Landis+GYR Midwest Inc., V. State Department Of Revenue

CourtCourt of Appeals of Washington
DecidedMarch 28, 2023
Docket56877-2
StatusPublished

This text of Landis+GYR Midwest Inc., V. State Department Of Revenue (Landis+GYR Midwest Inc., V. State Department Of Revenue) is published on Counsel Stack Legal Research, covering Court of Appeals of Washington primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Landis+GYR Midwest Inc., V. State Department Of Revenue, (Wash. Ct. App. 2023).

Opinion

NOTICE: SLIP OPINION (not the court’s final written decision)

The opinion that begins on the next page is a slip opinion. Slip opinions are the written opinions that are originally filed by the court. A slip opinion is not necessarily the court’s final written decision. Slip opinions can be changed by subsequent court orders. For example, a court may issue an order making substantive changes to a slip opinion or publishing for precedential purposes a previously “unpublished” opinion. Additionally, nonsubstantive edits (for style, grammar, citation, format, punctuation, etc.) are made before the opinions that have precedential value are published in the official reports of court decisions: the Washington Reports 2d and the Washington Appellate Reports. An opinion in the official reports replaces the slip opinion as the official opinion of the court. The slip opinion that begins on the next page is for a published opinion, and it has since been revised for publication in the printed official reports. The official text of the court’s opinion is found in the advance sheets and the bound volumes of the official reports. Also, an electronic version (intended to mirror the language found in the official reports) of the revised opinion can be found, free of charge, at this website: https://www.lexisnexis.com/clients/wareports. For more information about precedential (published) opinions, nonprecedential (unpublished) opinions, slip opinions, and the official reports, see https://www.courts.wa.gov/opinions and the information that is linked there. For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Filed Washington State Court of Appeals Division Two

March 28, 2023

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

DIVISION II LANDIS+GYR MIDWEST, INC., No. 56877-2-II

Appellant,

v.

STATE OF WASHINGTON, DEPARTMENT PUBLISHED OPINION OF REVENUE,

Respondent.

GLASGOW, C.J.— Puget Sound Energy (PSE) hired Landis+GYR Midwest, Inc. (Landis)

to collect data from PSE’s electric and natural gas meters located at each customer’s property,

convert the data into a usable form, and transmit the usable data to PSE. In 2014, the Department

of Revenue began auditing Landis. In 2019, the Department told Landis that the services Landis

provided PSE were digital automated services subject to retail sales tax and no exemption applied.

Landis paid the tax and then sued for a refund.

Landis moved for summary judgment, arguing the services it provided to PSE were data

processing services, which are exempt from the retail sales tax imposed on digital automated

services. The Department filed a cross motion for summary judgment, arguing Landis’s service

was not a data processing service because its primary purpose was collecting and transmitting

PSE’s data. The superior court denied Landis’s motion and granted the Department’s, dismissing

Landis’s lawsuit. For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

No. 56877-2-II

Landis appeals. It argues that the trial court erred by denying its summary judgment motion

and granting the Department’s. Landis contends that because the primary purpose of its service to

PSE was the extraction and conversion of certain meter data into a readable and usable format, not

merely the transmission of data, it provided a data processing service that is exempt from retail

sales tax.

We agree with Landis and reverse. Landis’s service meets the statutory definition of a data

processing service and is thus exempt from the retail sales tax. We remand for entry of summary

judgment in Landis’s favor.

FACTS

PSE hired CellNet Data Services in 1997 to perform automated readings of PSE’s electric

and natural gas meters. In 2004, the Department informed CellNet that the state of Washington did

not collect retail sales tax on meter reading services.

A. Adoption of Tax Code for Digital Services

In 2009, the legislature expanded the list of transactions subject to retail sales tax to include

the sale of digital goods, codes, and digital automated services. LAWS OF 2009, ch. 535, §

301(8)(a); see also RCW 82.04.050(8)(a), .250(1). A digital automated service is “any service

transferred electronically that uses one or more software applications.” RCW 82.04.192(3)(a). The

definition of “digital automated service” has 16 exceptions that are digital automated services but

are not subject to retail sales tax. RCW 82.04.192(3)(b)(i)-(xvi). The legislature added data

processing services to the list of exceptions in the statute in 2010. LAWS OF 2010, ch. 111, §

203(3)(b)(xv). The exception was retroactive to July 2009. Id.§ 902(1).

2 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

A data processing service is a “primarily automated service . . . where the primary object

of the service is the systematic performance of operations by the service provider on data supplied

in whole or in part by the customer to extract the required information in an appropriate form or

to convert the data to usable information.” RCW 82.04.192(3)(b)(xv) (emphasis added). The

definitional statute lists examples of data processing services, such as “check processing, image

processing, form processing, survey processing, payroll processing, claim processing, and similar

activities.” RCW 82.04.192(3)(b)(xv). The original draft of the bill that became the statute more

broadly defined a “data processing service” as a primarily automated service “that involves the

systematic performance of operations on data” to extract or convert usable information. H.B. 2620,

at 15, 61st Leg., Reg. Sess. (Wash. 2010) (emphasis added). A bill report explained the change,

stating that narrowing the definition “clarifies that data processing services are services where the

primary object . . . relates to data processing, but some incidental services may be involved.” H.B.

REP. ON SUBSTITUTE H.B. 2620, at 3, 61st Leg. Reg. Sess. (Wash. 2010).

B. Landis’s Service

Shortly after the change in the law, Landis acquired CellNet. In 2011, Landis entered a

contract with PSE to continue the automated meter reading services.

The agreement covered approximately 1.2 million electric meters and 800,000 natural gas

meters. The contract stated that Landis “shall enter and store” data from the meters in a database

and “shall provide Good Billing Reads” to PSE. Clerk’s Papers (CP) at 414. A “good billing read”

was defined as “a complete meter read that contain[ed] all requested energy and demand

information . . . delivered to PSE from a Supported Meter” within a time window that allowed PSE

to efficiently bill its customers. CP at 406. The data Landis had to provide for electric meters

3 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

included the meter number, information about the cumulative kilowatts per hour used, the date and

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