Court Opinion

ID: 4764107
Source: CourtListenerOpinion
Date Created: 2021-08-12 17:59:29.516017+00
Date Added: 2024-06-11T08:09:07.600024
License: Public Domain

¶28 (dissenting in part) — I respectfully dissent from the majority’s conclusion that the business and occupation (B&O) tax is properly imposed on dealer cash.
Becker, J.
¶29 The B&O tax is levied “for the act or privilege of engaging in business activities.” RCW 82.04.220(1). The Supreme Court in another context has said that “the tax is on the gross revenues received in the course of doing business.” Budget Rent-A-Car of Wash. Or. v. Dep’t of Revenue, 81 Wn.2d 171, 173, 500 P.2d 764 (1972). This statement, cited by the majority to show that the B&O tax scheme is very broad, does not literally mean that all gross income received by a business is taxable. Gross income is taxable only after identification of a business activity that is subject to taxation. The tax is then “measured by the application of rates against value of products, gross proceeds of sales, or gross income of the business, as the case may be.” RCW 82.04.220(1).
¶30 The statutes identify many categories of business activity and specify the method of measurement and the rate applicable to each. For example, “upon every person engaging within this state in the business of making sales at wholesale,” the tax is imposed on the gross proceeds of sales at the rate of 0.484 percent. RCW 82.04.270. “Upon every person engaging within this state in the business of *357making sales at retail,” the tax is imposed on the gross proceeds of sales at the rate of 0.471 percent. RCW 82.04-.250(1). Klein Honda primarily engages in the business of making sales at retail. Klein Honda does not dispute its obligation to pay the B&O tax of 0.471 percent on the gross proceeds of its retail sales.
¶31 The statute involved in this appeal imposes the B&O tax on persons engaged in the business of rendering services or engaging in some “other” business activity not otherwise taxed:
(2)(a) Upon every person engaging within this state in any business activity other than or in addition to an activity taxed explicitly under another section in this chapter or subsection (1) or (3) of this section; as to such persons the amount of tax on account of such activities is equal to the gross income of the business multiplied by the rate of 1.5 percent.
(b) This subsection (2) includes, among others, and without limiting the scope hereof (whether or not title to materials used in the performance of such business passes to another by accession, confusion or other than by outright sale), persons engaged in the business of rendering any type of service which does not constitute a “sale at retail” or a “sale at wholesale.” The value of advertising, demonstration, and promotional supplies and materials furnished to an agent by his or her principal or supplier to be used for informational, educational, and promotional purposes is not considered a part of the agent’s remuneration or commission and is not subject to taxation under this section.
RCW 82.04.290.
¶32 In addition to making sales of cars at retail, Klein Honda performs predelivery inspections, warranty work, and advertising for American Honda Motor Company Inc. By doing so, Klein Honda engages in the business of rendering services that do not constitute a sale at retail or wholesale. Klein Honda does not dispute its obligation to pay the B&O tax of 1.5 percent on the gross income it receives for these services, as required by RCW 82.04.290(2)(b).
*358¶33 The Department of Revenue argues that by meeting the terms of American Honda’s dealer cash marketing bulletins, Klein Honda engages in the business of rendering a further service to American Honda that is taxable under RCW 82.04.290(2)(b). According to the Department, the service benefits American Honda “by moving vehicles out of Klein Honda’s inventory and putting Klein Honda in a position to make more wholesale purchases from American Honda.” Brief of Respondent at 23. The problem with this argument is that to be taxable under RCW 82.04.290(2)(b), the service rendered may not constitute a sale at retail. Moving vehicles out of inventory, whether in response to a marketing bulletin or not, is accomplished by selling cars at retail. Every sale of a vehicle that Klein Honda makes in response to a dealer cash incentive program constitutes a sale at retail and consequently is not taxable under RCW 82.04.290(2)0).
¶34 This leaves RCW 82.04.290(2)(a) as a possible source of taxation. “Upon every person engaging within this state in any business activity other than or in addition to an activity taxed explicitly under another section in this chapter . . . the amount of tax on account of such activities is equal to the gross income of the business multiplied by the rate of 1.5 percent.” The business activity of selling cars at retail is explicitly taxed under RCW 82.04.250(1). Therefore, RCW 82.04.290(2)(a) applies only if dealer cash is produced by a business activity “other than or in addition to” selling cars at retail. It is not enough to point out that dealer cash is gross income for Klein Honda. The first question is, what is the “other” business activity?
¶35 The majority identifies the “other” business activity as “accepting the offer of American Honda to apply for dealer cash, selling specific models during specific times, documenting those sales as required by the manufacturer, applying to the manufacturer for the dealer cash, and accepting the payment. It was a discrete business activity beyond the mere retail sale of those vehicles.” Majority at 353.
*359¶36 The majority’s distinction is unsatisfactory. It confuses the reporting of business activity with business activity. The only business activity that Klein Honda engages in that produces dealer cash is the business activity of making sales at retail. Making a particular number of retail sales of a particular model within a specified time period is subsumed within the business of making sales at retail. I would conclude that documenting a sale in order to qualify for dealer cash is not a separately taxable “other” business activity.
¶37 Whether dealer cash represents a bona fide discount, and is thereby excludable from “gross proceeds of sales” under WAC 458-20-108(5), is irrelevant. Analyzing that issue presupposes the existence of an identifiable and taxable business activity. Klein Honda simply participated in an incentive program designed by the wholesaler to move inventory. By moving inventory, Klein Honda did not engage in a business activity other than selling cars at retail. I would hold that Klein Honda is entitled to a refund of tax paid on dealer cash.
Review granted at 182 Wn.2d 1020 (2015).