Lamtec Corp. v. Department of Revenue of State

• Citation: 151 Wn. App. 451,215 P.3d 968
• Decision Date: 04 August 2009
• Docket Number: No. 37516-8-II.,37516-8-II.
• Court: Court of Appeals of Washington
• Parties: LAMTEC CORPORATION, Appellant, v. DEPARTMENT OF REVENUE OF the STATE of Washington, Respondent.

215 P.3d 968

151 Wn. App. 451

LAMTEC CORPORATION, Appellant, v. DEPARTMENT OF REVENUE OF the STATE of Washington, Respondent.

No. 37516-8-II.

Court of Appeals of Washington, Division 2.

August 4, 2009.

Philip Albert Talmadge, Talmadge/Fitzpatrick, Tukwila, WA, Jeffrey Duane Dunbar, E. Ross Farr, Ogden Murphy Wallace PLLC, Seattle, WA, for Appellant.

Peter B. Gonick, Asst. Atty. Gen. Revenue Division, Olympia, WA, for Respondent.

BRIDGEWATER, P.J.

¶ 1 Lamtec, a New Jersey corporation, appeals from a summary judgment in favor of the Washington State Department of Revenue (Department) and its imposition of business and occupation (B & O) taxes. We hold that Lamtec's Washington customers did not receive the products in New Jersey even though the products were shipped free on board (F.O.B.) Flanders, New Jersey¹ because the common carriers had no authority to accept, reject, or inspect on behalf of the Washington customers. We also hold that Lamtec's activities in Washington establish a nexus for B & O tax purposes, even though they do not have an office in the state and do no direct sales, because it visited customers to establish and maintain their market. We affirm.

FACTS

¶ 2 Lamtec is a New Jersey corporation that manufactures vapor barriers and insulation facings. It manufactures its products, including insulation rolls, duct wrap, duct board, and pipe insulation, at its Flanders, New Jersey headquarters. Lamtec sells these products wholesale to customers throughout the country, primarily by telephone orders that customers place to its headquarters in New Jersey. It employs approximately 120 employees in New Jersey and one employee in Ohio.

¶ 3 Lamtec does not have any employees, property, or inventory in Washington. Rather, it ships its wholesale products from its New Jersey manufacturing plant to its Washington customers. The terms are F.O.B. Flanders, New Jersey, using a common carrier, with the title passing to the Washington customer at the time of shipment. The Washington customers bear the risk of loss and are responsible for the cost of shipment. There is no evidence that Lamtec's Washington customers or the common carrier inspects the products prior to shipment from New Jersey to Washington. Lamtec maintains, however, that its Washington customers inspect its manufacturing plant to ensure Lamtec's products meet their needs.

¶ 4 In an effort to maintain its existing customers and encourage continued business, Lamtec employees visit, at most, 12 longstanding Washington customers. During 1997 through 2003, the tax period at issue here, three Lamtec employees each visited existing Washington customers approximately two to three times per year. These employees held titles such as "sales manager;" "vice president of sales and marketing"; and generally, "sales representatives." CP at 297, 334, 370.

¶ 5 Although Lamtec maintains that these employees neither solicited nor accepted individual orders during their visits to Washington, it admits that its employees engaged in efforts to maintain Lamtec's Washington market. During visits to the Washington customers, Lamtec employees provided information, listened to concerns about and answered questions concerning Lamtec products, participated in telephone calls that the customers placed to Lamtec's technical and customer service departments in New Jersey, fielded questions concerning potential price increases and new products, and maintained general client relations.

¶ 6 In 2004, the Department contacted Lamtec in regard to its wholesale sales to Washington. Subsequently, the Department concluded that Lamtec's sales activities between 1997 and June 30, 2004, were subject to the State's taxing authority. Accordingly, the Department assessed a B & O tax on Lamtec's wholesale sales activities in Washington for 1997 through June 30, 2004. During this time, Lamtec maintained sales between $1.1 million and $1.4 million in Washington. The Department determined that Lamtec owed $45,599.76 in back taxes, $11,399.96 in delinquent penalties, and $14,556.40 in assessment interest and penalties. The total amount that Lamtec owed was $71,566.12.

¶ 7 Lamtec protested and appealed the assessment to the Department Appeals Board. The Board affirmed the assessment. Lamtec then paid the assessment and filed a refund claim in Thurston County Superior Court.² On cross-motions for summary judgment, the superior court granted summary dismissal in the Department's favor. Lamtec now appeals.

ANALYSIS

I. Standard of Review

¶ 8 We review summary judgment orders de novo, engaging in the same inquiry as the trial court and viewing the facts and inferences in the light most favorable to the non-moving party. Berrocal v. Fernandez, 155 Wash.2d 585, 590, 121 P.3d 82 (2005). Summary judgment is proper only when there are no genuine issues as to any material fact and the moving party is entitled to judgment as a matter of law. CR 56(c); Berrocal, 155 Wash.2d at 590, 121 P.3d 82. Here, Lamtec agrees that there are no genuine issues of material fact. But it contends that the trial court should have granted summary judgment in its favor.

¶ 9 Lamtec makes both a statutory argument and a constitutional argument. It contends that under the Department's rules set forth in WAC 458-20-193(7), Washington's B & O tax does not apply to its wholesale sales to Washington customers. Lamtec also contends that the Department's imposition of B & O taxes on it offends the commerce clause of the United States Constitution. Alternatively, Lamtec argues that it is exempt from B & O taxes because its Washington activities were dissociated from its Washington sales. Lamtec's arguments lack merit.

II. B & O Tax

¶ 10 A B & O tax is an excise tax that a jurisdiction imposes for "`the privilege of doing business'" in that particular jurisdiction. Ford Motor Co. v. City of Seattle, 160 Wash.2d 32, 39, 156 P.3d 185 (2007) (quoting 1B Kelly Kunsch et al., Washington Practice: Methods of Practice § 72.7, at 452 (1997)), cert. denied, ___ U.S. ___, 128 S.Ct. 1224, 170 L.Ed.2d 61 (2008); RCW 82.04.220.³ In adopting Washington's B & O tax scheme, "the legislature intended to impose the business and occupation tax upon virtually all business activities carried on within the state ... and to leave practically no business and commerce free of ... tax." Simpson Inv. Co. v. Dep't of Revenue, 141 Wash.2d 139, 149, 3 P.3d 741 (2000) (internal quotations omitted). Indeed, RCW 82.04.270 authorizes the state to impose the B & O tax "[u]pon every person engaging within this state in the business of making sales at wholesale." RCW 82.04.270.

¶ 11 The Department has promulgated specific rules to address circumstances under which it applies the B & O tax to interstate sales of tangible property. See WAC 458-20-193(1).⁴ One such circumstance is when goods originating outside of Washington are received by a purchaser in Washington and the out-of-state seller has a nexus with Washington. WAC 458-20-193(7).⁵ Here, Lamtec maintains that both elements are missing: It did not have a nexus with Washington, nor did its customers receive Lamtec goods in Washington.

A. Receipt of Goods

¶ 12 Lamtec contends that its Washington customers received its goods in New Jersey and not in Washington because it ships the goods F.O.B. Flanders, New Jersey. This reasoning lacks merit in the context of B & O taxes.

¶ 13 Lamtec cites several cases in which courts have determined that the parties' commercial contract established where, for tax purposes, the sale is made. See, e.g., McLeod v. J.E. Dilworth Co., 322 U.S. 327, 64 S.Ct. 1023, 88 L.Ed. 1304 (1944); McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33, 60 S.Ct. 388, 84 L.Ed. 565 (1940); Weyerhaeuser Co. v. Dep't of Revenue, 106 Wash.2d 557, 723 P.2d 1141 (1986). But these cases are not relevant to the issue here because they address the propriety of state and local sales and use taxes rather than B & O taxes. See Ford Motor, 160 Wash.2d at 44, 156 P.3d 185.

¶ 14 In McLeod, for example, Arkansas sought to impose a sales tax on a sale completed in Tennessee but delivered in Arkansas. McLeod, 322 U.S. at 328, 64 S.Ct. 1023. The United States Supreme Court held that Arkansas could not apply a sales tax to personal property consummated outside the state. McLeod, 322 U.S. at 331, 64 S.Ct. 1023. In rendering its decision, the McLeod court specifically distinguished a sales tax from other types of taxes, such as, use taxes. McLeod, 322 U.S. at 330-32, 64 S.Ct. 1023. Likewise, the issue in McGoldrick involved a sales tax. McGoldrick, 309 U.S. at 41, 60 S.Ct. 388. There, the Supreme Court upheld the imposition of a sales tax on transactions made by a Pennsylvania corporation that maintained its sales office in New York City, took its contracts in New York City, and made actual deliveries in New York City. McGoldrick, 309 U.S. at 44, 60 S.Ct. 388. The same is true of Weyerhaeuser, where the issues involved the Department's imposition of a retail sales tax on Weyerhaeuser. Weyerhaeuser, 106 Wash.2d at 558-59, 723 P.2d 1141.

¶ 15 Lamtec's reliance on these cases is unfounded because sales tax is inherently different from B & O tax. See Ford Motor, 160 Wash.2d at 44, 156 P.3d 185. In Ford Motor, the Washington Supreme Court emphasized this inherent difference:

Looking at the place of sale is proper in the sales tax context because the incident of tax in that situation is the individual transaction. Such is not the case where a B & O tax is involved because, as we have observed above, the B & O tax is imposed upon activities associated with the privilege of doing business in the taxing jurisdiction.

Ford Motor, 160 Wash.2d at 44, 156 P.3d 185. Not only is this language instructive, but the context of the Ford Motor case is instructive. Ford challenged the imposition of B & O taxes by the cities of Seattle and Tacoma on wholesale sales by Ford automotive dealers in those cities. Ford Motor, 160...