Weyerhaeuser Co. v. State Dept. of Revenue

• Decision Date: 21 August 1986
• Docket Number: No. 51479-8,51479-8
• Citation: 106 Wn.2d 557,723 P.2d 1141
• Court: Washington Supreme Court
• Parties: WEYERHAEUSER COMPANY, Appellant, v. STATE of Washington, DEPARTMENT OF REVENUE, Respondent.

Page 557

106 Wn.2d 557

723 P.2d 1141

WEYERHAEUSER COMPANY, Appellant, v. STATE of Washington, DEPARTMENT OF REVENUE, Respondent.

No. 51479-8.

Supreme Court of Washington,

En Banc.

Aug. 21, 1986.

Helmut Wallenfels, Law Dept.--Weyerhaeuser Co., Tacoma, for appellant.

Ken Eikenberry, Atty. Gen., Joel M. Greene, Asst. Atty. Gen., Olympia, for respondent.

BRACHTENBACH, Justice.

This case presents three excise tax issues. (1) Is a corporation which primarily conducts a forest products business but ships timber via time-chartered vessels as an incident of sale to its overseas timber customers a "private carrier" entitled to the statutory sales tax exemption on bunker fuel? (2) May the Department of Revenue impute interest to an installment contract sale of timber where the contract does not provide for interest and there is no specific statutory or regulatory authority for imputing such interest? (3) Must a corporation, which has established an Employee Stock Ownership Plan (ESOP) and accordingly taken a 1 percent ESOP federal tax credit, deduct such credit from the state pollution control facility tax credit to which qualifying entities are entitled under RCW 82.34.060?

We hold that Weyerhaeuser is entitled to the fuel tax exemption; that the Department of Revenue may not impute interest to a corporation's installment sales contracts and then tax that interest at the "service" rate; and that the 1 percent ESOP federal tax credit need not be deducted from the state pollution control facility credit.

We begin our analysis, not with the facts of this case, but with the procedural history. Since the three issues raised by the Department of Revenue's assessment are unrelated to each other, the relevant facts will be set forth with the analysis of each issue.

The Department of Revenue audited Weyerhaeuser Company for the period of July 1, 1975, to December 31, 1978. Following the audit, the Department assessed retail sales tax on corporate purchases of bunker fuel. In addition, the Department assessed additional tax on interest imputed to the corporation's installment timber sales contracts. Finally, the Department deducted Weyerhaeuser's 1 percent federal ESOP tax credit from the corporation's state pollution control facility tax credit.

Weyerhaeuser appealed these assessments to the Department's hearing examiner, who ruled in favor of the Department on all three issues. Weyerhaeuser then appealed the hearing examiner's ruling to the Board of Tax Appeals. The Board ruled in favor of Weyerhaeuser on the fuel tax issue and the ESOP issue, but sustained the Department as to the imputed interest question. Weyerhaeuser then appealed to Thurston County Superior Court pursuant to RCW 34.04.130. The Superior Court found for Weyerhaeuser on the ESOP issue only, upholding the Department on the imputed interest question and reinstating the assessment of fuel taxes. Weyerhaeuser appealed the fuel tax and imputed interest issues, and the Department appealed the ESOP question. We accepted direct review. We affirm on the ESOP question and reverse on the fuel tax and imputed interest issues.

I Fuel Tax

As part of its business, Weyerhaeuser Company sells timber to Asian customers. The contracts under which Weyerhaeuser sells its timber typically provide for Weyerhaeuser to arrange for the shipping of 15 percent of the products on vessels Weyerhaeuser procures; the purchaser is responsible for transportation for the other 85 percent.

In order to provide for shipping timber under these contracts, Weyerhaeuser acquires access to vessels by means of time-chartering. As a time-charterer, Weyerhaeuser negotiates contracts or "charter parties" with various ship owners. Under these charter parties, Weyerhaeuser obtains control of the vessels in question, but ownership and general management stay with the owner. Additionally, Weyerhaeuser, as time-charterer, pays for all fuel. This fuel, which is stored aboard ship in containers known as "bunkers", is commonly referred to as "bunker fuel".

In Washington, bunker fuel purchases are exempt from retail sales tax if the purchaser uses the fuel in conjunction with the business of operating as a private or common carrier. The statute granting the fuel tax exemption is RCW 82.08.0261. It provides, in pertinent part,

The [retail sales] tax ... shall not apply to sales of tangible personal property ... for use by the purchaser in connection with the business of operating as a private or common carrier by air, rail, or water in interstate or foreign commerce ...

The parties agreed that bunker fuel is tangible personal property and that Weyerhaeuser, as purchaser, used the fuel in question in a business capacity. They further agreed that the shipments of timber were made by water, and that these shipments to Asia represented foreign commerce. The dispute centered on whether the corporation qualified as a "carrier" for purposes of the exemption.

Weyerhaeuser cannot be a "common carrier," because Weyerhaeuser does not hold itself out to the public as ready to carry indiscriminately for all persons. See Cushing v. White, 101 Wash. 172, 172 P. 229 (1918). Thus, Weyerhaeuser must be a "private carrier" in order to obtain the exemption.

"Private carrier" is not defined in RCW Title 82. However, the Legislature empowered the Department of Revenue to promulgate rules and regulations for implementing RCW Title 82. Such rules and regulations "shall have the same force and effect as if specifically included therein ..." RCW 82.32.300.

Pursuant to the authorization of RCW 82.32.300, the Department promulgated WAC 458-20 et seq. Since we must construe the language of RCW 82.08.0261, and WAC 458-20 was promulgated to implement RCW Title 82, the definitions set forth in WAC 458-20 are controlling.

WAC 458-20-175 defines "private carrier." It states, in relevant part:

The term "private carrier" means every carrier, other than a common carrier, engaged in the business of transporting persons or property for hire.

This definition may be divided into the following three elements: (1) not a common carrier, (2) in the business of transporting persons or property, (3) for hire.

It is undisputed that Weyerhaeuser is not a common carrier; thus the first element is met. For the corporation to fall within the definition of WAC 458-20-175 and therefore within the language of RCW 82.08.0261, it must also meet the "business" and "for hire" elements.

The Department took the position that "in the business" means that a private carrier must be primarily in the business of carriage. Weyerhaeuser admittedly is not in the primary business of shipping. The definition, however, contains no requirement that "business" be the carrier's primary business.

This court, in Boeing Co. v. Department of Licensing, 103 Wash.2d 581, 693 P.2d 104 (1985), confronted a similar problem of statutory construction. In that case, the State argued that Boeing was not entitled to an aircraft fuel tax exemption because it was not a licensed distributor. Notwithstanding Boeing's unlicensed status, we found that Boeing was entitled to the exemption. "The statute does not state that licensing is a prerequisite to exemption entitlement." Boeing, at 585, 693 P.2d 104. Similarly, WAC 458-20-175 does not state that a prerequisite to private carrier status is that one must make carriage his primary business. Since carriers need not make carriage their primary business in order to be termed "private carriers", Weyerhaeuser cannot be denied the exemption simply because it engages in carriage as a nonprimary aspect of its business.

The Department also took the position that Weyerhaeuser cannot be a "private carrier" because it is not a carrier "for hire". The Department insisted that Weyerhaeuser "hires itself" under its contracts with Asian purchasers, because it is actually shipping logs which are still owned by the corporation.

In this instance, however, it is the purchaser, not Weyerhaeuser, who holds title to the logs being shipped. The contracts between Weyerhaeuser and purchaser explicitly provide for timber to be shipped either CIF (cost, insurance, and freight to be borne by seller) or C & F (cost and freight to be borne by seller, but insurance to be provided by purchaser). Regardless of whether a given shipment is to be made CIF or C & F, title passes to the purchaser as soon as the timber is delivered to the transporting vessel at its United States port. See RCW 62A.2-320, Official Comment 1 (delivery to the carrier is delivery to the buyer for purposes of risk and title). See also RCW 62A.2-320, Official Comment 16 (under the C & F term, as under the CIF term, title and risk of loss are intended to pass to the buyer on shipment). Thus, a fair reading of the contracts in question together with relevant sections of RCW 62A.2-320 compels the conclusion that at all times during the ocean voyage to the port of destination the logs being shipped by Weyerhaeuser are the property of the purchaser. Because the purchaser owns this timber and has contracted with Weyerhaeuser for carriage, the purchaser has effectively hired the corporation as a carrier.

The Department argues that to find Weyerhaeuser has been hired as a carrier is to exalt form over substance. For the proposition that substance must prevail over form, the Department relies upon Time Oil Co. v. State, 79 Wash.2d 143, 483 P.2d 628 (1971) and Chicago Bridge & Iron Co. v. Department of Rev., 98 Wash.2d 814, 659 P.2d 463, appeal dismissed, 464 U.S. 1013, 104 S.Ct. 542, 78 L.Ed.2d 718 (1983). Those cases, however, have no bearing on the present case. The substance of the shipping arrangements here is that Weyerhaeuser is hired as a carrier by purchasers to whom title and risk of loss have passed.

Because Weyerhaeuser transports logs "for hire", is "in the business" of carriage, and is "not a common carrier", the corporation falls within the "private carrier" definition of ...