Corporate Express Office Products, Inc. v. City of Seattle, No. 53138-7-I (WA 2/28/2005)
| Decision Date | 28 February 2005 |
| Docket Number | No. 53138-7-I,53138-7-I |
| Parties | CORPORATE EXPRESS OFFICE PRODUCTS, INC., SERVICES DEPARTMENT, Respondent, v. CITY OF SEATTLE, EXECUTIVE SERVICES DEPARTMENT, Appellant. |
| Court | Washington Supreme Court |
Appeal from Superior Court of King County. Docket No: 02-2-24600-1. Judgment or order under review. Date filed: 09/26/2003. Judge signing: Hon. Charles W Mertel.
Counsel for Appellant(s), Carlton W M Seu, Seattle City Attorneys Office, PO Box 94769, Seattle, WA 98124-4769.
Cynthia Unwin Seu, Attorney at Law, 6216 Grandridge Dr SE, Port Orchard, WA 98367.
Counsel for Respondent(s), Scott M Edwards, Perkins Coie LLP, 1201 3rd Ave Ste 4800, Seattle, WA 98101-3099.
Corporate Express Office Products, Inc., sells products in Washington and maintains a regional warehouse and its main Washington sales office in Renton. During the times relevant to this lawsuit, Corporate Express also maintained a Seattle location that was regularly used by several of its sales representatives to communicate electronically with customers and with the Renton office. This lawsuit arose after the City audited Corporate Express's business and operations (B & O) tax returns for the period January 1997 through June 2001, and assessed more than $226,000 in additional tax and interest over what Corporate Express had paid initially. Corporate Express paid the additional amount and then brought this lawsuit seeking a full refund. At issue is which of two subsections of former Seattle Municipal Code (SMC) sec. 5.44.422 governed Seattle's assessment of taxes for the period covered by the tax audit. The issue turns on the nature of the facility in Seattle, i.e., whether it was an "office, store or other place of business" within the City, within the meaning of the former code section and an accompanying business tax regulation defining "office" for revenue allocation purposes. If the telecommuting facility was not an "office within the city" as defined by the allocation rules, Seattle could assess a larger tax under SMC sec. 5.44.422 A, because in that event none of the taxpayer's gross sales having a nexus with Seattle could be allocated to the Renton facility for purposes of calculating the tax owed to Seattle.
But if the facility was an "office within the city" for allocation purposes, the taxpayer could allocate a portion of its revenues to the Renton office under SMC sec. 5.44.422 C.
The trial court granted summary judgment to Corporate Express, thereby ruling as a matter of law that the taxpayer's telecommuting facility was a place of making sales using an office within the city for revenue allocation purposes. The court ordered the City to refund the additional tax that Corporate Express had paid, and entered a final judgment in favor of Corporate Express. The City appeals, arguing that the telecommuting facility was not an "office within the city" under former SMC sec. 5.44.422 C because the taxpayer did not maintain "another equivalent facility elsewhere in Washington," so that it could not properly allocate a portion of its revenues to such other facility for purposes of calculating the tax.
The City also argues that even if the trial court properly construed the applicable code subsection and business tax regulation, it erred by denying the City's post-judgment motion seeking to clarify that the summary judgment resolved only the question of which subsection of the former code provision applied, and that the taxpayer had yet to meet the remainder of its burden under current SMC sec. 5.55.140 B — that is, to establish the correct amount of the tax.
We affirm the trial court's summary judgment ruling that subsection C of the former code section applies to the audit period in question. But we reverse the order denying the City's request to clarify that the amount of tax actually due had yet to be determined, and remand for a determination of the amount of tax actually due.
Corporate Express Office Products, Inc., a Colorado-based supplier of office products, sells products in Washington and maintains a warehouse and sales office in Renton. Corporate Express also maintains a Seattle facility for the convenience of several sales representatives who regularly work from there instead of commuting through heavy traffic to the Renton office every day. When a customer telephones one of these sales representatives by dialing the Renton telephone number shown on the representative's business card, the call rings directly through to the representative's desk at the Seattle facility. The sales representatives can also communicate with customers and co-workers by way of telephone, fax, and computer, directly from the Seattle facility. The Seattle facility contains eight workstations, a conference room, five computer terminals, file cabinets, a photocopier, a fax machine, and a water cooler. From January 1, 1997, through June 30, 2001, four or five sales representatives regularly used the Seattle location to place and receive telephone calls, check voice mail, send and receive e-mail, and access the company computer system.
The majority of orders from all of Corporate Express's customers in Washington were transmitted from the customer directly to Renton — bypassing sales representatives altogether — although sales representatives could and did place orders for customers using the Seattle facility. Most orders they transmitted to Renton from the Seattle facility were sent by fax rather than by computer. All Washington orders, regardless of origin, were approved and accepted by the main office in Renton, not by the Seattle office. Decisions regarding the extension of credit were made at the Renton facility. Most products delivered in Washington were filled from the inventory in Renton. All payments were made either to the Renton office or to a lock box in Chicago, Illinois. Corporate Express asserted that the majority of its sales in Western Washington were attributable to the Renton office, for purposes of revenue allocation under former SMC 5.44.422 C.
The Seattle facility is located at 306 Westlake Avenue North, Suite 205, the same street address as shown on Corporate Express's Seattle business license. Although there is a mailbox on the premises marked with Corporate Express's name, customers are given only the Renton mailing address. And although there is a sign at the building entrance identifying Corporate Express as a tenant, sales representatives do not see customers at the Seattle facility — which is quite austere. Personal visits with customers served by the telecommuting sales representatives generally take place at the customers' places of business.
In addition to serving Corporate Express's Seattle customers, telecommuting sales representatives also serve customers that are located outside Seattle.
The telecommuting sales representatives all report to supervisors located in Renton. When company meetings or training sessions are held, they are held in Renton, and the telecommuting sales representatives must attend in person.
Seattle's Department of Executive Administration, previously known as the Executive Services Department, is the agency that administers the City's tax ordinances. The Department audited Corporate Express's B & O tax returns for the period January 1997 through June 2001. Before commencing the audit, tax auditor Rosalie Morgan sent a letter to Corporate Express informing the company of the audit, requesting access to various records, and requesting information about the Seattle business location. Prior to the audit, Corporate Express had reported $7,631,843.47 in gross receipts on its business activities in Seattle and had paid $16,408.45 of Seattle B & O tax for the period covered by the audit. The auditor concluded that four of the sales representatives who consistently used the Seattle facility had generated $10,405,491 in Seattle sales, and that other Corporate Express employees had generated $80,814,430 in Seattle sales, for a total of $91,219,920 in gross receipts that the auditor believed should be attributed to business in Seattle. Based on this, the City issued an assessment for additional taxes due of $179,714.38 plus interest of $47,071.80, for a total assessment of $226,711.18. These calculations assumed that Corporate Express did not maintain an office, store or other business facility within the City, and thus that the tax should be assessed in accordance with former SMC sec. 5.44.422 A.
Corporate Express timely paid the assessment as required by ordinance and then, as permitted by current SMC sec. 5.55.140, filed this lawsuit seeking a refund of the entire amount. Corporate Express claimed that its tax should have been calculated under former SMC sec. 45.44.422 C, which expressly permitted taxpayers who maintained separate offices in Washington, one inside and one outside the City, to allocate the gross revenues from sales to the office "where the predominant selling activity occurs." Corporate Express also asserted that the City improperly assessed the additional tax "based solely on the place of delivery," in violation of former SMC sec. 5.44.400.
The City answered that the Seattle facility was not an "office, store, or other outlet" within the meaning of former SMC sec. 5.44.422 C or Seattle Business Tax Rule 5.44.194(d) sufficient to allow for allocation of gross proceeds between the Renton and Seattle facilities; thus the tax was properly calculated under subsection .422 A rather than .422 C. And by way of affirmative defense, the City alleged that even if the Seattle facility were an "office, store, or other outlet" within the City, former SMC sec. 5.44.422 C required Corporate Express to show which sales should be allocated to which office, and that the company had failed to do this. The City asserted that since Corporate Express had not shown that it had paid "an amount of tax, penalty, and interest in excess of...
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