Oral Argument December 5, 2014.
As amended by order of the Court of Appeals May 19, 2015.
Appeal from Thurston Superior Court. Docket No: 11-2-00128-5. Judge signing: Honorable Christine Schaller. Judgment or order under review. Date filed: 06/21/2013.
Robert W. Ferguson, Attorney General, and Rosann Fitzpatrick and Joshua Weissman, Assistants, for appellant.
Scott M. Edwards and Daniel A. Kittle (of Lane Powell PC ), for respondent.
Authored by Thomas R Bjorgen. Concurring: Rich Melnick, Lisa Worswick.
[187 Wn.App. 431]
Thomas R Bjorgen, A.C.J.
[¶1] Avnet Inc. challenges the assessment by the Department of Revenue (Department) of business and occupation (B& O) tax on two categories of sales of goods delivered to Washington addresses. The trial court granted summary judgment to Avnet regarding one category of sales and to the Department regarding the other. The Department appeals, arguing that the B& O tax applies to all of Avnet's Washington-bound sales. Avnet cross appeals, arguing that both the Department's own rules and the federal constitution's commerce clause prohibit the State from imposing the B& O tax on either of the disputed categories of sales.
[¶2] Because the B& O statute and regulations subject both categories of Avnet's Washington-bound sales to the B& O tax consistently with the commerce clause, we reverse the grant of summary judgment to Avnet and remand for entry of judgment in favor of the Department. We otherwise affirm.
[¶3] Avnet Inc., a New York corporation headquartered in Arizona, describes itself as " one of the largest distributors of electronic components, computer products and embedded
technology serving customers globally." Clerk's Papers (CP) at 194, 424. All of Avnet's products ship from distribution centers outside Washington. During the period at issue here, however, Avnet maintained an office in Redmond, Washington, with more than 40 employees, serving customers in Washington and eastern Idaho and conducting other activities related to market and product development.
[187 Wn.App. 432] [¶4] Following an audit, the Department determined that Avnet had miscalculated the amount of B& O tax due for 2003 through 2005 by improperly excluding two categories of sales of Washington-bound products described as " National Sales" and " Third Party Drop-Shipped Sales." CP at 195. The Department determined that Avnet owed, with interest included, $556,330 in back taxes from the audit period, $386,179 of which arose from the Washington-bound national and drop-shipped sales at issue here.
[¶5] The national sales category involves transactions where an Avnet customer places an order from a location outside Washington with an Avnet sales office outside Washington, but directs Avnet to ship some or all of the products to one of the customer's Washington facilities. The drop-shipped sales category also involves an Avnet customer located outside Washington placing an order with an Avnet sales office outside Washington. In this type of sale, however, Avnet's customer directs Avnet to ship products to a third party located in Washington, generally the Avnet customer's own customer. Nothing in the record indicates that Avnet's Redmond office participated in soliciting or filling orders, investigating customer credit, or providing technical support to the end users in the specific sales at issue in this appeal.
[¶6] After an unsuccessful administrative appeal, Avnet paid the contested amount under protest and filed this action in Thurston County Superior Court. Both parties moved for summary judgment. After hearing argument, the trial court granted Avnet's motion and denied the Department's as to the drop-shipped sales, but granted the Department's motion and denied Avnet's as to the national sales. The Department appeals and Avnet cross appeals.
[187 Wn.App. 433] ANALYSIS
I. Standard of Review
[¶7] An appellate court reviews a grant of summary judgment de novo and performs the same inquiry as the trial court. Macias v. Saberhagen Holdings, Inc., 175 Wn.2d 402, 407-08, 282 P.3d 1069 (2012). A party moving for summary judgment bears the burden of demonstrating that there is no genuine issue of material fact. Atherton Condo. Apt.-Owners Ass'n Bd. of Dirs. v. Blume Dev. Co., 115 Wn.2d 506, 516, 799 P.2d 250 (1990). A court should grant summary judgment only if " the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CR 56(c).
[¶8] The meaning of a statute is a question of law we also review de novo. Dep't of Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 9, 43 P.3d 4 (2002). The " fundamental objective" of statutory interpretation " is to ascertain and carry out the Legislature's intent." Campbell & Gwinn, 146 Wn.2d at 9-10. Where a " statute's meaning is plain on its face, then the court must give effect to that plain meaning as an expression of legislative intent." Campbell & Gwinn, 146 Wn.2d at 9-10. Such plain meaning " is discerned from all that the Legislature has said in the statute and related statutes which disclose legislative intent about the provision in question." Campbell & Gwinn, 146 Wn.2d at 11-12. If " the statute remains susceptible to more than one reasonable meaning" after such inquiry, it is ambiguous and we must " resort to aids to construction, including legislative history." Campbell & Gwinn, 146 Wn.2d at 12.
[¶9] The rules of statutory construction also apply to the interpretation of administrative
regulations adopted pursuant to statutory authority. Cannon v. Dep't of Licensing, 147 Wn.2d 41, 56, [187 Wn.App. 434] 50 P.3d 627 (2002). In this context, appellate courts " interpret[ ] a WAC provision to ascertain and give effect to its underlying policy and intent." Cannon, 147 Wn.2d at 56. " Rules and regulations are to be given a rational, sensible interpretation," and courts will not consider them " ambiguous simply because different interpretations are conceivable." Cannon, 147 Wn.2d at 56-57. As with statutes, courts do not generally apply canons of construction to unambiguous administrative regulations. Cannon, 147 Wn.2d at 57. Courts should, however, " avoid a literal reading of a provision if it would result in unlikely, absurd, or strained consequences." Cannon, 147 Wn.2d at 57.
[¶10] " When its meaning is in doubt, a tax statute 'must be construed most strongly against the taxing power and in favor of the taxpayer.'" Lamtec Corp. v. Dep't of Revenue, 170 Wn.2d 838, 842-43, 246 P.3d 788 (2011) (quoting Ski Acres, Inc. v. Kittitas County, 118 Wn.2d 852, 857, 827 P.2d 1000 (1992)). Courts presume, however, that taxes are valid. Lamtec, 170 Wn.2d at 843. A party challenging the imposition of a tax thus bears the burden of proving that some exemption applies. Lamtec, 170 Wn.2d at 843; RCW 82.32.180. Where a court finds ambiguity in a provision providing for a tax exemption or deduction, the court must strictly construe the provision against the taxpayer. Simpson Inv. Co. v. Dep't of Revenue, 141 Wn.2d 139, 149-50, 3 P.3d 741 (2000).
II. The Department's Appeal
[¶11] We begin with the Department's appeal, which challenges the trial court's grant of summary judgment to Avnet as to the drop-shipped sales. The Department argues that under applicable statutes and regulations the drop-shipped sales are subject to the B& O tax. Avnet contends that the trial court correctly ruled that the B& O tax does not apply to its Washington-bound drop-shipped sales because Avnet [187 Wn.App. 435] did not receive the goods in Washington within the meaning of the Department's own regulations. The Department is correct.
A. The B& O Statute and Implementing Regulations
[¶12] Washington imposes the B& O tax " for the act or privilege of engaging in business activities" in the state. Former RCW 82.04.220 (1961); Lamtec, 170 Wn.2d at 843. The statute requires " every person" who conducts activities here " with the object of gain, benefit, or advantage to the taxpayer or to another person or class, directly or indirectly" to pay a percentage of the gross receipts of any resulting proceeds. Former ...