Richard v. Wash. Dep't of Revenue

Decision Date10 February 2011
Docket NumberNo. 83426–1.,83426–1.
Citation171 Wash.2d 1,248 P.3d 504
PartiesRichard and Annette BOWIE d/b/a Val–Pak of Western Washington, et al., Petitioners,v.WASHINGTON DEPARTMENT OF REVENUE, Respondent.
CourtWashington Supreme Court

OPINION TEXT STARTS HERE

Scott M. Edwards, Lane Powell PC, Seattle, WA, for Petitioners.Heidi A. Irvin, Donald F. Cofer, Attorney General's Office, Olympia, WA, for Respondent.J.M. JOHNSON, J.

[171 Wash.2d 5] ¶ 1 Petitioners Richard and Annette Bowie, d/b/a Val–Pak of Western Washington et al. comprise eight franchisees of Val–Pak Direct Marketing Systems Inc. (VPDMS), a Delaware corporation, with its principal place of business in Largo, Florida. Petitioners solicit advertisements and perform tasks related to their ultimate inclusion in blue “Val–Pak Envelopes,” which are distributed in Western Washington by VPDMS.

¶ 2 Petitioners are subject to Washington's business and occupation (B & O) tax statute, chapter 82.04 RCW, but contest the applicable tax rate during the period of 19982006. If Val–Pak Envelopes qualify as a “periodical or magazine” as defined in RCW 82.04.280,1 the applicable tax rate would be 0.484 percent. Otherwise, the applicable tax rate is 1.5 percent under the “catchall” rate of RCW 82.04.290(2) 2 because petitioners' business activities do not fall within a specific classification listed in chapter 82.04 RCW. Petitioners do not claim or argue that Val–Pak Envelopes are newspapers.

¶ 3 Because Val–Pak Envelopes are not “periodicals or magazines,” and because petitioners are not engaged in the business of “printing, and of publishing,” we find that petitioners' business is taxable under the general, higher rate of RCW 82.04.290(2) and not under RCW 82.04.280. We reverse the Court of Appeals and affirm the trial court's grant of summary judgment to the Washington Department of Revenue (Department).

Facts and Procedural History

¶ 4 Petitioners entered into franchise agreements with VPDMS at various points in time prior to January 1998, the beginning of the tax refund period in question.3 The franchise agreement states that VPDMS “is engaged in the business of publishing and distributing by direct mail promotional literature and packages known as VAL–PAK Envelopes.” Clerk's Papers (CP) at 227. Petitioners, on the other hand, have “the right and license to sell advertising inserts or other advertising products offered by [VPDMS] to be placed in VAL–PAK Envelopes to be distributed solely within the [relevant] Territory 4....” Id. at 229.

¶ 5 Petitioners have the exclusive right and license “to order Mailings of VAL–PAK Envelopes distributed into the Territory, and to approve each Advertising Insert which [VPDMS] ... proposes to place in any VAL–PAK Envelope to be mailed within the Territory.” Id. at 229–30. The franchise agreement, however, does not include “any right on the part of FRANCHISEE to itself print, publish or distribute VAL–PAK Envelopes or Advertising Inserts bearing the Marks or to cause any third party to do any of the foregoing....” Id. at 230. In fact, the petitioners are expressly prohibited from engaging in such activities.

¶ 6 The franchise agreement states that VPDMS is the sole publisher and distributor of Val–Pak Envelopes and that VPDMS shall have final approval over the form and content of each item to be included in a Val–Pak Envelope and shall have the sole discretion to determine the appearance and style of Val–Pak Envelopes.

¶ 7 The legal dispute we resolve here began with a letter sent to the Department on October 14, 2002, by a lawyer representing Val–Pak of Western Washington. The letter requested a ruling on the appropriate B & O tax classification for income received from Val–Pak advertising.

¶ 8 The Department responded by ruling that “advertising income received by publishers of magazines and periodicals is also taxed at the printing and publishing classification rate [stated in RCW 82.04.280] but noted that a question remained concerning whether the Val–Pak Envelopes were periodicals “issued regularly at stated intervals.” CP at 40 (emphasis added). For a publication to be considered a periodical or magazine, the Department ruled that “it would need to have a place in the publication where the issue interval is stated.” Id.

¶ 9 Seeking to demonstrate that Val–Pak Envelopes were periodicals, David and Annette Bowie of Val–Pak of Western Washington provided a mailing distribution schedule to the Department. The Department responded on December 4, 2002, by stating that the Val–Pak Envelopes did in fact meet the definition of “periodical” under RCW 82.04.280: it ruled that the statute does not require the intervals to be “stated on the publication for it to meet the definition of a magazine or periodical.” Id. at 42. The petitioners filed refund claims with the Department in response to the clarification.

¶ 10 On March 12, 2003, however, the Department rescinded the letter of December 4, 2002, in another letter, finding that the Val–Pak Envelopes are not periodicals but are “advertising circulars.” 5 Id. at 44–45. Val–Pak Envelopes, therefore, were taxable under RCW 82.04.290(2) and not under RCW 82.04.280. The rescission was based in pertinent part on the Department's tax ruling, Determination No. 88–10, 4 WTD 437 (1987), which had found a taxpayer was not taxable under RCW 82.04.280 because the taxpayer only arranged for the printing of coupons and flyers and their distribution by mail, with the actual printing and mailing provided by a third party. The Department ruled that petitioners were providing the same service as the taxpayer in the determination.

[171 Wash.2d 9] ¶ 11 Petitioners filed an appeal with the Department's appeals division on April 11, 2003, requesting that the rescission letter be reversed. The request was denied on May 29, 2003. On December 28, 2005, the appeals division issued Final Executive Level Determination No. 05–0217E (Determination), which found the petitioners' businesses to be properly taxable under RCW 82.04.290(2). The Determination held that [b]ecause Taxpayers do not print the envelopes, but merely publishes them, the envelopes must qualify as a ‘periodical or magazine’ in order for the printing and publishing B & O tax classification to apply.” CP at 279. Noting that [n]othing in the title [of the session law adopted by the legislature] 6 suggests that “periodical” or “magazine” was intended to include advertising coupons stuffed into an envelope,” the Determination concluded that the Val–Pak Envelopes are not printed publications. Id. at 280. Petitioners filed suit in Thurston County Superior Court.

¶ 12 On cross motions for summary judgment, the trial court ruled in favor of the Department, holding that petitioners were not the publishers of Val–Pak Envelopes and that Val–Pak Envelopes were not “periodicals or magazines” under RCW 82.04.280. Judge Hicks ruled, “[W]hen looking at the overall legislative intent, I just can't bring myself to say that this

[ (Val–Pak Envelopes)

] is what the legislature meant by a periodical or magazine.” Report of Proceedings at 45.

¶ 13 On appeal, however, the Court of Appeals held that the “coupon mailings fit, at least in part, within the definition of ‘periodical’ or ‘magazine’ because the mailings are printed pieces of paper comprising a ‘printed publication.’ Bowie v. Dep't of Revenue, 150 Wash.App. 17, 23–24, 206 P.3d 675 (2009).

¶ 14 Nevertheless, the Court of Appeals noted that it was unclear whether Val–Pak Envelopes were issued ‘regularly at stated intervals at least once every three months' as required by RCW 82.04.280. Bowie, 150 Wash.App. at 23, 206 P.3d 675 (quoting RCW 82.04.280). The Court of Appeals, therefore, held that the term “stated interval” required taxpayers seeking the benefit of RCW 82.04.280 to “provide the intended audience with its anticipated mailing or publication interval.” Id. at 23–24, 206 P.3d 675. The Court of Appeals reversed the trial court and remanded the case for a determination whether petitioners' mailing distribution schedules were in fact readily available to recipients of the Val–Pak Envelopes. Id. at 24, 206 P.3d 675.

¶ 15 The Court of Appeals also stated that it did not reach the issue of whether petitioners ‘engage[d] within this state in the business of ... [p]rinting and of publishing’ Val–Pak Envelopes. Id. at 24 n. 9, 206 P.3d 675 (quoting RCW 82.04.280). Instead, it surmised that “it appears that engaging in the business of publishing should encompass more than simply being the designated publisher of printed matter.” (citing Ford Motor Co. v. City of Seattle, 160 Wash.2d 32, 156 P.3d 185 (2007)). Petitioners sought review.

¶ 16 We granted review of the Court of Appeals' interpretation. Bowie v. Dep't of Revenue, 167 Wash.2d 1009, 222 P.3d 800 (2009).

Analysis

¶ 17 Statutory interpretation is a question of law reviewed de novo. HomeStreet, Inc. v. Dep't of Revenue, 166 Wash.2d 444, 451, 210 P.3d 297 (2009) (citing City of Seattle v. Burlington N. R.R., 145 Wash.2d 661, 665, 41 P.3d 1169 (2002)). The primary objective of any statutory construction inquiry is ‘to ascertain and carry out the intent of the Legislature.’ HomeStreet, 166 Wash.2d at 451, 210 P.3d 297 (quoting Rozner v. City of Bellevue, 116 Wash.2d 342, 347, 804 P.2d 24 (1991)). Where statutory language is plain and unambiguous, a statute's meaning must be derived from the wording of the statute itself. Human Rights Comm'n v. Cheney Sch. Dist. No. 30, 97 Wash.2d 118, 121, 641 P.2d 163 (1982). Accordingly, our analysis begins with determining whether Val–Pak Envelopes are “periodicals or magazines.”

A. Val–Pak Envelopes Are Not “periodicals or magazines”

¶ 18 Former RCW 82.04.280 (1998) defines “periodical or magazine” as “a printed publication, other than a newspaper, issued regularly at stated intervals at least once every three months, including any supplement or special edition of the publication.”

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