Nelson v. Appleway Chevrolet, Inc., 77985-6.

• Court: United States State Supreme Court of Washington
• Citation: 160 Wn.2d 173,157 P.3d 847
• Decision Date: 26 April 2007
• Docket Number: No. 77985-6.,77985-6.
• Parties: Herbert NELSON, on his behalf and on behalf of all others similarly situated, Respondent, v. APPLEWAY CHEVROLET, INC., a Washington corporation, d/b/a Appleway Subaru/ Volkswagen/Audi, Appleway Advertising, Appleway Audi, Appleway Automotive Group, Appleway Chevrolet Leasing, Appleway Group, Appleway Mazda, Appleway Mitsubishi, Appleway Subaru, Appleway Towing, Appleway Toyota, Appleway Volkswagen, East Trent Auto Sales, Lexus of Spokane, Opportunity Center, and TSP Distributors; and Autonation, Inc., a Delaware corporation, Petitioners.

157 P.3d 847 160 Wn.2d 173 Herbert NELSON, on his behalf and on behalf of all others similarly situated, Respondent,
v.
APPLEWAY CHEVROLET, INC., a Washington corporation, d/b/a Appleway Subaru/ Volkswagen/Audi, Appleway Advertising, Appleway Audi, Appleway Automotive Group, Appleway Chevrolet Leasing, Appleway Group, Appleway Mazda, Appleway Mitsubishi, Appleway Subaru, Appleway Towing, Appleway Toyota, Appleway Volkswagen, East Trent Auto Sales, Lexus of Spokane, Opportunity Center, and TSP Distributors; and Autonation, Inc., a Delaware corporation, Petitioners. No. 77985-6. Supreme Court of Washington, En Banc. Argued October 19, 2006. Decided April 26, 2007.

[157 P.3d 849]

Stephen Michael Rummage, Davis Wright Tremaine, Seattle, Daniel Katz, Luba Shur, Williams & Connolly, LLP, Washington, DC, for Petitioners.

Brian Scott Sheldon, Spokane, Kim D. Stephens, Max Eric Jacobs, Kimberlee L. Gunning, Tousley Brain Stephens PLLC, Seattle, for Respondent.

Michael Barr King, Talmadge Law Group PLLC, Tuckwila, Linda Blohm Clapham, Carney Badley Spellman, Seattle, for Amicus Curiae Association of Washington Business.

Jill Diane Bowman, Stoel Rives LLP, Seattle, Jeremy D. Sacks, Portland, OR, for Amicus Curiae Camp Automotive and Lithia Motors Inc.

Kimberley Hanks McGair, Portland, OR, for Amicus Curiae Charter Communication LLC.

SANDERS, J.

¶ 1 Herbert Nelson purchased a used car from Appleway Volkswagen (Appleway). But after negotiating a final purchase price, Appleway added $79.23 for business and occupation (B & O) tax. Nelson argues Appleway improperly charged this tax as an additional cost above the final price, while Appleway argues it merely disclosed and itemized an overhead expense. Appleway also argues declaratory judgment is improper because Nelson has no standing, there is no justiciable controversy, and there was no private right of action. Appleway also complains the superior court improperly certified the class because Nelson seeks both declaratory and monetary relief. The trial court held for Nelson, the Court of Appeals affirmed, as do we.

¶ 2 We hold Appleway improperly charged Nelson B & O tax on top of the final price, Nelson can seek declaratory judgment, and the superior court properly certified the class.

I

¶ 3 The facts are undisputed. On September 3, 2004, Herbert Nelson purchased a used Volkswagen Cabriolet from Appleway Volkswagen in Spokane.¹ Appleway charged several fees and taxes in addition to the agreed sale price of $16,822. This included a $79.23 charge for B & O tax.²

¶ 4 Soon after purchase, Nelson filed a class action claim requesting declaratory relief that Appleway's collection of B & O tax, and the sales tax on the B & O tax, violated Washington law.³ He also asked the court to enjoin Appleway's future collection of B & O tax from customers and prayed for monetary relief, claiming Appleway was unjustly enriched. Each party moved for summary judgment. The superior court found for Nelson, concluding Appleway's collection of B & O tax from customers violated RCW 82.04.500. It enjoined Appleway from passing through the tax to its customers and certified the class.⁴ The Court of Appeals

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affirmed. Nelson v. Appleway Chevrolet, Inc., 129 Wash.App. 927, 945, 121 P.3d 95 (2005). We granted review. 157 Wash.2d 1012, 139 P.3d 350 (2006).

II

¶ 5 First, we address whether Appleway could directly impose its B & O tax obligation on its customers. Statutory construction is a question of law and is reviewed de novo. Cockle v. Dep't of Labor & Indus., 142 Wash.2d 801, 807, 16 P.3d 583 (2001). Washington State generates substantial revenue through its B & O tax. This B & O tax is for the privilege of engaging in business and is levied against the value of products, gross proceeds of sales, or gross income of a business. RCW 82.04.220. This tax is levied directly on businesses:

It is not the intention of this chapter that the taxes herein levied upon persons engaging in business be construed as taxes upon the purchasers or customers, but that such taxes be levied upon, and collectible from, the person engaging in the business activities herein designated and that such taxes shall constitute a part of the operating overhead of such persons.

RCW 82.04.500. We apply unambiguous statutes according to their plain language. State v. Wilson, 125 Wash.2d 212, 217, 883 P.2d 320 (1994). Only ambiguous statutes will be construed. Id.

A. The plain meaning of RCW 82.04.500 prevents Appleway from directly imposing B & O tax on its customers

¶ 6 RCW 82.04.500 is not ambiguous and plainly says two things. First, the tax is not a tax on customers. Second, the tax is a tax on business and should be part of the operating overhead. "Overhead" is a well-known and well-understood term. Webster's Third New International Dictionary 1608 (2002) defines it as: "those general charges or expenses in a business which cannot be charged up as belonging exclusively to any particular part of the work or product (as rent, taxes, insurance, lighting, heating, accounting and other office expenses, and depreciation)." Overhead is simply the aggregate cost of doing business. By saying "such taxes shall constitute a part of the operating overhead," the legislature simply considers the B & O tax a cost of doing business. RCW 82.04.500.

¶ 7 Contravening the statute's plain meaning, Appleway added $79.23 in B & O tax after Appleway and Nelson negotiated a final price of $16,822.⁵ No other overhead costs — such as rent, insurance, utilities — were itemized and charged above the $16,822. Appleway treated the B & O tax as a tax on customers. Clerk's Papers (CP) at 51 (contract stating the B & O taxes "have been assessed on the negotiated sales amount"). Appleway's practice is explicitly forbidden by the statute.⁶

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¶ 8 Appleway's defense of this add-on practice misconstrues the Court of Appeals holding, mischaracterizes court decisions, and relies on unconstitutional out-of-state statutes and ambiguous Department of Revenue (DOR) notices. Appleway claims the Court of Appeals held Appleway could add on the tax as long as it did not disclose or itemize it to the customer. Pet. for Review at 1 ("[A]fter the court of appeals' decision, the Appleway dealerships remain free to pass through the B & O tax to consumers . . . but only so long as they bury the pass-through."). Appleway's reading is flawed. First, the Court of Appeals explicitly found the add-on was improper. Appleway, 129 Wash.App. at 945, 121 P.3d 95 ("[T]he plain language of the statute states that Appleway must treat the B & O tax as operating overhead and that the B & O tax cannot be treated as a tax on purchasers or customers."). Second, the Court of Appeals did not prohibit disclosure. Rather it said: "Quite simply, the seller can disclose the B & O overhead charge to the purchaser, but it must be done while setting the final purchase price. The process here involved the negotiation of a price; hence, the information should have been disclosed as part of that process." Id. Appleway may itemize the tax if it is part of the final purchase price. In other words, it is lawful for Appleway to disclose a B & O charge to Nelson during the course of negotiating a purchase price or later identify any claimed element of overhead. However, Appleway may not add a B & O charge as one of several fees and taxes after Appleway and Nelson negotiated and agreed upon a final purchase price.

¶ 9 None of Appleway's cited authority is apposite, and some cases support Nelson rather than Appleway. Appleway relies heavily on Public Utility District No. 3 of Mason County v. State, 71 Wash.2d 211, 427 P.2d 713 (1967). This case is not on point.⁷ It concerns whether Mason County Public Utility District (PUD) needed to include taxes levied on utilities customers in its gross income. This court said those taxes must be included in gross income. Appleway's argument seems to be since the court did not disallow the pass-through of utilities taxes there, it should not be concerned with the pass-through of B & O taxes here. But, in a statute entitled "Municipal taxes — May be passed on," the legislature specifically allowed PUD to levy such taxes directly on the customers. See RCW 54.28.070 ("Any such district shall have the power to add the amount of such tax to the rates or charges it makes for electricity so sold within the limits of such city or town."). Here, the legislature has said the opposite. RCW 82.04.500.⁸

¶ 10 Appleway also relies on Texaco Refining & Marketing Co. v. Commissioner of Revenue Services, 202 Conn. 583, 522 A.2d 771 (1987). This case supports Nelson rather than Appleway. This is the only case Appleway cites concerning statutory language similar to RCW 82.04.500. See Conn. Gen.Stat. § 12-599(a) ("It is not the intention of the general assembly that the tax . . . be construed as a tax upon purchasers. . . ."). But the Second Circuit Court of Appeals ruled the Connecticut statute unconstitutional in 1981 because it was preempted by federal law regulating oil prices. See Mobil Oil Corp. v. Dubno, 639 F.2d 919 (2d Cir.1981). The Texaco Refining court specifically noted this was why Texaco was "able to pass through the tax to its purchasers." Texaco Ref. & Mktg. Co., 202 Conn. at 585 n. 5, 522 A.2d 771 (citing Mobil Oil Corp. v. Dubno, 492 F.Supp. 1004 (D.Conn.1980), aff'd in part, dismissed in part by Dubno, 639 F.2d 919). But for the Second Circuit's ruling, the

157 P.3d 852

statute would have prevented Texaco from passing the tax on to its customers. Conversely, RCW 82.04.500 is still good law and therefore does prevent Appleway from passing the tax on to its customers.

B. The notice from DOR is ambiguous and does not deserve deference

¶ 11 Next Appleway relies on a notice from DOR, which Appleway says allows companies to pass the B & O tax on to its customers. This DOR notice is at worst ambiguous. In April 2002 DOR reissued a...