Justia Tax Law Opinion Summaries

In late 2008, Cost Management Services Inc. (CMS) reviewed its years of tax payments made to the City of Lakewood. In examining the relevant regulations, CMS decided that it did not in fact owe the tax that it had been paying. In November 2008, it stopped paying the tax and it submitted a claim to Lakewood for a refund of taxes it had previously paid from 2004 to September 2008. Lakewood did not respond to the request for a refund of the 2004-2008 tax payments. But six months later, in May 2009, it issued a notice and order to CMS demanding payment of past due taxes for a different time period-October 2008 to May 2009. CMS did not respond to the notice and order from Lakewood. Instead, CMS sued Lakewood in superior court on its refund claim, asserting a state common law claim of money had and received. The trial court held a bench trial and found in favor of CMS, ruling that CMS did not owe the taxes it had paid to Lakewood. In addition (in a separate action), the trial court granted CMS 's petition for a writ of mandamus ordering Lakewood to respond to the refund claim. The Court of Appeals affirmed, reasoning that since Lakewood had never actually responded to the refund claim, CMS had no further administrative steps available to it on the refund claim, and thus exhaustion was not required. The appellate court also ruled that the trial court had properly issued the writ of mandamus. Lakewood sought review of the Court of Appeals' decisions on the exhaustion and the mandamus issues. After careful consideration, the Supreme Court affirmed the Court of Appeals as to the exhaustion issue, but reversed the Court of Appeals as to the mandamus issue. View "Cost Mgmt. Servs. v. City of Lakewood" on Justia Law

The issue before the Supreme Court in this case was a challenge to two provisions of the voter-enacted RCW 43.135.034 (2011) (Initiative 1053). The first provision required that any bill containing tax increases be passed by a two-thirds majority vote of the legislature, and the second provision required that any tax bill increasing state spending above a prescribed limit be approved by the voters. The Court addressed only whether the challenges to the provisions were justiciable and whether they violated the Washington Constitution. A superior court found both provisions justiciable but that the supermajority requirement and referendum requirement both violated the Constitution. The State appealed. Upon review, the Supreme Court affirmed in part, and reversed in part. The Court affirmed the superior court's holding that one provisions were justiciable, and that justiciable provision, the supermajority requirement, violated Article II, section 22 of the state Constitution. However, the Court reversed the superior court's decision that the referendum provision was justiciable. Accordingly, the Court made no determination as to its constitutionality. View "League of Educ. Voters v. Washington" on Justia Law

This case concerned Washington Constitution article II, section 40’s refund provision. Specifically at issue is the legislature’s statutory refund program, which places one percent of fuel tax revenues into a special fund to benefit off-road vehicle (ORV), nonmotorized, and nonhighway road recreational users for fuel consumed on nonhighway roads. In 2009, the legislature appropriated a portion of this special fund for the Parks and Recreation Commission’s (Parks) general budget. The Washington Off Highway Vehicle Alliance (WOHVA), Northwest Motorcycle Association (NMA), and four individuals representing ORV users, contended that the Court of Appeals erred in holding that the appropriation was a refund within the meaning of article II, section 40. WOHVA argued that the appropriation was not sufficiently targeted to affected taxpayers to constitute a refund despite legislative findings to the contrary. Finding no error with the appellate court's analysis of the refund provision, the Supreme Court affirmed its judgment. View "Wash. Off Highway Vehicle Alliance v. Washington" on Justia Law

The Estates of Barbara J. Nelson and Sharon M. Bracken challenged the efforts of the Washington State Department of Revenue (DOR) to treat them as having engaged in a present taxable transfer of assets that were actually transferred years ago by Ms. Nelson’s and Ms. Bracken’s late husbands’ estates. DOR relied on the legislature’s adoption in 2005 of definitions from the federal estate tax regime. Upon review, the Supreme Court held that DOR exceeded its authority in enacting regulations that allowed it to treat transfers completed by William Nelson and Jim Bracken years ago as if the estates had elected to defer state estate tax on the transfers, to be paid by their wives’ estates. DOR stood on a different footing than the United States Treasury; "DOR must rely on the asserted authority of our legislature to tax transfers years after the fact absent any deferral agreement by the taxpayer." The Court reversed the trial court and directed summary judgment be entered in favor of the Estates. View "In re Estate of Bracken" on Justia Law

The Automotive United Trades Organization (AUTO) and Tower Energy Group (Tower) brought an as-applied state constitutional challenge to a tax based on the possession of petroleum as a hazardous substance. AUTO and Tower claimed that the hazardous substances tax (HST) violated article II, section 40 of the state constitution because the revenue from motor vehicle fuel was not being "placed in a special fund to be used exclusively for highway purposes." The trial court held on summary judgment that AUTO's claim was barred because it was not filed within a reasonable time under the Uniform Declaratory Judgments Act (UDJA) and that the HST does not violate article II, section 40. Upon review, the Supreme Court reversed in part and affirmed in part. The Court reversed the trial court in barring AUTO and Tower from bringing their constitutional challenge because to do so would deprive the Supreme Court of its vested power to determine the constitutionality of specific legislation. The Court affirmed the trial court, however, in granting summary judgment to the State because article II, section 40 provides that "this section shall not be construed to include revenue from general or special taxes or excises not levied primarily for highway purposes." View "Auto. United Trades Org. v. Washington" on Justia Law

The Supreme Court received a certified question from the Ninth Circuit Court of Appeals. The issue centered on whether under RCW 82.04.500 a seller may upon disclosure, recoup its business and occupation (B&O) tax by collecting a surcharge to recover gross receipts taxes in addition to its monthly service fee. The matter stems from Plaintiff-Appellant James Bowden's purchase of three cell phones and a monthly service plan for each phone at a kiosk. The phone company's monthly service fee did not include Washington's B&O tax. However, the tax was listed as a "State B and O Surcharge" on Plaintiff's monthly bills, for which he was charged various amounts for each of the phones. Upon review, the Supreme Court concluded that the phone company's monthly service fee, the sales price of its service contract, did not include the B&O surcharge. Rather, on the Agreement, the surcharge was listed separately under the "Regulatory Recovery Fee" provision described as a gross receipts surcharge. Further, the company's billing statements listed the surcharge separately like it was a sales tax, and both the sales tax and B&O fee were added on to the service fee. The Court therefore answered "no": even if disclosed under RCW 82.04-500, a seller is prohibited from recouping its B&O taxes by collecting a surcharge in addition to its monthly service fee. View "Peck v. AT&T Mobility" on Justia Law

The issue before the Supreme Court was whether the deduction in RCW 82.04.433(1) applies to reduce Business and Occupation (B&O) taxes for manufacturing activities. Plaintiff Tesoro Refining and Marketing Company owns and operates a refinery in Washington state from which it processes crude oil from Alaska, Canada and other sources. The legislature created a tax deduction for the amount of tax "derived from the sales of fuel for consumption outside the territorial waters of the United States." On its monthly tax returns from 1999-2007, Tesoro reported its fuel sales on both the "Manufacturing" B&O tax line and the "Wholesaling and Retailing" B&O tax line. After completing an audit of the refinery, Tesoro requested a partial tax refund claiming the deduction against amounts paid in B&O tax on manufacturing from 1999 through 2004. The request was denied by the Department of Revenue's (DOR) appeals division on the ground that the deduction applied only to taxes paid under the "wholesaler and retailer" B&O tax line. Tesoro appealed to the superior court; the Court of Appeals held that the company could deduct the amount of its "offshore" bunker fuel sales from its B&O taxes. Upon review, the Supreme Court reversed the Court of Appeals and reinstated the superior court's grant of summary judgment to the DOR: "the plain language of RCW 82.04.433(1) … indicates that the B&O deduction applies only to ... taxes on wholesale and retail sales, not on manufacturing."

Flight Options, LLC challenged the constitutional and statutory authority of the Department of Revenue to assess apportioned property taxes against a fleet of airplanes it managed. Specifically, Flight Options argued that its airplanes did not have a tax situs in Washington state, and that the due process clause of the federal constitution prohibited assessment of taxes on them. Upon review of the briefs submitted and the applicable legal authority, the Supreme Court rejected each of Flight Options’ contentions and affirmed the lower court decision dismissing Flight Options’ case.

Washington Imaging Services is a medical imaging company that retains Overlake Imaging Associates as an independent contractor. Overlakeâs radiologists interpret the images that Washington Imaging generates. Washington Imaging pays Overlake a percentage of net receipts pursuant to the terms of a contract between them. Though patients know that doctors interpret the images taken by Washington Imaging, they do not know that Overlakeâs doctors review their images. The issue for review by the Supreme Court centered on whether Washington Imaging must pay business and occupation (B&O) tax on the entire amount it received from patients, or whether the amounts that Washington Imaging paid Overlake qualify as âpass throughâ payments on which Washington Imaging does not owe the tax. The trial court ruled in the Department of Revenueâs favor, holding that the amounts paid to Overlake do not qualify for pass-through treatment. The Supreme Court affirmed the trial court. The Supreme Court found that âWashington Imaging does not act in an agentâs capacity to pass payments from the patients through to Overlake. All of the payments received by Washington Imaging constitute gross income. . . and the B&O tax is owed on the entire amount that Washington Imaging receives.â