Gartner, Inc. v. State

• Decision Date: 13 January 2020
• Docket Number: No. 51637-3-II,51637-3-II
• Citation: 11 Wash.App.2d 765,455 P.3d 1179
• Court: Washington Court of Appeals
• Parties: GARTNER, INC., Appellant, v. State of Washington, DEPARTMENT OF REVENUE, Respondent.

11 Wash.App.2d 765

455 P.3d 1179

GARTNER, INC., Appellant,

v.State of Washington, DEPARTMENT OF REVENUE, Respondent.

No. 51637-3-II

Court of Appeals of Washington, Division 2.

Filed January 13, 2020

Scott M. Edwards, Ryan P. McBride, Daniel A. Kittle, Lane Powell PC, 1420 5th Ave. Ste. 4200, Seattle, WA, 98101-2375, for Appellant.

Charles E. Zalesky, Attorney General of Washington, Dept. of Revenue A.g. Office, Attorney at Law, 7141 Cleanwater Lane Sw, P O Box 40123, Olympia, WA, 98504-0123, for Respondent.

PUBLISHED OPINION

Cruser, J. ¶1 Gartner 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 tax.

¶2 The 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 B&O tax.

¶3 We hold 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.

FACTS

I. GARTNER RESEARCH INC.

¶4 Gartner 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.

¶5 Gartner 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.

¶6 Access 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 information.

¶7 Gartner 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.

¶8 After a 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.

¶9 Clients 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.

¶10 A 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 alone.

¶11 Each "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.

¶12 All 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.

¶13 All 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 Research Report.

¶14 Gartner 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.

II. PROCEDURAL HISTORY

¶15 DOR 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.¹

¶16 Gartner 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.

¶17 Gartner 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.

DISCUSSION

I. LEGAL PRINCIPLES

¶18 This case presents a review of an order for summary judgment involving the interpretation of an administrative statute. See Sprint Spectrum, LP v. Dep’t...