Appleway erred on B&O tax, court rules

Spokane’s Appleway auto dealerships have improperly tacked their business-and-occupation taxes onto customers’ bills, the state Court of Appeals in Spokane ruled Thursday.

The appellate court upheld Spokane County Superior Court Judge Kathleen O’Connor’s order last October that Appleway must stop adding its B&O taxes to its advertised and negotiated prices.

O’Connor also correctly certified Appleway customer Herb Nelson’s complaint as a class action on behalf of all Appleway customers, the Court of Appeals said.

Appleway spokesman Marc Cannon, in Florida, said the dealerships will ask the Washington Supreme Court to review the decision. There is no automatic right to appeal to the Supreme Court, however. The court must agree to accept an appeal.

Appleway continues to pass along its various B&O taxes much as if they were a sales tax because the Court of Appeals put O’Connor’s rulings on hold while it considered Appleway’s appeal. It was not immediately clear Thursday how soon the appellate ruling will take effect or how the class lawsuit will proceed.

Seattle attorney Kim Stephens, co-lead counsel for Nelson’s class action, agreed with Cannon that the decision could affect numerous other auto dealerships that follow the same practice.

Stephens said his firm is nearing completion of an investigation of other dealerships, but hasn’t determined how many will be affected.

“We believe it’s a widespread practice,” Stephens said.

In Spokane, he said, “certainly more than one” other dealership will be subject to the ruling.

Cannon said the Appleway dealerships were following guidelines developed in 2000 by the Washington Department of Revenue and Senior Counsel Douglas D. Walsh of the state Attorney General’s Office.

“We didn’t, all of a sudden one day, make this up,” Cannon said. “This was something that was set forward and put in place by the state.”

However, Vicki Giles Fabré, executive vice president of the Washington State Auto Dealers in Tukwila, said it is difficult to know how far-reaching Thursday’s decision will be because other dealerships may have used different procedures to pass along their B&O taxes.

“It appeared that Appleway’s program for charging B&O tax differed from the guidelines that Assistant Attorney General Doug Walsh provided to the Washington State Auto Dealers Association,” Fabré said.

Walsh said in a September 2000 memo that the 0.471 percent B&O tax on retail sales could be passed on as an itemized charge if certain conditions were met.

However, the Department of Revenue and Walsh didn’t endorse the practice when they responded to auto dealers’ request for guidance. Walsh said in his memo that dealers could legally pass on their B&O tax — which the Legislature said was to be considered part of a company’s ordinary overhead expenses — if they first subtracted that amount from the price of a car.

But Walsh also said such a policy would be “fraught with risk of unfairness and deception.” He said he was concerned that dealers wouldn’t really subtract the tax from prices for cars, parts or service before tacking it onto customers’ bills. In effect, he said, dealers might collect the tax twice to increase their profits.

The Court of Appeals rejected Appleway’s argument that O’Connor should have deferred to Walsh’s memo. Binding interpretation of state law is the province of judges, not assistant attorneys general, the appellate court said.

Like O’Connor, the three-judge appeals court panel ruled that the Legislature’s intent for the B&O tax law is clear: that it is supposed to be a tax on businesses, not directly on customers. The appellate court rejected Appleway’s argument that the tax may be passed on as an itemized portion of a bill just because the statute doesn’t expressly forbid the practice.

Cannon said “there’s no way to judge at this time” how much money Appleway will have to refund to customers if it can’t persuade the state Supreme Court to overturn Thursday’s ruling.

Stephens said he also hasn’t been able to estimate the amount Appleway and other dealerships may owe, but “we believe the numbers will be large.” He said the class action will seek to force Appleway to divulge its records, which should make refunds “simple.”

In Nelson’s case, the amount was $79.23.

“They can keep that if they want, as long as they don’t keep collecting that from everyone else in the future,” Nelson said Thursday.

A certified public accountant, Nelson said he has never seen other industries pass on their B&O taxes as Appleway and other auto dealers have.

Stephens invited consumers to call 800-767-0501 if they have information about other dealerships adding B&O taxes to the prices they charge.