Inc. is a global information technology (IT) firm that
provides its clients with information and services to aid in
making IT-related business decisions. Gartner's services
include online access to information in its "Research
Library," consulting services, and special events. Our
legislature imposes different business and occupation
(B&O) tax rates and tax consequences depending on the
classification of a business activity. Under our tax system,
the sale of "digital products" is taxed under the
retailing B&O tax rate and is subject to the retail sales
Department of Revenue (DOR) assessed Gartner with a retailing
B&O tax and the retail sales tax. Gartner paid the
assessment and filed a refund lawsuit in Thurston County
Superior Court. The superior court granted DOR's summary
judgment motion, upholding the assessment. Gartner appeals,
arguing that its business activities should instead be
subject to the service B&O tax and not the retailing
that Gartner's business activity of selling online access
to information in its Research Library is subject to the
retailing B&O tax and the retail sales tax as a sale of a
digital automated service. Consequently, we affirm the
superior court's order granting DOR's summary
judgment motion upholding DOR's assessment.
Gartner Research Inc.
is a global IT research and advisory firm that provides
proprietary technology-related information and services.
Gartner provides "insight, analysis, and hands-on
assistance to help clients utilize technology in a way that
helps them grow and thrive." Clerk's Papers (CP) at
130. Gartner's client base includes companies, government
agencies, and professional services firms. Gartner offers
services to its clients in three separate lines of business:
(1) research, (2) consulting, and (3) events. At issue on
appeal is Gartner's research service titled "Gartner
Research." Id. at 131.
Research is a "'subscription based-research and
related service'" in which Gartner provides clients
with a license to use its services and access to Gartner
Research content. Id. at 36. Gartner offers its
clients various service packages and "[l]evels of
[a]ccess" to their research. Id. at 149. A
research service package is specifically tailored to
different types of organizations as well as different job
titles within a client's organization. For example,
Gartner offers packages entitled "Gartner for IT
Leaders," "Gartner for Business Leaders," and
"Gartner for Supply Chain Leaders." CP at 533. Each
research service package offers any or all of the following
services: (1) online access to proprietary research documents
in Gartner's Research Library, (2) analyst inquiries and
consulting, (3) webcasts, and (4) summit or symposia tickets.
to Gartner's proprietary research documents comprises the
majority of the services Gartner provides to its clients.
Gartner's proprietary research documents consist of
published "reports, briefings, updates, alerts,
newsletters, and other related tools" that cover
specific topics (collectively, Research Content).
Id. at 696. Gartner continually updates and creates
new Research Content to ensure that clients receive current
delivers its Research Content "directly to the
client's desktop" by providing online access to its
Research Library. Id. at 533. Gartner sells a
"license" or "subscription" to a
client-specific "subsite[ ]" or "portal,"
which permits a user to view Research Content in
Gartner's Research Library. Id. at 330. To
access Gartner's Research Content, each licensed user
must input a client specific username and password into the
Gartner website. Once a client logs in, Gartner's general
website automatically directs the client to a client-specific
portal. Each portal is "designed to provide the
information that is most of interest" to the client by
targeting information that relates to the specific product
purchased by the client. Id.
client is directed to their portal, the client may access
Research Content that relates to their service package by
using the portal's search function. The search function
is not analogous to a regular "Google" search.
Instead, the client may search a specific term, and the
portal provides an "index" of related terms or
search by entering a topic, date, or author to access
relevant material. Id. at 350. A client portal also
features the ability to view "'trending'"
areas of interest from a drop-down menu, which directs the
client to a customized search result according to the topic a
client selects. Id. at 420. Once a client accesses a
published document such as a "Research Report," the
client may browse other related reports by clicking on a link
located at the end of the previously viewed reports.
Id. at 309. A client may also "share" a
summary of a research document by clicking "'Email
this Summary'" located on each Gartner Research
document. Id. at 286.
access Research Content by searching the Gartner website (30
percent) or by clicking links to documents on previously
viewed documents (35 percent). A client may also "opt
in" to receive e-mail notifications from a Gartner
employee on a publication of a Research Report on specific
topics (35 percent). Id. at 331. If a client
receives an e-mail notification, the client may click a link
in the e-mail that directs them to the Gartner website where
the client may log in to view the Research Report.
client may pay additional "Research Fees" for a
package that provides access to human interaction with
Gartner employees. Additional research services that involve
human interaction include (1) on-site or telephonic analyst
inquiries, (2) access to webcasts or online seminars offered
to multiple clients simultaneously, and (3) tickets to live
summits or conferences. Roughly 95 percent of Gartner's
clients purchase access to the Research Library and either
one or a combination of the above interactive services. The
remaining 5 percent purchase access to the Research Library
"Service Agreement" lists a single Research Fee.
The agreements do not itemize the prices of the services
included within each package. Rather, the agreements
reference a "Service Description," which provides a
detailed description of the purchased services included in
the Research Fee. Id. at 277. However, neither the
Service Agreements, Service Descriptions, nor any invoices
identify the specific price of each component purchased.
Clients are not obligated to make any additional payments
other than the Research Fee that is due at the time the
client enters the Service Agreement.
Gartner content remains owned and copyrighted by Gartner.
Clients are permitted to access and view content, but a
client is generally not permitted to send, download, save, or
copy Research Content.
research is "commissioned internally by an agenda
manager." Id. at 308. An agenda manager
identifies topics for research based on broad trends,
patterns, or forecasts in the IT industry, as well as client
requests in the "aggregate." Id. at 343.
Once a topic is identified by an agenda manager, research
analysts perform extensive research on the topic and prepare
draft findings. The draft findings are then subject to an
extensive review process by peers, management, and vendors
and are eventually published to Gartner's website as a
uses software to manage the content that is posted on its
website. Gartner's website tracks client activities using
the client's "browser[s] and [identification]"
and utilizes "Lotus Notes" to manage its Research
Library. Id. at 358, 634, 815.
audited Gartner for the period of January 1, 2007 through
December 31, 2011. DOR issued an initial assessment that
assessed Gartner in the amount of $3, 118, 461. For the
period of January 1, 2011 through December 31, 2011, DOR
assessed Gartner with a retailing B&O tax and the retail
sales tax on the Research Fees on the grounds that
Gartner's service of providing access to the Research
Library was a digital automated service subject to the
retailing classification of the B&O tax.
appealed DOR's retailing B&O tax and the retail sales
tax assessment on its Research Fees to DOR's Appeals
Division, arguing that the retailing classification does not
apply because Gartner creates and constantly updates its own
content to the Research Library; therefore, the
"'application of human effort'" exception
to the definition of digital automated services under former
RCW 82.04.192(3)(b) (2010) applied. Id. at 422. The
Appeals Division disagreed, and Gartner moved for
reconsideration. The Appeals Division again upheld the audit
findings, concluding that Gartner's business activity of
providing access to the Research Library was a digital
automated service, not a digital good and, therefore, subject
to the retailing B&O tax and the retail sales tax.
paid the assessment and filed a refund lawsuit in Thurston
County Superior Court pursuant to RCW 82.32.180. The parties
both moved for summary judgment. The superior court granted
DOR's motion for summary judgment, upholding the
assessment. Gartner appeals.
case presents a review of an order for summary judgment
involving the interpretation of an administrative statute.
See Sprint Spectrum, LP v. Dep't of Revenue, 174
Wn.App. 645, 657, 302 P.3d 1280 (2013). On review of an order
for summary judgment, we perform the same inquiry as the
trial court and we "consider only evidence and issues
called to the attention of the trial court." RAP 9.12;
Solvay Chems., Inc. v. Dep't of Revenue, 4
Wn.App. 2d 918, 922, 424 P.3d 1238 (2018). We review grants
of summary judgment and questions of law de novo.
Qualcomm, Inc. v. Dep't of Revenue, 171 Wn.2d
125, 131, 249 P.3d 167 (2011). "Summary judgment is
appropriate only if the pleadings, affidavits, depositions,
and admissions on file demonstrate the absence of any genuine
issues of material fact and that the moving party is entitled
to judgment as a matter of law." Sheehan v. Cent.
Puget Sound Reg'l Transit Auth., 155 Wn.2d 790, 797,
123 P.3d 88 (2005).
burden falls on the taxpayer to prove that the tax as paid
was incorrect. RCW 82.32.180; Qualcomm, 171 Wn.2d at
131. A taxpayer claiming to be exempt from a tax has the
burden of establishing the exemption. Lamtec Corp. v.
Dep't of Revenue, 170 Wn.2d 838, 843, 246 P.3d 788
(2011). However, we construe an ambiguous tax statute in
favor of the taxpayer. Qualcomm, 171 Wn.2d at 131.
prescribe regulations to enforce the tax code. Former RCW
82.32.300 (1997). "The rules of statutory construction
apply to agency regulations as well as statutes."
Tesoro Ref. & Mktg. Co. v. Dep't of Revenue,
164 Wn.2d 310, 322, 189 P.3d 28 (2008). We give great
deference to DOR's interpretation of its own regulations;
however, DOR's interpretation is not binding on this
court. Dep't of Revenue v. GameStop, Inc., 8
Wn.App. 2d 74, 82, 436 P.3d 435, review denied, 193
Wn.2d 1026 (2019).
Retailing B&O Tax and Retail Sales Tax
imposes a B&O tax upon persons engaged in the business of
making "sales at retail" in this state. RCW
82.04.250(1); Bucoda Trailer Park, Inc. v. State, 17
Wn.App. 79, 81, 561 P.2d 1100 (1977). The retail sales tax is
to be collected by the seller on each "retail sale"
in this state. RCW 82.08.020(1)(a); Bucoda, 17
Wn.App. at 81. "Sales at retail" and "retail
sales" include sales of certain digital goods and
digital automated services. RCW 82.04.050(8)(b). Therefore,
the sale of digital goods and digital automated services are
subject to the retailing B&O tax and the retail sales
tax, unless an exception applies. WAC 458-20-15503(202),
(203) (Rule 15503).
tax system imposes different B&O tax rates depending on
the nature of the business. As relevant here, the
"retailing B & O" tax rate is lower than the
"service B & O" tax rate. Qualcomm,
171 Wn.2d at 127; former RCW 82.04.257 (2010), .290(2).
Additionally, the retail sales tax applies to some
transactions but not others. "Digital products" as
defined by statute, are subject to both the retailing B&O
tax and the retail sales tax. However, a "professional
service" is subject to the "service B&O"
tax rate and generally not the retail sales tax. RCW
82.04.290; WAC 458-20-224.
are two distinct types of "digital
products" subject to the retail sales tax:
"digital automated services" and "digital
goods." Former RCW 82.04.192(7) (2010); Rule 15503. A
"[d]igital automated service" is defined as
"any service transferred electronically that uses one or
more software applications." Former RCW 82.04.192(3)(a).
"Digital goods" are defined as "sounds,
images, data, facts, or information, or any combination
thereof, transferred electronically." Former RCW
82.04.192(6)(a) (2010). "[T]ransferred
electronically" means "obtained by the purchaser by
means other than tangible storage media. It is not necessary
that a copy of the product be physically transferred to the
purchaser. So long as the purchaser may access the product,
it will be considered to have been electronically transferred
to the purchaser." Former RCW 82.04.192(8) (2010).
automated services and digital goods both involve something
that is transferred electronically, but differ as to what is
transferred electronically. Rule 15503 is DOR's
administrative rule regarding taxation of digital products
and provides guidance on ...