A recent Washington Supreme Court case illustrates the extent to which the increasing convolutions of statutes and case law often lead to absurd results. In Peck v. AT&T Mobility, 174 Wn.2d 333 (2012) the Washington Supreme Court grappled with a question of statutory interpretation which only existed because of its own earlier misreading of a statue to mean more than the statute says. Rather than resort to a straightforward and reasonable interpretation of the statute in question, the court in Peck only entangled its reasoning further to arrive at an illogical result even further detached from the language of the statute than the precedents on which the court relied.
In Peck the court responded to a certified question from the Ninth Circuit Court of Appeals, Peck v. AT&T Mobility, 632 F.3d 1123 (9th Cir. 2011), asking if:
Under RCW 82.04.500, may a seller recoup its B&O taxes where, prior to the sale of a monthly service contract, the seller discloses that in addition to the monthly service fee, it collects a surcharge to cover gross receipts taxes?
RCW 82.04.220(1), the statute in question, states that:
It is not the intention of this chapter that the taxes herein levied upon persons engaging in business [including B&O taxes] be construed as taxes upon purchasers or customers, but that such taxes shall be levied upon, and collectible from, the person engaging in the business activities herein designated and that such taxes shall constitute a part of the operating overhead of such persons.
Washington’s B&O tax is a gross receipts tax on business income. The issue in Peck was whether a seller could explicitly add the amount of its B&O tax attributable to a specific sale of services to its charge for such services, in this case cellular phone service, where the written sales agreement specifically stated that the seller could recover that amount in addition to its monthly service charge. The court in Peck acknowledged that the statute permits sellers to include the B&O tax attributable to any specific sale of goods or services to the price or charge for such services as a part of the seller’s total overhead if the amount of overhead included in the cost for B&O tax was not explicitly disclosed to the purchaser. Nonetheless, Peck held that the seller violates the statute and cannot legally recover the amount of B&O tax attributable to each sale, despite a written agreement permitting such a charge, where the tax is explicitly added to the base price of the transaction.
In short, the seller can always recover the amount of B&O tax which it includes as an undisclosed portion of the selling price but, as Peck demonstrates, risks litigation and the loss of B&O tax which is explicitly disclosed to the purchaser. This is an unnecessary stretching of the statute’s language to reach an ultimately incoherent and illogical result.
Simply read, RCW 82.04.220(1) just means what it says: i.e., that only the selling business is legally responsible for paying B&O tax even though, the statute recognizes, the customer will usually pay the seller’s B&O tax attributable to each sale just as the customer generally contributes to the payment of all of a seller’s other overhead with each sale.
The distinction between the sales tax and the B&O tax is not who ultimately pays the cost of the tax but instead who is legally liable for payment of the tax. In the case of the sales tax it is the buyer or customer who is legally responsible for payment even though the seller may be legally obligated to collect that tax. The seller or business is legally responsible for payment of the B&O tax.
In reaching its conclusion that AT&T’s explicit charge for B&O tax on its monthly statements was legally impermissible the court reaffirmed its rationale and holding in Nelson v. Appleway Chevrolet, Inc., 160 Wn.2d 173, 157 P.3d 847 (2007) holding that a seller could properly include the anticipated amount of B&O tax as an explicitly disclosed item during negotiations before the parties established a final selling price but could not explicitly add that tax as a charge additional to the sale price, even if the parties agreed during their negotiations to such an additional charge in principle before the buyer accepted the price and terms of sale.
The Peck court distinguished its reasoning in Nelson invalidating the B&O charge in that case from the Court of Appeals’ logic and holding in Johnson v. Camp Automotive, Inc., 148 Wn. App. 181, 199 P.3d 491 (2009) where the parties negotiated the amount of B&O tax in arriving at the final sales price including the amount of that tax. Logically this is a distinction without a difference which bears no relationship to the language of RCW 82.04.220(1).
In the end, the opinion and holding in Peck suggests a court caught in the web of its own superfluous illogic wholly detached from the statutory language it is ostensibly applying. That said, the only safe response to its holding is to add the cost of B&O tax attributable to any sale without any disclosure of that amount in the transaction documents. Any explicit statement on the transaction documents concerning the inclusion of the cost of B&O tax risks entanglement in the same web of litigation which has ensnared AT&T in Peck for the past several years through the maze of both state and federal courts.
© 07/12/2012 Lawrence B. Hunt of Hunt & Associates, P.C. All rights reserved.