Bi-Mor operates various business entities that advertise their prices as including all applicable sales taxes and claims that it is absorbing the tax. For accounting purposes, Bi-Mor manually calculates the applicable sales tax based on the tender paid by the buyer and remits that amount to the Department of Revenue – commonly called “backing out” the sales tax. The Department of Revenue asserted that Bi-Mor was required under former RCW 82.08.050 to pay taxes on the gross-amount received from the customer because its customer receipts did not separately state the sales tax portion of the transaction.
The Court of Appeals rejected the Department of Revenue’s argument and upheld the Board of Tax Appeals’ dismissal of the Department’s additional sales tax assessment:
- Washington courts review the Board of Tax Appeals’ legal determinations for “error of law,” which allows the court to substitute its interpretation of a statute for that of the agency.
- If a statute’s meaning or a rule’s meaning is plain and unambiguous on its face, the court will give effect to the plain meaning.
- Although former RCW 82.08.050 clearly states that the “selling price” determines the amount of sales tax due, it also states that if the seller advertises the price as including sales tax then the advertised price shall not be considered the selling price.
- The interpretive rule adopted by the Department of Revenue – that a retailer cannot exclude the sales tax from its gross receipts unless it separately states the tax in the sales invoice – imposes more tax liability than the legislature authorized and is therefore ultra vires.
The Court also declined to award Bi-Mor attorneys fees on appeal: the Department of Revenue presented “rational arguments; thus we conclude that its appeal is not wholly frivolous.”
In dissent, Judge Quinn-Brintnall agreed with the majority’s interpretation of former RCW 82.08.050 but concluded that Bi-Mor was not engaging in tax-included sales. Instead, it was offering to absorb and pay sales tax for its customers and was therefore required to pay sales tax on the gross amount received from its customers.