US TOBACCO SALES v. STATE, DEPT. OF REV.

• Decision Date: 20 August 1999
• Docket Number: No. 22676-6-II.,22676-6-II.
• Court: Washington Court of Appeals
• Parties: UNITED STATES TOBACCO SALES AND MARKETING COMPANY INC. Appellant, v. STATE of Washington, DEPARTMENT OF REVENUE, Respondent.

982 P.2d 652

96 Wash.App. 932

UNITED STATES TOBACCO SALES AND MARKETING COMPANY INC. Appellant, v. STATE of Washington, DEPARTMENT OF REVENUE, Respondent.

No. 22676-6-II.

Court of Appeals of Washington, Division 2.

August 20, 1999.

John Gerhart Hennen, Olympia, for Respondent.

Norman J. Bruns, William C. Severson, Garvey, Schubert & Barer, Seattle, for Appellant.

HOUGHTON, J.

A distributor of tobacco products appeals a trial court order denying its motion for summary judgment and granting summary judgment in favor of the Department of Revenue. The trial court ruled that the statutory measure of the tobacco products tax is the price at which the distributor, an affiliate of the manufacturer, sells tobacco products rather than the price at which it buys them from the manufacturer. We reverse and remand for further proceedings.

I. FACTS

Appellant, the United States Tobacco Sales and Marketing Company Inc. (Tobacco Sales), is a Delaware corporation that buys, markets, and resells smokeless tobacco products in the State of Washington and elsewhere.¹ Most of Tobacco Sales' customers are wholesale distributors who resell the products to retailers. Tobacco Sales exclusively purchases the tobacco products it distributes from the United States Tobacco Manufacturing Company Inc. (Tobacco Manufacturing). Tobacco Sales is Tobacco Manufacturing's only domestic customer. Both Tobacco Sales and Tobacco Manufacturing are wholly-owned subsidiaries of the United States Tobacco Company (USTC).²

Washington State imposes an excise tax on the "sale, use, consumption, handling, or distribution of all tobacco products" in the state. RCW 82.26.020(1). "Tobacco products" are all types of chewing and smoking tobacco, snuff, and cigars, but not cigarettes. RCW 82.26.010(1). The tax is known as the Other Tobacco Products tax (OTP tax). It is measured by the "wholesale sales price" of tobacco products brought into the state.³ RCW 82.26.020. The wholesale sales price is "the established price for which a manufacturer sells a tobacco product to a distributor, exclusive of any discount or other reduction." RCW 82.26.010(7).

In addition to selling tobacco products to wholesalers, Tobacco Sales gives away sample products at promotional events, such as rodeos, auto races, and fishing tournaments.⁴ Until 1996, Tobacco Sales paid the OTP tax on the free samples it distributed in Washington. Tobacco Sales' Washington customers paid the OTP tax on products for resale.

In 1996, the Washington Department of Revenue (Department) audited Tobacco Sales. The auditor determined that Tobacco Sales was the taxable "distributor" under the statute and should have been paying the OTP tax on its sales as well as its samples. In the course of the audit, Tobacco Sales inquired whether its purchase price, rather than its selling price, was the correct measure of the tax under the statute. In September 1996, the auditor informed Tobacco Sales that its purchase price was, in fact, the correct measure; thus Tobacco Sales had been overpaying the tax. Tobacco Sales revised its pricing scheme based upon this information.

In December 1996, Tobacco Sales requested a refund of the OTP tax it had overpaid on its samples in 1992.⁵ The Department denied the refund claim because the audit had not been finalized. In February 1997, in a summary of its final audit instructions, the Department advised Tobacco Sales that its original measure of the tax, its selling price, was the correct measure after all. The Department stated that although the correct tax measure was the manufacturer's selling price, "a sale by a manufacturer to a distributor who is an affiliate ... is not used in establishing the manufacturer's selling price."⁶ Therefore, the correct measure of the tax was Tobacco Sales' "selling price to distributors who are not affiliated with you." According to the Department, this is what the Legislature meant by the phrase "established price."

In April 1997, Tobacco Sales filed a lawsuit against the Department requesting judgment in the amount of allegedly overpaid OTP tax for 1992. Tobacco Sales and the Department filed cross motions for summary judgment. On October 27, 1997, the trial court denied Tobacco Sales' motion and granted the Department's motion, finding that the price Tobacco Sales paid to Tobacco Manufacturing was a discounted price within the meaning of RCW 82.26.010(7). Tobacco Sales appeals.

II. ANALYSIS

A. Standard of Review

Tobacco Sales appeals both the summary judgment in favor of the Department and the denial of its motion for summary judgment. Summary judgment is appropriate if there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law. CR 56(c). The appellate court reviews the trial court's decision de novo. Reid v. Pierce County, 136 Wash.2d 195, 201, 961 P.2d 333 (1998); Young v. Estate of Snell, 134 Wash.2d 267, 271, 948 P.2d 1291 (1997) (citing Safeco Ins. Co. of Am. v. Butler, 118 Wash.2d 383, 394-95, 823 P.2d 499 (1992)). The court must construe the facts most favorably toward the nonmoving party. Babcock v. State, 116 Wash.2d 596, 599, 809 P.2d 143 (1991) (citing Wendle v. Farrow, 102 Wash.2d 380, 383, 686 P.2d 480 (1984)). Tobacco Sales has the burden of proving that the tax it paid was incorrect and establishing the correct amount. RCW 82.32.180.

B. Wholesale Sales Price

At issue is the statutory definition of "wholesale sales price." Tobacco Sales argues that the price it pays Tobacco Manufacturing is the correct measure of the OTP tax. The Department contends that the tax should be based upon the wholesale value of tobacco products to a Washington wholesale purchaser (Tobacco Sales' selling price), because Tobacco Sales' purchase price is a "reduced price."

1. Statutory Definitions

The OTP tax is measured by the "wholesale sales price" of tobacco products. RCW 82.26.020. The "wholesale sales price" is "the established price for which a manufacturer sells a tobacco product to a distributor, exclusive of any discount or other reduction." RCW 82.26.010(7). A "manufacturer" is "a person who manufactures and sells tobacco products." RCW 86.26.010(2). A "distributor" includes: "any person engaged in the business of selling tobacco products in [Washington] who brings, or causes to be brought, into this state from without the state any tobacco products for sale."⁷ RCW 82.26.010(3)(a). The statute makes no distinction between affiliated and nonaffiliated entities. It defines "person" as "any individual... firm, copartnership, joint venture, club, company, joint stock company ... limited liability company, association, society, or any group of individuals acting as a unit."⁸ RCW 82.04.030; see also WAC 458-20-203.⁹ Under these definitions, Tobacco Manufacturing is the manufacturer¹⁰ and Tobacco Sales is the taxable distributor.¹¹

2. Statutory Interpretation

Statutory interpretation is a question of law that the appellate court reviews de novo. Monroe v. Soliz, 132 Wash.2d 414, 418, 939 P.2d 205 (1997); American Legion Post No. 32 v. City of Walla Walla, 116 Wash.2d 1, 5, 802 P.2d 784 (1991). The court's fundamental duty is to ascertain and to carry out the Legislature's intent. State v. Chester, 133 Wash.2d 15, 21, 940 P.2d 1374 (1997). Legislative intent is derived primarily from the language of the statute. State v. Michielli, 132 Wash.2d 229, 237, 937 P.2d 587 (1997). If a statute is plain and unambiguous, its meaning must be derived solely from the statutory language. Harmon v. Department of Soc. and Health Servs., 134 Wash.2d 523, 530, 951 P.2d 770 (1998) (citing State v. Mollichi, 132 Wash.2d 80, 87, 936 P.2d 408 (1997); Marquis v. City of Spokane, 130 Wash.2d 97, 107, 922 P.2d 43 (1996)). A statute is ambiguous if it is susceptible of two or more reasonable interpretations. State v. Van Woerden, 93 Wash.App. 110, 116, 967 P.2d 14 (1998) (citing State v. Sunich, 76 Wash.App. 202, 206, 884 P.2d 1 (1994)), review denied, 137 Wash.2d 1039, 980 P.2d 1286 (1999).

The OTP tax statute is not ambiguous; it uses plain language and defines key terms. Therefore, this court must determine the Legislature's intent from the words alone.¹²See Waste Management of Seattle, Inc. v. Utilities and Transp. Comm'n, 123 Wash.2d 621, 629, 869 P.2d 1034 (1994).

a. Discount or Other Reduction

In determining what a statute means, words should be ascribed their plain and ordinary meanings. North Coast Air Servs., Ltd. v. Grumman Corp., 111 Wash.2d 315, 321, 759 P.2d 405 (1988). When a statute does not define a nontechnical word, the court may look to the dictionary for guidance. State v. Myers, 133 Wash.2d 26, 33, 941 P.2d 1102 (1997) (citing State v. Pacheco, 125 Wash.2d 150, 154, 882 P.2d 183 (1994)). According to Webster's dictionary, "discount" means "an abatement or reduction made from the gross amount or value of anything"; and "a reduction from a price made to a specific customer or class of customers." WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 646 (1969). "Reduction" means "a decrease in size, amount, extent, or number." Id. at 1905. The meaning of these words relies upon comparison with an objective, fixed value, in this case, the manufacturer's "established price."

b. Established Price

Webster's dictionary defines "to establish" as "to make firm or stable: fix to prevent or check unsteadiness"; and "to place, install, or set up in a permanent or relatively enduring position." Id. at 778. A "fixed price" is "a uniform price for all customers." Id. at 861. Thus, a manufacturer's established price is a generally available, stable, fixed price, such as a list price or invoice price.¹³ Because an "established price" is available to all customers, it reflects the fair market value of the products.¹⁴ "Fair market value" is the amount a willing buyer would pay a seller who is willing but not obligated to sell. Crystal Chalets Ass'n v. Pierce County, 93 Wash.App. 70, 77, 966 P.2d 424 (1...