Puget Sound Nat. Bank v. State Dept. of Revenue

Decision Date24 February 1994
Docket NumberNo. 59444-9,59444-9
PartiesPUGET SOUND NATIONAL BANK, Respondent, v. The STATE of Washington DEPARTMENT OF REVENUE, Appellant.
CourtWashington Supreme Court
Christine O. Gregoire, Atty. Gen., Robert J. Fallis, Asst., Olympia, for appellant

Eisenhower & Carlson, Donald L. Anderson, Tacoma, for respondent.

C. James Judson on behalf of Washington Bankers Association, amicus curiae for respondent.

GUY, Justice.

The Washington State Department of Revenue appeals from a summary judgment entered by the Thurston County Superior Court which granted Puget Sound National Bank a retail sales tax refund under RCW 82.08.037. We accepted direct review and hold that Puget Sound National Bank is entitled to the refund.

BACKGROUND

Puget Sound National Bank (Bank) is a national banking association member authorized to do business in the State of Washington. As part of its normal course of business, the Bank purchases installment contracts from automobile dealers (dealers). The dealers enter into installment contracts with retail car buyers (buyers) to allow buyers to purchase an automobile over a period of time. When the dealers enter into an installment contract with a buyer, the dealers must pay to the State of Washington Department of Revenue (Department) the full amount of the sales tax due on the purchase price of the automobile. WAC 458-20-198.

                Between January 1, 1986, and December 31, 1989, the Bank purchased installment contracts on a nonrecourse basis from local automobile dealers who sold the automobiles to buyers at retail in the state of Washington.   This case involves 665 of these transactions
                

In each of these transactions, the Bank paid the dealer the balance due on the retail installment contracts, including the uncollected portion of the state sales tax. In return, the dealers assigned to the Bank all their rights in the installment contracts. After assignment, many buyers defaulted on their payments. The Bank repossessed the automobiles and usually sold them at a loss. That loss was then written off as a worthless debt for federal tax purposes.

Between January 1, 1986, and March 30, 1988, the Bank repossessed and sold 182 automobiles that were subject to the installment contracts assigned to the Bank. The income tax loss resulting from the sale of these vehicles was $484,572.05. The sales tax refund claim on the loss was $37,804.42 (tax rate of 7.8 percent). The Bank petitioned the Department for a refund of the $37,804.42 pursuant to RCW 82.08.037. The Department denied the petition.

Between April 1, 1988, and December 31, 1989, the Bank suffered losses for federal income tax purposes on an additional 483 automobiles that were repossessed and sold. The Bank declared losses totaling $1,537,350.17 from which it claims a tax refund of $119,913.31 (tax rate of 7.8 percent). 1 The combined refund, claimed and denied, totals $157,717.73.

On December 31, 1990, the Bank filed an appeal of the Department's ruling in Thurston County Superior Court. Both parties subsequently filed cross motions for summary judgment. On October 31, 1991, the trial court entered a summary judgment in favor of the Bank. The court held that the Bank was a "seller" under RCW 82.08.037 and was entitled to a refund for the sales tax paid on the worthless debts. The court awarded judgment against the Department On November 26, 1991, the Department filed a notice of appeal. The Court of Appeals certified the Department's appeal to this court. We accepted certification and affirm.

                for a total principal amount of $157,717.73.   The court also awarded to the Bank $14,358.50 for prejudgment interest, $125.00 for attorney fees, and $127.00 for allowable costs
                
ISSUE

Whether the Bank, as assignee of nonrecourse installment sales contracts, is entitled to a sales tax refund under RCW 82.08.037.

ANALYSIS

The statute permitting a sales tax refund is RCW 82.08.037, which provides:

A seller is entitled to a credit or refund for sales taxes previously paid on debts which are deductible as worthless for federal income tax purposes.

(Italics ours.). A seller is defined as "every person, including the state and its departments and institutions, making sales at retail or retail sales to a buyer or consumer". (Italics ours.) RCW 82.08.010(2). A person is defined as "any individual, receiver, administrator, executor, assignee, trustee in bankruptcy, trust, estate, firm, copartnership, joint venture, club, company ...". (Italics ours.) RCW 82.04.030. Unraveled, RCW 82.08.037 has three requirements: (1) the seller must be a person, (2) making sales at retail, and (3) entitled to a refund for sales taxes previously paid on debts which are deductible as worthless for federal income tax purposes.

The Bank is requesting a sales tax refund under RCW 82.08.037. To be entitled to a sales tax refund, the Bank must satisfy all three requirements of RCW 82.08.037. The Bank satisfies requirement one because the Bank, as assignee, is a person. The Bank satisfies requirement three because the Bank took a worthless debt deduction for federal income tax purposes relating to the installment contracts. The Bank did not, however, "make sales at retail". It is undisputed that the dealer made retail sales. In order for the Bank to satisfy requirement two, and thus be eligible for a sales tax refund the assignment of the installment contracts must satisfy the "making sales at retail" requirement. To determine whether this tax attribute is passed to the Bank in assignment, general assignment law must be applied.

A fundamental understanding of commercial law is that all contracts are assignable unless such assignment is expressly prohibited by statute or is in contravention of public policy. Schultz v. Werelius, 60 Wash.App. 450, 453, 803 P.2d 1334, review denied, 116 Wash.2d 1027, 812 P.2d 102 (1991); International Comm'l Collectors, Inc. v. Mazel Co., 48 Wash.App. 712, 716-17, 740 P.2d 363 (1987). Tax statutes are no exception.

As a general rule, contracts with the state and with municipal corporations are, in the absence of statutory limitation or restriction, assignable. The assignability of tax claims is, of course, subject to any statutory limitation or restriction upon the assignment of claims against the government, such as a restriction upon assignment before ascertainment of the amount due and its allowance by proper administrative authorities. But in the absence of express statutory provision against assignment of claims against the government, the assignability of a claim for tax refund is sustained by the weight of authority ...

(Italics ours. Footnotes omitted.) 72 Am.Jur.2d State and Local Taxation § 1076 (1974).

No Statutory Prohibition Against Assignment

RCW 82.08.037 does not expressly prohibit the assignment of a sales tax refund. The dissent argues that because "assignee" was omitted from the definition of seller while included in the definition of buyer, the Legislature intended to prohibit the assignment of a sales tax refund by a seller. The dissent's argument overlooks the inclusion of "assignee" in the definition of seller as required by RCW 82.08.010(2), 82.08.010(4), and 82.04.030. In RCW 82.08.010(2) a seller is defined as "a person". RCW 82.08.010(4) then provides that the definition of "person" for purposes of Chapter 82.08 is the definition as given in Chapter 82.04. The definition of person in Chapter 82.04 is as follows:

"Person" or "company", herein used interchangeably, means any individual, receiver, administrator, executor, assignee trustee in bankruptcy, trust, estate, firm, copartnership, joint venture, club, company, joint stock company, business trust, municipal corporation, political subdivision of the state of Washington, corporation, association, society, or any group of individuals acting as a unit, whether mutual, cooperative, fraternal, nonprofit, or otherwise and the United States or any instrumentality thereof.

(Italics ours.) RCW 82.04.030. Thus, contrary to the dissent's argument, both a seller and a buyer include an assignee although set forth in a different manner for purposes of RCW 82.08.037.

As a matter of policy, the Legislature has not prohibited the assignment of claims against the State. An illustration of a government prohibiting the assignment of claims against itself is the federal government's Anti-Assignment Act. 31 U.S.C. § 3727. The Anti-Assignment Act prohibits the assignment of any claim against the United States unless the requirements of 31 U.S.C. § 3727 are satisfied. E.g., United States v. Sinton Dairy Foods Co., 775 F.Supp. 1417 (D.Colo.1991) (assignment of a potential tax refund, which did not comply with Anti-Assignment Act, was voidable at the government's discretion). If our Legislature wished to prohibit the assignment of claims against the State, the Legislature would have enacted a state anti-assignment act. Absent an express prohibition in RCW 82.08.037 or an anti-assignment statute, the assignment of the sales tax refund is permitted if it does not violate public policy.

No Public Policy Prohibition Against Assignment

Public policy does not prohibit the assignment of a sales tax refund. The most recent case that discussed the assignability of a tax refund is Slater Corp. v. South Carolina Tax Comm'n, 280 S.C. 584, 314 S.E.2d 31 (Ct.App.1984). At issue in Slater was a tax provision that allowed a credit or refund for sales taxes erroneously, improperly or illegally assessed, collected or paid by sellers who are subject to the sales tax requirement. 280 S.C. at 586, 314 S.E.2d 31. The court held that an assignee of a seller could recover the credit or refund: "We hold that Slater, as assignee of the various sellers from whom it purchased food supplies, acquired their rights to collect refund of sales taxes erroneously, improperly or illegally assessed, collected or paid". 280 S.C. at...

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