First Student, Inc. v. State

423 P.3d 921

FIRST STUDENT, INC., Appellant,

v.STATE of Washington, DEPARTMENT OF REVENUE, Respondent.

No. 49979-7-II

Court of Appeals of Washington, Division 2.

Filed August 14, 2018

Brett S. Durbin, Stoel Rives LLP, 600 University St. Ste. 3600, Seattle, WA, 98101-4109, for Appellant.

Cameron Gordon Comfort, Attorney Generals Office/Revenue Division, Jessica E. Fogel, Washington Attorney General's Office, P.O. Box 40123, Olympia, WA, 98504-0123, for Respondent.

PUBLISHED OPINION

Bjorgen, J.

¶ 1 First Student Inc., a business providing transportation services, appeals from an order denying its motion for summary judgment, granting the Department of Revenue (Department) summary judgment, and dismissing its excise tax refund action. In its order, the superior court ruled that First Student’s income from transporting students under contracts with various school districts is properly taxed under the Business and Occupation (B&O) tax, but not the Public Utility Tax (PUT).

¶ 2 First Student claims that it provides transportation services to school districts on a "for hire" basis and, therefore, should be taxable under the motor and urban transportation business PUT classifications instead of the B&O tax classification.¹ First Student argues that the term "for hire" is plain on its face and unambiguously means "services provided for compensation," bringing its services under the PUT. The Department interprets the term "for hire" by excise tax rule to provide that school bus operators are taxable under the "other business or service activities" B&O tax classification. This appeal, therefore, revolves around the meaning of "for hire" contained in Title 82 RCW, a term not defined by the statute.

¶ 3 Concluding that the term "for hire" is ambiguous, and the Department’s interpretation is entitled to great weight, we affirm.

FACTS

¶ 4 First Student provides transportation services to organizations, including school districts, youth groups, summer camps, and churches, as well as other private parties.²

Between 1990 and 2014, First Student regularly reported on the B&O tax form the income it received for providing transportation services to school districts under the "other business or service activities" tax classification. Clerk’s Papers (CP) at 110-11.

¶ 5 On September 6, 2013, however, First Student requested a letter ruling from the Department regarding the correct tax classification for the revenue it received from its contracts with school districts. First Student explained that it owns and operates school buses and that its customers are primarily various school districts in Washington, including the Seattle School District. First Student argued that the Department should tax it under the PUT classifications, not the B&O tax classification, because its "school buses are motor propelled vehicles that convey students" and "are passenger vehicles for public use that convey students." CP at 128-29. The Department issued a letter ruling declining to change its longstanding interpretation that school bus operators are subject to the "other business or service activities" B&O tax classification. CP at 134-35.

¶ 6 First Student filed an appeal with the Department’s Appeals Division seeking reversal of the Department’s letter ruling. While the appeal was pending, First Student submitted three administrative refund requests to the Department and sought to reclassify its income reported under the "other business or service activities" B&O tax classification to the "motor transportation business" and "urban transportation business" PUT classifications. The refund request also sought the difference in taxes paid resulting from the Department’s alleged incorrect tax classification. The Department denied the administrative refund requests, and First Student submitted a supplemental petition to the Department’s Appeals Division appealing the refund request denials. The Appeals Division consolidated the refund requests into First Student’s appeal of the letter ruling. After review, the Appeals Division issued a determination that denied First Student’s consolidated appeal.

¶ 7 In accord with RCW 82.32.180, First Student then filed a notice of appeal and complaint for refund of excise taxes with the Thurston County Superior Court. First Student filed a motion for summary judgment, claiming its transportation services were taxable under the PUT classifications but exempt from B&O taxation under former RCW 82.04.310 (2010). First Student also requested a refund of the B&O taxes it paid between December 1, 2008 and December 31, 2014. In its response to First Student’s motion for summary judgment, the Department requested that the superior court grant it judgment as a matter of law, arguing that the B&O tax properly applies to revenues received by First Student for providing bus transportation services to school districts.

¶ 8 In response to First Student’s requests for admission, the Department admitted that "during the Refund Period the vehicles operated by First Student were used to transport people." CP at 26. The Department also admitted that "First Student operates vehicles with passengers," but did not "admit that the vehicles were ‘passenger vehicles’ because the term is not defined. Washington law distinguishes between buses and ‘passenger vehicles.’ " CP at 26. The Department also admitted that "during the Refund Period First Student received compensation for transporting passengers" and that "during the Refund Period the students transported by First Student ... were passengers." CP at 27. The Department denied that "during the Refund Period First Student transported persons for hire." CP at 27.

¶ 9 The superior court found that there were no genuine issues of material fact. The superior court concluded that the Department was entitled to judgment as a matter of law because First Student’s income from transporting students under its contracts with school districts was properly taxed under the B&O tax classification "other business or service activities," former RCW 82.04.290 (2013), not under the PUT. Accordingly, the superior court denied First Student’s motion for summary judgment and granted summary judgment in the Department’s favor. The court dismissed First Student’s tax refund claim with prejudice.

¶ 10 First Student appeals.

ANALYSIS

I. SUMMARY JUDGMENT

¶ 11 First Student argues that the superior court erred when it denied First Student’s motion for summary judgment, granted summary judgment to the Department, and dismissed First Student’s excise tax refund action. We disagree.

A. Standard of Review

¶ 12 We review questions of law on appeal from summary judgment de novo. Avnet, Inc. v. Dep’t of Revenue , 187 Wash.2d 44, 49, 384 P.3d 571 (2016). Summary judgment is appropriate only if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c). Because there appear to be no genuine issues of material fact in this case, we review only whether the facts require upholding the summary judgment as a matter of law. Fahn v. Cowlitz County , 93 Wash.2d 368, 373, 610 P.2d 857 (1980).

¶ 13 "In a tax refund case, we review legal conclusions de novo." Tesoro Ref. & Mktg. Co. v. Dep’t of Revenue , 164 Wash.2d 310, 316, 190 P.3d 28 (2008). We also review de novo matters of statutory interpretation and may substitute our interpretation of the law for that of the agency. Port of Seattle v. Pollution Control Hr’gs Bd. , 151 Wash.2d 568, 593, 90 P.3d 659 (2004).

B. Current Department of Revenue Tax Classification of Businesses Operating School Buses

¶ 14 The state of Washington imposes the B&O tax "for the act or privilege of engaging in business" within the state. Former RCW 82.04.220(1) (2011). Business activities other than those that are specifically taxable elsewhere in chapter 82.04 RCW are subject to the "other business or service activities" B&O tax classification. Former RCW 82.04.290(2).

¶ 15 Former RCW 82.04.310 provides that the B&O tax "does not apply to any person in respect to a business activity with respect to which tax liability is specifically imposed under the provisions of chapter 82.16 RCW."

¶ 16 The PUT is imposed under chapter 82.16 RCW, and applies to motor transportation and urban transportation businesses, among others. Former RCW 82.16.020(1)(d), (f) (2013). Therefore, if First Student’s business activity constitutes either motor transportation business or urban transportation business, then the B&O tax does not apply.

¶ 17 "Motor transportation business" is defined as:

[T]he business (except urban transportation business) of operating any motor propelled vehicle by which persons or property of others are conveyed for hire , and includes, but is not limited to, the operation of any motor propelled vehicle as an auto transportation company (except urban transportation business), common carrier, or contract carrier as defined by RCW 81.68.010 and 81.80.010.

Former RCW 82.16.010(6) (2010) (emphasis added).

¶ 18 "Urban transportation business" is defined as:

[T]he business of operating any vehicle for public use in the conveyance of persons or property for hire , insofar as (a) operating entirely within the corporate limits of any city or town, or within five miles of the corporate limits thereof, or (b) operating entirely within and between cities and towns whose corporate limits are not more than five miles apart or within five miles of the corporate limits of either thereof. Included herein, but without limiting the scope hereof, is the business of operating passenger vehicles of every type.

Former RCW 82.16.010(12) (emphasis added).

¶ 19 The Department adopted WAC Rule 180 to administer this statute. Rule 180 provides, in part:

(5) What does "motor transportation" and "urban transportation" include? Motor and urban transportation include the business of operating motor-driven vehicles, on public roads, used in transporting persons or property belonging to others, on a for-hir

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