Washington Court of Appeals Says Car Dealer Cannot Pass on B&O Tax to Customers
The Court of Appeals, affirming the trial court, held that a car dealership’s practice of itemizing and collecting the business and occupation (b&o) tax from customers, and of collecting sales tax on the b&otax was unlawful. The dealer’s practice violated Wash. Rev. Code § 82.04.500, which provides that the b&o tax is levied upon, and collectible from, the person engaging in a business activity, that it forms part of the overhead of the business, and that it is not to be construed as a tax upon the purchaser. Accordingly, the b&o tax could not be passed on to the customer even if it is itemized or disclosed on the purchase agreement. (Herbert Nelson v. Appleway Chevrolet, Inc., Washington Court of Appeals, Div. III, Dkt. No. 23504-1-III, 10/13/2005.)
Background
The car purchase agreement listed several fees and taxes, including Washington state sales tax of $1,255.60 and a charge of $79.23 for Washington b&o tax. The amount of sales tax included sales tax charged on the b&o tax. The b&o tax was disclosed to the buyer at four places on the contracts. Despite the disclosure and itemization, the trial court held that the car dealership’s practice violated Wash. Rev. Code § 82.04.500 and enjoined the dealer from collecting, passing through, or itemizing the tax and the b&o sales tax. The trial court also granted the buyer’s motion for class certification.
Holding
The Court of Appeals affirmed, holding that the b&o tax is imposed for the privilege of engaging in business and Wash. Rev. Code § 82.04.500 clearly states that the tax shall not be construed as a tax upon the purchaser or customer. Rather, the tax shall constitute a part of the operating overhead of the business being taxed. Thus, the tax can be added to operating overhead, but it cannot be passed on to the customer as a tax. The dealer’s disclosure of the tax did not justify passing on the tax to the buyer. While Wash. Rev. Code § 82.04.500 does not prohibit disclosure, it definitely prohibits passing on the tax to the customer. The court rejected a Department of Revenue special notice relied upon by the seller because the special notice was not legal opinion and did not directly rule that the itemization of the b&o tax to the customer was legal. The court went on to say that an agency rule is not binding on the courts which have the ultimate authority to interpret a statute.
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