d

512,518,91 P.3d 864 (2004).
No. 73663-9-1/6

       The state imposes a use tax on "every person in this state ... for the

privilege of using within this state as a consumer any: (a) Article of tangible

personal property acquired by the user in any manner...." RCW82.12.020(1)(a).

In this context, "use" has its ordinary meaning, and "[w]ith respect to tangible

personal property," means "the first act within this state by which the taxpayer

takes or assumes dominion or control over the article of tangible personal

property (as a consumer), and include[s] installation, storage, withdrawal from

storage, distribution, or any other act preparatory to subsequent actual use or

consumption within this state; ..." RCW 82.12.010(6)(a). Exemptions to this tax

are narrowly construed and the taxpayer claiming an exemption has the burden

of proving that he or she qualifies. Glen Park Associates. LLC v. Dep't. of

Revenue, 119 Wn. App. 481, 486, 82 P.3d 664 (2003).

       Morpho conceded at trial that it installed the detection systems in

Washington. It is undisputed that the federal government does not own or have

any other interest in the real property upon which the airports are located. The

question before us is whether Morpho's "use" of the systems falls within the

privilege of using "as a consumer" under RCW 82.12.020. "Consumer" under

RCW 82.04.190(6) means, in relevant part, the following:

              (6) Any person engaged in the business of constructing,
       repairing, decorating, or improving new or existing buildings or other
       structures under, upon, or above real property of or for the United
       States, any instrumentality thereof, or a county or city housing
       authority created pursuant to chapter 35.82 RCW, including the
       installing or attaching of any article of tangible personal property
No. 73663-9-1/7

       therein or thereto, whether or not such personal property becomes a
       part of the realty by virtue of installation....

(Emphasis added). Neither party argues that the statute is ambiguous, thus the

sole point of contention is the plain meaning of the phrase "for the United States"

as it is used in the statutory definition of "consumer."

       DOR argues that under the statute, a contractor doing work for the federal

government is a consumer and subject to the use tax in two circumstances. If the

work is done on existing structures or buildings on real property "of," i.e., owned

by the United States or ifthe work is done "for," i.e., on behalf of the United

States. Br. of Appellant at 20-21. Thus, it argues that the antecedent to the word

"of is the term "real property," while the antecedent to the word "for" is the

activity of "constructing, repairing, decorating or improving new or existing

buildings or other structures. .. ." And because there is no dispute that Morpho's

activity of installing systems for TSA in the state's airports was done for the
United States, DOR contends Morpho clearly falls within the statutory definition

of a "consumer." Id.

       Morpho, on the other hand, contends that "of and "for" must have the

identical antecedent, which it argues is the term "real property." Thus, it argues

that "real property of...the United States" refers to property owned by the United
States and "real property ... for the United States" necessarily means real

property in which the United States has a lesser property interest, such as a

lease or an easement. Br. of Respondent at 16-17.

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No. 73663-9-1/8

       According to Morpho, DOR's reading of the statute fails because it violates

normal rules of grammar. It contends that for DOR's reading to be correct, the

rules of grammar require a comma or other punctuation after "real property."1 It

also argues that because "[t]he antecedents for the words 'of or for' need to be

identical... [DOR's] construction does violence to the English language." Id. at

14. These arguments are unpersuasive, however, because Morpho cites no

authority in support of them. Cowiche Canyon Conservancy v. Boslev, 118

Wn.2d 801, 809, 828 P.2d 549 (1992) (we need not consider arguments

unsupported by authority.)

        Morpho also contends that DOR's reading fails because it renders

portions of the statute meaningless or superfluous. Br. of Respondent at 14-15. It

argues that because everything is "under, upon, or above real property" in order

to have meaning, "those words need to be tied to the phrase 'of or for the United

States.'" IdL We disagree. First, Morpho cites no authority for this proposition.

        1Morpho never refers to the "last antecedent" rule, but its argument that "for the United
States" refers back to "real property," appears to rely on the rule's application. The "last
antecedent" rule is a rule of grammar employed to aid in discerning the plain meaning of statutory
language. State v. Bunker. 169 Wn.2d 571, 578, 238 P.3d 487 (2010). The rule provides that
qualifying or modifying words and phrases referto the last antecedent. A corollary principle is that
"'the presence of a comma before the qualifying phrase is evidence the qualifier is intended to
apply to all antecedents instead of only the immediately preceding one.'" jkl (Quoting City of
Spokane v. Spokane County. 158 Wn.2d 661, 673, 146 P.3d 893 (2006). But we do not apply the
rule ifother factors, such as context and language in related statutes, indicate contrary legislative
intentor ifapplying the rule would result in absurd or nonsensical interpretation. Id. And while "the
presence of a comma before the qualifying phrase is evidence the qualifier is intended to apply to
all antecedents instead of only the immediately preceding one," (Sehome Park, 127 Wn.2d 774,
781-82, 903 P.2d 443 (1995)) the absence of a comma does not automatically indicate that the
rule applies, nor does it require two qualifiers to have the same antecedent.
No. 73663-9-1/9

Second, the argument assumes the question. The words only have no meaning if

one assumes, as Morpho argues, that the legislature intended the antecedent to

both the words "of and "for" to be identical and further assumes that antecedent

to be the activity of "constructing, repairing, decorating or improving new or

existing buildings or other structures." But this is not DOR's argument. DOR

contends that under a plain reading of the statute, the antecedents are not

identical. Indeed, the parties agree that the antecedent to word "of are the words

"under, upon, or above real property." Thus, under either party's reading of the

statute the words retain their meaning.

       Morpho's contention that "'[r]eal property is for' the United States" means

"the United States has an easement, lease, right to possess or other such

interest in the real property" also fails. Br. of Respondent at 16-17. First, Morpho

cites no authority for its claim that the ordinary meaning of the language at issue

refers to a property interest held by the United States. Morpho appears to rely

solely on its contention that DOR propounded this meaning of "forthe United

States" in its opposition to Morpho's motion for summary judgment. Br. of

Respondent at 17, n.14-15. Morpho appears to contend that because the trial

court relied upon DOR's own definition, it should not now be heard to take a

contrary position. ]d. The argument is without merit. In its opposition brief, DOR

made two points: First, that in the retail sales context the definition of consumer

includes "work performed on real property of or for an owner, lessee, easement
No. 73663-9-1/10

holder, etc." CP at 69. And second, that the definition of "consumer" set out in

RCW 82.04.190(4) includes "[a]ny person who is an owner, lessee, or has the

right of possession to or an easement in real property," as an example of

language that the legislature could have included in RCW 82.04.190(6) if that

was its intention. CP 80. Neither argument suggests that "for the United States"

should be read as meaning a less than fee simple ownership interest. Moreover,

a dictionary definition of the word "for" is its use "as a function word to indicate

the person or thing that something is to be delivered to . . . ."2 Thus, ordinarily the

phrase "for the United States" would be construed to refer to the United States as

the recipient of an activity or tangible property, not the owner of an interest in real

property.

        Additionally, Morpho's interpretation is strained and leads to absurd

results. It is strained because while "real property of the United States" is easily

understood to refer to property owned by the United States, the phrase "real

property for the United States" does not easily or naturally convey a reference to

real property in which the United States has an interest but does not own. And, if

the legislature had meant to convey such meaning, it easily could have done so

        2"'For' used as a function word to indicate the person or thing that something is to be
delivered to  or assigned to  or used by or in
connection with ore those the tires -this car>." WEBSTER'S THIRD NEW INTERNATIONAL
DICTIONARY 886 (2002).

                                                10
No. 73663-9-1/11

as it has elsewhere in 82.04 RCW.3 (See In re Marriage of McLean, 132 Wn.2d

301, 307, 937 P.2d 602 (1997), "If the Legislature had intended to require

evidence of actual delivery, it could have said so expressly, as former RCW

46.64.040 and RCW 12.40.040 demonstrate.")

        Morpho's interpretation leads to absurd results when it is viewed in the

context of the entire statute. RCW 82.04.050 defines what is included and

excluded from a "retail sale" for purposes of imposition of the state's sales tax.

Subsection (2)(b) includes within that definition "the sale of or charge made ... for

labor and services rendered in respect to ... constructing, repairing, decorating,

or improving of new or existing buildings or other structures under, upon, or

above real property of or for consumers ...." But because the Supremacy Clause

of the United States Constitution limits the ability of the state to tax the federal

government,4 the statute excludes from imposition ofa sales tax "the sale ofor
charge made for labor and services rendered in respect to constructing,

        3 See e.g., RCW 82.04.050(2)(c) imposing sales tax on the constructing of a structure
upon real property "owned by an owner" who conveys the property to the contractor who then
reconveys the property to the original owner; RCW 82.04.050(10) excluding from the retail sales
tax the charge for labor and services rendered in respect to the building of a road "owned by ...
the United States"); RCW 82.04.190(5) (defining as a "consumer" any person who is an "owner,
lessee, or has the right of possession to personal property which is being constructed, repaired,
improved, cleaned, imprinted, or otherwise altered by a person engaged in business.")
        *See, M'Culloch v. State of Maryland. 17 U.S. 316, 317, 4 L.Ed. 579 (1819) ("[S]tates
have no power, by taxation or otherwise, to retard, impede, burden, or in any manner control, the
operations of the constitutional laws enacted by Congress to carry into execution the powers
vested in the national government."), State v. Wiles. 116Wash. 387, 391, 199 P. 749 (1921) ("It is
doubtless true that the states may not directly tax the property of the federal government, nor the
instrumentalities which it uses to discharge any of its constitutional functions, nor may a state, by
taxation or otherwise, materially interfere with the due, expeditious, and orderly procedure of that
governmentwhile in the exercise of its constitutional powers.").

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No. 73663-9-1/12

repairing, decorating, or improving of new or existing buildings or other structures

under, upon, or above real property of or for the United States ...." RCW

82.04.050(12).

       The use tax, however, is a constitutional means by which the state may

subject this event to taxation. Significantly, in so doing, the statutory language

excluding work done for the United States from the sales tax and subjecting such

work to the use tax is nearly identical. Each includes the language at issue here,

"constructing, repairing, decorating, or improving of new or existing buildings or

other structures under, upon, or above real property of or for the United States."

Because these statutes are interrelated and relate to the same subject matter,

they must be read together and harmonized, if possible, to give effect to the

provisions of each. Harmon v. Department of Social and Health Services, 134

Wn.2d 523, 542, 951 P.2d 770 (1993), Wright v. Miller, 93 Wn. App. 189, 198,

963 P.2d 934 (1998).

       Morpho does not contend that the language of either provision should be

read differently from the other. But if the meaning of each statute is the same,

under Morpho's reading of the statute, we would necessarily have to conclude

that RCW 82.04.050(12) does not exclude from the sales tax work done for the

federal government if it is done on land in which the federal government holds no
interest. This result is absurd for at least two reasons. First, it is contrary to the

legislative scheme which clearly seeks to avoid imposing a sales tax on the

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No. 73663-9-1/13

federal government and instead relies on the use tax. And second, imposing

such a tax on the United States is likely unconstitutional5 and the legislature

surely did not intend such a result.

       We reject Morpho's reading of RCW 82.04.190(6). Its contention that the

statute is only applicable if the United States has an interest of some sort in the

real property upon which the work is done, is unsupported by authority or other

persuasive argument. In light of the language used in the statute and the overall

legislative scheme, we agree with DOR that its only reasonable reading is that

the use tax applies to a contractor who either installs tangible property on real

property owned by the federal government or for the federal government. In the

latter circumstance, it is irrelevant whether the United States also has some

interest in the real property upon which the work is done. Here, because it is

undisputed that Morpho installed security systems for the United States at Sea-

Tac and the Spokane airports, it is a consumer, as a matter of law, under RCW

82.04.190(6). Accordingly, we reverse and remand for entry of order granting

        5The issue of the constitutionality of such a tax is not before us so we need not and do
not address this question, but we note that neither party has asserted that such a tax on the
federal government would be permissible.

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No. 73663-9-1/14

partial summary judgment in favor of DOR.e

WE CONCUR:
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        6 Because we agree with the parties that the statute is unambiguous, we do not address
their arguments based on various rules of statutory construction.

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