Dot Foods v. Washington Dept. of Revenue

• Decision Date: 10 September 2009
• Docket Number: No. 81022-2.,81022-2.
• Citation: 166 Wn.2d 912,215 P.3d 185
• Parties: DOT FOODS, INC., Petitioner, v. WASHINGTON DEPT. OF REVENUE, Respondent.
• Court: Washington Supreme Court

215 P.3d 185

166 Wn.2d 912

DOT FOODS, INC., Petitioner, v. WASHINGTON DEPT. OF REVENUE, Respondent.

No. 81022-2.

Supreme Court of Washington, En Banc.

Argued January 20, 2009.

Decided September 10, 2009.

Howard Mark Goodfriend, Edwards Sieh Smith & Goodfriend PS, Jacquelyn A. Beatty, Attorney at Law, Seattle, WA, for Petitioner.

Cameron Gordon Comfort, Attorney General's Office, Olympia, WA, for Respondent.

David R. Ebel, Schwabe Williamson & Wyatt, PC, Seattle, WA, Dean A. Heyl, Jeremy Tunis, Direct Selling Association, Washington, DC, for Amicus Curiae on behalf of Direct Selling Association.

Glade Kim Risenmay, John H. Ridge, Stoel Rives LLP, Seattle, WA, for Amicus Curiae on behalf of Melaleuca, Inc.

Dirk Jay Giseburt, Davis Wright Tremaine LLP, Seattle, WA, for Amicus Curiae on behalf of URM Stores, Inc.

C. JOHNSON, J.

¶ 1 This case involves a challenge to the Department of Revenue's (Department) interpretation of RCW 82.04.423, which provides a tax exemption for certain out-of-state sellers. Until 2000, the Department treated Dot Foods, Inc., an out-of-state seller, as exempt from Washington's Business and Occupation (B & O) tax. At all relevant times, Dot sold consumer and nonconsumer products through its direct seller's representative, Dot Transportation, Inc. (DTI), and some of the consumer products ultimately ended up in permanent retail establishments. In 1999, in amending WAC 458-20-246, the Department revised its interpretation of the qualifications needed for the exemption. This revision changed the Department's prior interpretation, and under the new interpretation, Dot no longer qualified for the exemption for any of its sales. Dot filed suit challenging this interpretation, and the trial court entered summary judgment in favor of the Department, which the Court of Appeals affirmed. We reverse.

FACTS

¶ 2 Dot, an Illinois corporation, sells food products to dairies, meat packers, food processors, and other food service companies in Washington. Dot contracts with its wholly owned subsidiary, DTI, to solicit the sales of Dot products in Washington. DTI sells the products to customers that either use Dot products as ingredients to make other products, which these customers later sell to permanent retail establishments (e.g., grocery stores), or they resell Dot products to other food service operators or institutions (e.g., nursing homes, schools, hospitals, and cafeterias). Over 99 percent of Dot's products are consumer products such as dry foods, sauces, and refrigerated foods. The remainder of Dot's sales come from nonconsumer products, such as cash register receipt rolls, pretzel display cabinets, straw dispensers, and chef hats.

¶ 3 For many years, Dot received a B & O tax exemption for 100 percent of its sales pursuant to RCW 82.04.423, which exempts from the tax "gross income derived from the business of making sales at wholesale or retail" if the seller meets several criteria listed in the statute. RCW 82.04.423(1). Among these criteria, the out-of-state seller must "[m]ake[] sales in this state exclusively to or through a direct seller's representative." RCW 82.04.423(1)(d). Under the statute, a "direct seller's representative" is one who buys, sells, or solicits the sale of consumer products in places other than a permanent retail establishment. RCW 82.04.423(2). Between 1997 and 2000, Dot received B & O tax-exempt status even though it sold both consumer and nonconsumer products. Also, Dot received this tax exemption during this time even though some of the products purchased from Dot were later sold to permanent retail establishments without Dot's or DTI's involvement.

¶ 4 The statutory language at issue here creates a tax exemption for an out-of-state seller which meets certain requirements, including making its sales "exclusively to or through [its] direct seller's representative." RCW 82.04.423(1)(a)-(d).

¶ 5 In relevant part, RCW 82.04.423 provides:

(1) This chapter shall not apply to any person in respect to gross income derived from the business of making sales at wholesale or retail if such person:

....

(d) Makes sales in this state exclusively to or through a direct seller's representative.

(2) For purposes of this section, the term "direct seller's representative" means a person who buys consumer products on a buy-sell basis or a deposit-commission basis for resale, by the buyer or any other person, in the home or otherwise than in a permanent retail establishment, or who sells, or solicits the sale of, consumer products in the home or otherwise than in a permanent retail establishment; and ....

(Emphasis added.)

¶ 6 In late 1999, the Department revised its interpretation of RCW 82.04.423. See WAC 458-20-246 (revised interpretation took effect December 31, 1999). This new interpretation required that, in order to qualify for the exemption, out-of-state sellers could never sell any consumer products that anyone will eventually sell in a permanent retail establishment anywhere in the chain of distribution. The Department audited Dot based on the new interpretation for the years 2000 through 2004. Because some of Dot's products eventually end up in permanent retail establishments, like grocery stores, the Department assessed a B & O tax against Dot for the tax periods during January 1, 2000 through December 31, 2003, for 100 percent of its in-state sales.

¶ 7 Dot paid the tax and filed a refund action in Thurston County Superior Court. Both sides filed motions for summary judgment. In support of summary judgment, the Department argued Dot did not qualify for the exemption because (i) Dot's sales were not exclusively consumer products and (ii) some of Dot's products eventually ended up in permanent retail establishments.¹ The trial court agreed on both grounds and entered summary judgment in favor of the Department. Dot appealed, and the Court of Appeals affirmed the trial court on the issue of requiring the exclusive sale of consumer products. On the issue of products reaching permanent retail establishments, the Court of Appeals held the Department's 2000 interpretation of the statute was reasonable—the sale of goods cannot be made to a permanent retail establishment anywhere in the chain of distribution, even if the out-of-state seller's sales through its direct seller's representative do not occur in a permanent retail establishment. The Court of Appeals held that none of Dot's sales qualify for Washington's B & O tax exemption. Dot Foods, Inc. v. Dep't of Revenue, 141 Wash.App. 874, 173 P.3d 309 (2007). Dot's petition for review was accepted at 163 Wash.2d 1052, 187 P.3d 751 (2008).²

ISSUES

¶ 8 1. Under RCW 82.04.423, does an out-of-state seller qualify for the B & O tax exemption when it sells some nonconsumer products?

¶ 9 2. If so, does such a seller qualify for the B & O tax exemption when some of its products ultimately end up in permanent retail establishments?

ANALYSIS

Issue 1

¶ 10 We review questions of statutory interpretation de novo. State v. J.P., 149 Wash.2d 444, 449, 69 P.3d 318 (2003). In reviewing a statute, we give effect to the legislature's intent, primarily derived from statutory language. Where statutory language is plain and unambiguous, we ascertain the meaning of the statute solely from its language. We read an unambiguous statute as a whole and must give effect to all of its language.

¶ 11 Although the relevant statutory provisions here do not specify whether Dot may sell consumer and nonconsumer products or exclusively consumer products, the Department argued below and to us the statutory provisions require sales of exclusively consumer products. The Court of Appeals interpreted the statute consistent with this argument. The Court of Appeals agreed that the term "exclusively" found in RCW 82.04.423(1)(d) (requiring one to sell exclusively to or through a direct seller's representative) is imputed to the type of sales referred to in RCW 82.04.423(2) (defining a direct seller's representative as one who buys consumer products). In short, the Department argued and the Court of Appeals agreed that Dot does not qualify for the tax exemption because it sold some nonconsumer products through DTI.

¶ 12 The Court of Appeals supported this interpretation of the statute because it reasoned that the Department's and Dot's interpretations of the statute were both reasonable and, as such, the statute was ambiguous. Then construing the statute as a whole, the Court of Appeals found "exclusively," a term not found in subsection (2) of RCW 82.04.423, was imputed to that section from subsection (1)(d). This conclusion means that any sale of a nonconsumer product by a direct seller to or through its direct seller's representative would disqualify the out-of-state seller from benefiting from the tax exemption. While this interpretation results in the statute being clearer, we agree with Dot's argument that the statute does not expressly support this conclusion.

¶ 13 The language of RCW 82.04.423(1) provides: "This [tax] shall not apply to any person in respect to gross income derived from the business of making sales at wholesale or retail...." (Emphasis added.) The fact that the statute describes the type (portion) of gross income that meets the exemption shows that an out-of-state seller may derive portions of its gross income from something other than the sales of consumer products, i.e., nonconsumer products. Subsection (1)(d) requires that sales in this state be made "exclusively" to or through a direct seller's representative to qualify for the exemption. RCW 82.04.423(1)(d) (emphasis added).

¶ 14 In the wording of the statute, the term "exclusively" modifies the method by which a direct seller makes its sales in Washington. Sales must be made "exclusively to or through a direct seller's representative," DTI in this case. RCW 82.04.423(1)(d) (emphasis added). "Exclusively" does not, as the Department contends and the Court of...