Olympic Tug & Barge Inc. v. Wash. State Dep't of Revenue

• Decision Date: 29 August 2011
• Docket Number: No. 65667–8–I.,65667–8–I.
• Citation: 163 Wash.App. 298,259 P.3d 338
• Court: Washington Court of Appeals
• Parties: OLYMPIC TUG & BARGE, INC., Respondent,v.WASHINGTON STATE DEPARTMENT OF REVENUE, Appellant.

163 Wash.App. 298

259 P.3d 338

OLYMPIC TUG & BARGE, INC., Respondent,

v.WASHINGTON STATE DEPARTMENT OF REVENUE, Appellant.

No. 65667–8–I.

Court of Appeals of Washington, Division 1.

Aug. 29, 2011.

Brett S. Durbin, David M. Hankins, Atty. General's Office–Revenue Div., Olympia, WA, for Appellant.Michael Barr King, Kevin Michael Sullivan, George Carl Mastrodonato, John Robert Mcdowall, Carney Badley Spellman PS, Seattle, WA, for Respondent.APPELWICK, J.

[163 Wash.App. 301] ¶ 1 The Department appeals the superior court's order reversing the Board's order in favor of the Department. The Department contends that Olympic, a bunkering service provider, is not entitled to a public utility tax deduction under former RCW 82.16.050(8) (2000). Because the bunker fuel was not a commodity being forwarded to an interstate or foreign destination, Olympic was not entitled to the deduction. We reverse the superior court and affirm the Board.

FACTS

¶ 2 Olympic Tug & Barge Inc. operates a tugboat business and provides “bunkering services,” which means it transports barges containing bunker fuel from oil refineries to ocean-going vessels anchored in the Puget Sound and pumps the fuel into the vessels' fuel hold (called a “bunker”). In an earlier audit, Olympic contended that the revenue from bunkering services was deductible for the purpose of calculating the public utility tax (PUT) under chapter 82.16 RCW. The Department of Revenue (Department) denied the deduction. Olympic filed an informal appeal and the Board of Tax Appeals (Board) permitted the PUT deduction. The Department then issued an excise tax advisory stating that it would not follow the Board's informal decision. Wash. Dep't of Revenue, Excise Tax Advisory (ETA) 2009–1S.32 (October 18, 2004), reissued as ETA 3055.2009, at 2 (Feb. 2, 2009).

¶ 3 Olympic sought the same deduction from an assessment based on its 2002 service revenue, audit period January 1, 2002 to December 31, 2002. The Department again denied the deduction. Olympic again appealed to the Board, this time requesting the formal procedure. The Board then held that Olympic was not entitled to the deduction. Olympic appealed under the Administrative Procedure Act (APA), chapter 34.05 RCW, and the superior court reversed. The Department appeals.

DISCUSSION

I. Collateral Estoppel

¶ 4 Olympic first contends that the Department is prevented from raising this issue by principles of collateral estoppel, because the Board already considered and rejected the Department's argument in the previous appeal, decided in 2001. Collateral estoppel, or issue preclusion, bars relitigation of an issue in a subsequent proceeding involving the same parties. Christensen v. Grant County Hosp. Dist. No. 1, 152 Wash.2d 299, 306, 96 P.3d 957 (2004) (citing 14A Karl B. Tegland, Washington Practice: Civil Procedure § 35.32, at 475 (1st ed. 2003)). The collateral estoppel doctrine promotes judicial economy and serves to prevent inconvenience or harassment of parties.¹ Id. Collateral estoppel may be applied to preclude only those issues that have actually been litigated and necessarily and finally determined in the earlier proceeding. Id. at 307, 96 P.3d 957. Further, the party against whom the doctrine is asserted must have had a full and fair opportunity to litigate the issue in the earlier proceeding. Id. The Department contests only whether the parties had the opportunity to appeal and whether the issue decided in the earlier proceeding was identical to the issue presented in the later proceeding.

¶ 5 The Department first argues that it did not receive a full and fair opportunity to litigate the issue because it did not have the opportunity to appeal the informal decision by the Board in 2001.² A party may not be denied the chance to litigate an issue if it was statutorily denied an opportunity to appeal. State Farm Mut. Auto. Ins. Co. v. Avery, 114 Wash.App. 299, 309, 57 P.3d 300 (2002) (citing Philip A. Trautman, Claim and Issue Preclusion in Civil Litigation in Washington, 60 Wash. L. Rev.. 805, 827 (1985); Restatement (Second) of Judgments § 28(1) & cmt. a (1982)). Here, the Department was not entitled to appeal from the informal decision of the Board, because decisions entered in an informal appeal are not subject to judicial review. WAC 456–10–010(1)(b).

[163 Wash.App. 304] ¶ 6 Olympic does not contend that the Department had the right to appeal the first decision. Instead, Olympic argues that the Department has the opportunity to convert the Board review into a formal hearing and obtain review under the APA, and therefore collateral estoppel may be applied to the informal decision, rendering it a final decision on the merits. We disagree. The opportunity to preemptively select a different procedure, one that included judicial review, does not satisfy Restatement section 28(1) as necessary to apply to collateral estoppel. It is not equivalent to providing the opportunity to seek the correction of errors in the process actually used.

¶ 7 Olympic argues that refusing to apply collateral estoppel to an informal proceeding allows the Department to relitigate the issue year after year. But, the taxpayer need only elect a formal appeal process or file a refund action in order to obtain a binding result. Also, if collateral estoppel did apply to an informal decision, the Department would need to convert every hearing to a formal hearing to preserve its ability to fully litigate the issue, increasing the time, judicial resources, and agency resources expended, as well as the cost to the taxpayer. Therefore, judicial economy is served by encouraging the use of an informal procedure where appropriate.

¶ 8 Olympic argues that collateral estoppel must be applied to a decision made in an informal appeal to prevent the Department from “nonacquiescing” to a decision; that is, not following it in subsequent cases. But, whether the Department acquiesces to the Board's decision is not relevant here. The legal question of whether collateral estoppel requires a different result in no way hinges on the practice of the Department.

¶ 9 The Department did not have the right to appeal the Board's 2001 decision. The issue was not fully and fairly litigated. Collateral estoppel is inappropriate to prevent the current litigation and Olympic fails to show that the Board's decision was clearly erroneous on these grounds. Therefore, we proceed to evaluate the merits of the Department's appeal.

II. PUT Deduction

¶ 10 Olympic seeks a deduction from the PUT under former RCW 82.16.050(8).³ Washington's PUT is a tax on gross income, subject to limited deductions and exemptions. See former RCW 82.16.020 (1996); former RCW 82.16.050. The second clause of former RCW 82.16.050(8) provided a deduction for:

[A]mounts derived from the transportation of commodities from points of origin in the state to an export elevator, wharf, dock or ship side on tidewater or navigable tributaries thereto from which such commodities are forwarded, without intervening transportation, by vessel, in their original form, to interstate or foreign destinations.The statute did not provide definitions of the terms used.

¶ 11 The Board concluded, among other reasons, that Olympic was not entitled to the deduction because the legislature did not intend that the term “commodity” to include tangible personal property that is delivered on board a ship to be consumed in the course of forwarding other commodities in interstate and foreign commerce. Appellate review is of the Board's decision, not the decision of the superior court, and judicial review of the Board's decision is limited to the record before the Board. Buechel v. Dep't of Ecology, 125 Wash.2d 196, 202, 884 P.2d 910 (1994). The appealing party bears the burden of demonstrating the invalidity of the Board's actions. Pres. Our Islands v. Shorelines Hearings Bd., 133 Wash.App. 503, 515, 137 P.3d 31 (2006).

¶ 12 The Administrative Procedure Act, chapter 34.05 RCW, governs this court's review of the Board's decision. Stuewe v. Dep't of Revenue, 98 Wash.App. 947, 949, 991 P.2d 634 (2000). A party wishing to appeal an order from the Board may do so based on nine different grounds under RCW 34.05.570(3), including (d) erroneous interpretation or application of the law. Under the clearly erroneous standard, the Board's decision may be reversed when the reviewing court is definitely and firmly convinced that a mistake has been made. Id.; Harbor Air Serv., Inc. v. Bd. of Tax Appeals, 88 Wash.2d 359, 366, 560 P.2d 1145 (1977).

¶ 13 Statutory interpretation questions are questions of law we review de novo. Dot Foods, Inc. v. Dep't of Revenue, 166 Wash.2d 912, 919, 215 P.3d 185 (2009). When construing a statute, our objective is to ascertain and carry out the legislature's intent. Lake v. Woodcreek Homeowners Ass'n, 169 Wash.2d 516, 526, 243 P.3d 1283 (2010). Statutory interpretation begins with the statute's plain meaning. Id. We discern the plain meaning from the ordinary meaning of the language at issue, the statute's context, related provisions, and the statutory scheme as a whole. Id. Even though we look to the broader statutory context, we do not add words where the legislature has not included them, and we construe statutes “ ‘such that all of the language is given effect.’ ” Id. (quoting Rest. Dev., Inc. v. Cananwill, Inc., 150 Wash.2d 674, 682, 80 P.3d 598 (2003)). If we determine that the statute is unambiguous after reviewing its plain meaning, our inquiry ends. Id. Only if the statute is ambiguous do we consider the legislative history and circumstances surrounding the statute to determine legislative intent. Id. at 527, 243 P.3d 1283. Courts also avoid interpreting a statute in a way that leads to an absurd result because we presume the legislature did not intend an absurd result.⁴ SEIU Healthcare 775NW v. Gregoire, 168 Wash.2d 593, 620, 229 P.3d 774 (2010).

¶ 14 We construe tax exemptions and deductions...