Department of Revenue v. Bi-Mor, Inc.

Johanson, A.C.J.

¶1 We are asked to decide if the Department of Revenue properly assessed retail sales tax on the gross amount of a tax-included sale under former RCW 82.08.050 (2001).1 We hold that the Department of Revenue (Department) is unambiguously prohibited from using gross receipts as the basis for calculating the retail sales tax owed from a tax-included sale. We agree with the superior court and affirm the Board of Tax Appeals’ dismissal of the Department’s additional sales tax assessment based on the statute’s plain language.

FACTS

¶2 Bi-Mor Inc., doing business as “Stupid Prices,” and Furniture Outlet LLC (collectively Bi-Mor) are affiliated business entities operating several Washington retail stores. Administrative Record (AR) at 197-98. Bi-Mor’s business model advertises that its prices include all applicable sales taxes or that it is absorbing the sales tax (i.e., “Always No Tax”). AR at 198, 281. For accounting purposes, Bi-Mor manually calculates the applicable sales taxes based on the tender paid by the buyer and remits that amount to the Department of Revenue (Department). To calculate the tax owed to the Department, Bi-Mor deducts an amount for tax from the gross sale (commonly called “backing out” the sales tax) rather than adding tax to the customer’s tendered sale. AR at 679.

¶3 The Department audited Bi-Mor, examining sales invoices or receipts from January 2003 through March *2012006. The Department found that some of Bi-Mor’s receipts failed to separate retail sales tax from the selling price. Therefore, the Department contends that under former RCW 82.08.050, Bi-Mor must pay taxes on the gross amount received from the customer. Because Bi-Mor had paid taxes based on the “backing-out” method, the Department found that Bi-Mor had underpaid taxes. The Department therefore assessed Bi-Mor additional taxes.

¶4 Bi-Mor appealed the tax assessment to the Department’s appeals division, which affirmed. Next, Bi-Mor appealed the tax assessment to the Board of Tax Appeals (Board) and both parties moved for summary judgment. Bi-Mor did not contest that during the audit period, most of their customer receipts did not separately state the sales tax portion; rather, Bi-Mor argued that the plain language of former RCW 82.08.050 prevented the Department from assessing additional tax based on gross sales receipts. On summary judgment, the Board reversed the Department’s appeals division and dismissed the tax assessment. The superior court affirmed the Board’s dismissal order. The Department appeals.

ANALYSIS

¶5 The Department argues that in a tax-included sale, a retailer cannot exclude the sales tax from its gross receipts unless the retailer separately states the applicable sales tax in the sales invoice. Bi-Mor responds that because former RCW 82.08.050’s plain language prohibits the Department from considering the advertised price to be the selling price in an advertised “tax included” sale, the Department may not assess additional taxes despite Bi-Mor’s failure to state the applicable sales tax separately in the sales invoice. Bi-Mor is correct.

I. Standard of Review

¶6 “In reviewing a superior court’s final order on review of a Board decision, [we apply] the standards of the *202Administrative Procedure Act [(APA)2] directly to the record before the agency, sitting in the same position as the superior court.” Honesty in Envtl. Analysis & Legislation (HEAL) v. Cent. Puget Sound Growth Mgmt. Hearings Bd., 96 Wn. App. 522, 526, 979 P.2d 864 (1999). We review the Board’s legal determinations using the APA’s “error of law” standard, which allows us to substitute our view of the law for that of the Board. Verizon Nw., Inc. v. Emp’t Sec. Dep’t, 164 Wn.2d 909, 915, 194 P.3d 255 (2008); see RCW 34.05-.570(3)(d). Where the original administrative decision was on summary judgment, we overlay the APA “error of law” standard of review with the summary judgment standard and review an agency’s interpretation or application of the law de novo while viewing the facts in the light most favorable to the nonmoving party. Verizon, 164 Wn.2d at 916. We review an agency’s interpretation or application of the law de novo. HEAL, 96 Wn. App. at 526.

¶7 If the statute is ambiguous, we give substantial weight to an agency’s interpretation of the law within its expertise. Dep’t of Labor & Indus. v. Granger, 159 Wn.2d 752, 764, 153 P.3d 839 (2007); Port of Seattle v. Pollution Control Hearings Bd., 151 Wn.2d 568, 593, 90 P.3d 659 (2004). Because the Department is the agency designated by the legislature to adopt interpretive rules for Washington’s tax laws, we give the Department’s interpretation of ambiguous statutes great weight. RCW 82.01.060; RCW 82.32.300; Port of Seattle, 151 Wn.2d at 593. But “deference to an agency is inappropriate where the agency’s interpretation conflicts with a statutory mandate.” Granger, 159 Wn.2d at 764. “ ‘[R]ules that are inconsistent with the statutes they implement are invalid.’ ” Granger, 159 Wn.2d at 764 (alteration in original) (quoting Bostain v. Food Express, Inc., 159 Wn.2d 700, 715, 153 P.3d 846, cert. denied, 552 U.S. 1040 (2007)).

¶8 If a statute’s meaning or a rule’s meaning is plain and unambiguous on its face, then we give effect to *203that plain meaning. Overlake Hosp. Ass’n v. Dep’t of Health, 170 Wn.2d 43, 52, 239 P.3d 1095 (2010). If a statute is ambiguous, we may resort to statutory construction, legislative history, and relevant case law in order to resolve the ambiguity. Overlake Hosp., 170 Wn.2d at 52. Only ambiguous statutes require judicial construction; statutes are" ‘not ambiguous simply because different interpretations are conceivable.’ ” Densley v. Dep’t of Ret. Sys., 162 Wn.2d 210, 221, 173 P.3d 885 (2007) (quoting State v. Keller, 143 Wn.2d 267, 276, 19 P.3d 1030 (2001), cert. denied, 534 U.S. 1130 (2002)). We read a regulatory term within the context of the regulatory and statutory scheme as a whole, not in isolation. Overlake Hosp., 170 Wn.2d at 52. We do not construe a regulation in a manner that is strained or leads to absurd results. Overlake Hosp., 170 Wn.2d at 52. Our paramount concern is to ensure that we interpret the regulation in a manner that is consistent with the statute’s underlying policy. Overlake Hosp., 170 Wn.2d at 52.

II. Statutory Provisions

¶9 The Department argues that in order to give effect to legislative intent, we must read the relevant statute together with related statutes, including the statutory definition of “selling price.” Br. of Appellant at 14-15. Bi-Mor responds that former RCW 82.08.050’s plain language prohibits the Department from considering the advertised price to be the selling price in an advertised “tax-included” sale. Br. of Resp’t at 6-7. Bi-Mor is correct.

A. Former RCW 82.08.050

¶10 In Washington, the retail seller must collect retail sales tax from the buyer and remit it to the state. Former RCW 82.08.050. The “selling price” determines the amount *204of sales tax due “on each retail sale.” RCW 82.08.020(1).3 Former RCW 82.08.010(1) (2003)4 defines “selling price” as “the total amount of consideration.” The same statute also clarifies that “selling price” does not include “any taxes legally imposed directly on the consumer that are separately stated on the invoice.” Former RCW 82.08.010(l)(b).

¶11 If a retailer adheres to requirements on advertising, the retailer may advertise that the price includes the tax or that the seller is paying the tax. RCW 82.08.055. Former RCW 82.08.050 governs retail tax collection, including the retail tax on tax-included sales; it provides:

The tax required by this chapter to be collected by the seller shall be stated separately from the selling price in any sales invoice or other instrument of sale. On all retail sales through vending machines, the tax need not be stated separately from the selling price or collected separately from the buyer. For purposes of determining the tax due from the buyer to the seller and from the seller to the department it shall be conclusively presumed that the selling price quoted in any price list, sales document, contract or other agreement between the parties does not include the tax imposed by this chapter, but if the seller advertises the price as including the tax or that the seller is paying the tax, the advertised price shall not be considered the selling price.

Former RCW 82.08.050. Based on this statute, the Department’s interpretive rule stated:

Even when prices are advertised as including the sales tax, the actual sales invoices, receipts, contracts, or billing documents must list the retail sales tax as a separate charge. Failure to comply with this requirement may result in the retail sales tax due and payable to the state being computed on the gross *205amount charged even if it is claimed to already include all taxes due.

Former WAC 458-20-107 (1986).

¶12 As an initial matter, we conclude that former RCW 82.08.050’s language is plain and unambiguous. Former RCW 82.08.050 governs two subject matters: (1) the separate statement of tax requirement and (2) the selling price determination.

¶13 The first and second sentences of former RCW 82-.08.050, as quoted above, pertain to the separate statement of tax requirement and contain a general rule and one exception. In the first sentence, the statute requires a separate statement of tax in the instrument of sale. In the second sentence, the statute expressly excludes the separate statement of tax for vending machines. The third sentence pertains to the selling price determination and also contains a general rule and one exception. The third sentence first states that the selling price is “conclusively presumed” to be the price quoted in any price list, sales document, contract, or other agreement between the parties. The third sentence then states one exception: “but if the seller advertises the price as including the tax or that the seller is paying the tax, the advertised price shall not be considered the selling price.”

¶14 For a properly advertised tax-included sale, former RCW 82.08.050 mandates that the advertised price is not “conclusively presumed” to be the sale price. It also plainly states that the Department shall not consider the advertised price to be the selling price when the seller advertises that the price includes the tax. Former RCW 82.08.050. Because Bi-Mor advertised that the price included the tax, we conclude that former RCW 82.08.050’s plain language prohibits the Department from assessing Bi-Mor additional sales tax based on the gross amount paid by the customer.

*206B. Former WAC 458-20-107

¶15 Based on former RCW 82.08.050, the Department’s interpretive rule stated:

Even when prices are advertised as including the sales tax, the actual sales invoices, receipts, contracts, or billing documents must list the retail sales tax as a separate charge. Failure to comply with this requirement may result in the retail sales tax due and payable to the state being computed on the gross amount charged even if it is claimed to already include all taxes due.

Former WAC 458-20-107.

¶16 Former WAC 458-20-107 correctly interprets former RCW 82.08.050 when it states that tax-included sales must list the retail sales tax as a separate statement on receipts and other instruments of sale. But the rule also imposes a penalty for failing to comply with the separate statement requirement: “Failure to comply with this requirement may result in the retail sales tax due and payable to the state being computed on the gross amount charged even if it is claimed to already include all taxes due.” Former WAC 458-20-107. This penalty portion of the rule conflicts with former RCW 82.08.050 in two ways. First, it links the “separate statement” subject matter with the “selling price” subject matter, when there is no link in the statute other than being codified in the same subsection. Second, it contradicts the statutory mandate that when determining the tax due from a properly advertised tax-included sale, “the advertised price shall not be considered the selling price.” Former RCW 82.08.050. Rather than follow this mandate, former WAC 458-20-107 creates an exception for tax-included sales without the tax separately stated on the instrument of sale. This rule created more tax liability than the legislature authorized. Thus, this portion of the rule is ultra vires and void as a matter of law. Props. Four, Inc. v. State, 125 Wn. App. 108, 117, 105 P.3d 416, review denied, 155 Wn.2d 1003 (2005).

*207¶17 Notwithstanding the clear language of former RCW 82.08.050, the Department asks us to look to RCW 82.08-.020(1) to support its interpretive rule. The Department relies on RCW 82.08.020(l)’s language, which states that the “selling price” determines the sales tax due “on each retail sale.” The Department also relies on former RCW 82.08-.010(1), which defines “selling price” as “the total amount of consideration” and does not include “any taxes legally imposed directly on the consumer that are separately stated on the invoice.” Former RCW 82.08.010(1). Therefore, the Department concludes that former WAC 458-20-107 properly requires a seller to state the retail tax separately as a precondition for excluding that amount from its gross receipts as retail tax payment. But the plain language of former RCW 82.08.050 mandates that when the seller advertises that the price includes the tax, the Department may not consider the advertised price to be the selling price, thus we give effect to that plain meaning as the expression of what was intended. Overlake Hosp., 170 Wn.2d at 52.

ATTORNEY FEES

¶18 Bi-Mor argues that the Department’s appeal is wholly frivolous and requests attorney fees under RCW 4.84.185. Although the Department does not prevail, the Department presents rational arguments; thus, we conclude that its appeal is not wholly frivolous. Goldmark v. McKenna, 172 Wn.2d 568, 582, 259 P.3d 1095 (2011). Therefore, we deny an award of attorney fees to Bi-Mor.

¶19 We affirm the Board and the superior court.

Van Deren, J., concurs.

Ch. 34.05 RCW.

The legislature has amended this statute many times since 2000, however, we cite to the current statute’s subsection (1) because it has not changed. Laws of 2000, 2d Spec. Sess., ch. 4, § 1; Laws of 2003, ch. 361, § 301, effective July 1, 2003; Laws of 2006, ch. 1, § 3; Laws of 2011, ch. 171, § 120.

Laws of 2003, ch. 168, § 101.