Dynamic Resources, V State Of Wa Department Of Revenue

Court of Appeals of Washington

Dynamic Resources, V State Of Wa Department Of Revenue

Court of Appeals of Washington·Decided April 25, 2022·No. 83281-6·Published

Opinion

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

DYNAMIC RESOURCES, INC., ) No. 83281-6-I )

Appellant, )

) DIVISION ONE

v. )

)

STATE OF WASHINGTON, ) DEPARTMENT OF REVENUE, )

) PUBLISHED OPINION

Respondent. )

)

MANN, J. — After an investigation, the Washington Department of Revenue (Department) assessed Dynamic Resources, Inc. (DRI) for unpaid retailing business and occupation (B&O) tax, retail sales tax, penalties, and interest, for the period 2006 through 2012. After an unsuccessful administrative review, DRI paid the assessments and filed suit in Thurston County Superior Court seeking a refund of the tax assessments. DRI appeals the trial court’s order granting the Department’s motion for summary judgment, as well as its order denying DRI’s motion for reconsideration. DRI argues that its business activities are not retail sales per RCW 82.04.050(2)(a) or (b) and are thus taxed as services and other activities under RCW 82.04.290. DRI raised additional arguments in its motion for reconsideration. We affirm.

FACTS

DRI is a New York based company that serves clients around the globe. DRI has performed services for retail brands such as Apple, Nike, and Levi Strauss, retailers such as Macy’s and Foot Locker, and manufacturers who produce displays for those brands. DRI’s primary service is to execute “roll-out work.” When one of DRI’s clients has a marketing campaign—such as Nike’s “Kiss My AIRS” campaign, Dr. Martens’s “Rock the Holidays” campaign, and Apple’s “World AIDS Day” project—DRI arranges and manages the installation of visual displays, window displays, branding elements, and in-store marketing promotions in the brands’ locations throughout the country.

To execute its client’s campaigns, DRI subcontracts with its network of around 300 contractors in various markets. The scope of DRI’s work varies depending on the project. A prospective client identifies the nature of the work needed, number of locations, as well as how, when, and on what timeline the work needs to be completed. DRI prepares a quote based on this information and, when its client signs the quote, it becomes the project contract. Examples of work performed include hanging wall and window graphics, installing freestanding displays and furniture, attaching vinyl decals to windows and other surfaces, wrapping items with graphics, and arranging mannequins.

After contracting, DRI receives instructions from a client and prepares a manual for its subcontractors that provides specific installation and execution details. The subcontractor then completes the work along with a checklist ensuring the project’s consistency with the client’s instructions. Following completion, DRI generally invoices its clients on a project-wide basis that incorporates work performed at several locations.

Actual completion of the work involves skilled laborers, adept in trades such as carpentry, electrical, painting, and 3M vinyl installation. The workers bring supplies like standard carpentry tools, razor blades, cleaning supplies, straight edges, stepladders, and painter’s tape. Neither DRI nor its subcontractors, however, have possession of a client’s display or promotional materials. DRI and its subcontractors also have no role in creating, designing, or deciding how to display materials, they merely execute the installation and display work per a client’s instructions.

In January 2013, the Department identified DRI as an unregistered company conducting taxable business activities in Washington. DRI had been doing business in Washington without paying B&O taxes, or collecting retail sales tax from its clients. After identifying DRI as an unregistered business, the Department requested that DRI complete a Washington Business Activities Questionnaire. In response to the questionnaires section asking DRI to describe its business activities, DRI stated that “[it] subcontract[s] construction labor to do repairs in retail stores + install window displays.” After discussions with DRI and reviewing sales figures, the Department ultimately determined that DRI was required to register in Washington.

The Department also performed an audit of DRI’s business. Based on documentation provided by DRI and discussions with its president, the Department determined that DRI “hires resident independent contractors to perform installation and repair work of window displays on its behalf.” The Department concluded that this work demanded a registration and tax reporting requirement, and issued an assessment for

unpaid retailing B&O tax and retail sales tax, penalties, and interest, for 2006 through 2012, totaling $59,184. 1 DRI sought administrative review of the Department’s assessments, which the Department upheld. 2 DRI paid the assessments and filed suit in Thurston County Superior Court seeking a tax refund of assessments paid for tax periods 2006 through 2012, and the retail taxes paid for years 2014 through 2018. 3 The parties cross moved for summary judgment on the applicability of retail sales tax to DRI’s services under both RCW 82.04.050(2)(a) and (b). The trial court granted the Department’s motion for summary judgment. DRI then unsuccessfully sought reconsideration. DRI appeals.

ANALYSIS

A. Standard of Review We review a trial court’s order granting summary judgment de novo. Int’l Marine Underwriters v. ABCD Marine, LLC, 179 Wn.2d 274, 281, 313 P.3d 395 (2013). “Summary judgment is proper only where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.” Int’l Marine Underwriters, 179 Wn.2d at 281. Here, both parties agree that there is no genuine issue of material fact. The question before us is whether DRI’s visual display work meets the definition of retail sale under RCW 82.04.050(2).

1 The statute of limitations for the audit and penalty assessment is four years. RCW

82.32.050(4). When a business is unregistered, however, the Department’s assessment period is extended to “seven years plus the current year.” WAC 458-20-230.

2 Upon reconsideration the Department granted relief to DRI for services not at issue on appeal.

3 To obtain relief in a tax refund claim pursuant to RCW 82.32.180, DRI must prove that the tax it

paid was incorrect and prove the correct amount of tax owed. Bravern Residential, II, LLC v. Dep’t of Revenue, 183 Wn. App. 769, 776, 334 P.3d 1182 (2014) (citing RCW 82.32.180).

Statutory interpretation is a question of law reviewed de novo. Dep’t of Ecology v. Campbell & Gwinn, L.L.C., 146 Wn.2d 1, 9, 43 P.2d 4 (2002). The ultimate goal of interpretation is to determine and carry out the intent of the legislature. Campbell & Gwinn, 146 Wn.2d at 9. If possible, courts “must give effect to [the] plain meaning [of a statute] as an expression of legislative intent. Campbell & Gwinn, 146 Wn.2d at 9. Courts derive plain meaning from the context of the entire act as well as any “related statutes which disclose legislative intent about the provision in question.” Campbell & Gwinn, 146 Wn.2d at 11.

This case involves a tax refund claim under RCW 82.32.180. DRI bears the burden to prove that the tax paid was incorrect and prove the correct amount owed. Bravern Residential, II, LLC v. Dep’t of Revenue, 183 Wn. App. 769, 776, 334 P.3d 1182 (2014).

B. Retail Sales Washington’s B&O tax system is “extremely broad,” imposing a tax “upon virtually all business activity carried on within the state.” Steven Klein v. Dep’t of Revenue, 183 Wn.2d 889, 896, 357 P.3d 59 (2015) (internal quotations omitted). RCW 82.04.220(1) provides:

There is levied and collected from every person that has a substantial nexus with this state a tax for the act or privilege of engaging in business activities. The tax is measured by the application of rates against value of products, gross proceeds of sales, or gross income of the business, as the case may be.

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