Royal Oaks Country Club v. State

541 P.3d 336

ROYAL OAKS COUNTRY CLUB, a Washington nonprofit corporation, Respondent,

v.State of Washington, DEPARTMENT OF REVENUE, Petitioner.

No. 101770-7

Supreme Court of Washington, En Banc.

Argued September 28, 2023

Filed January 11, 2024

David Christopher Moon, Heidi A. Irvin, WA Attorney General's Office, P. O. Box 40123, Olympia, WA, 98504-0123, for Petitioner.

Steven Erik Turner, Steven Turner Law PLLC, 1409 Franklin St. Ste. 216, Vancouver, WA, 98660-2826, for Respondent.

MADSEN, J.

¶1 RCW 82.04.4282 permits taxpayers to deduct from their business and occupation (B&O) tax "bona fide" initiation fees and dues, among other things. Dues in exchange for or graduated on receipt of goods and services cannot be deducted.

RCW 82.04.4282. Royal Oaks Country Club sought to deduct its initiation fees pursuant to this provision. New members are admitted to the club based on a one-time initiation fee, which varies based on membership level. Prior to using any of Royal Oaks’ dining services or golfing, swimming, or fitness facilities, members must pay both their initiation fee and first month's dues. Because the initiation fee alone does not automatically entitle a member to use any service or facility, the fee is paid solely for the privilege of membership. The Court of Appeals held Royal Oaks’ fee qualifies as a bona fide initiation fee and is therefore wholly deductible. We affirm.

BACKGROUND¹

¶2 Royal Oaks is a nonprofit corporation that owns and operates a country club in Vancouver, Washington. Royal Oaks maintains a golf course with accompanying practice ranges and a retail shop, as well as swimming facilities, a clubhouse with four primary dining areas, other bars and dining spaces, and a fitness center.

¶3 Royal Oaks offers individual and corporate memberships at different levels. The most expensive memberships are "proprietary," "corporate," and "intermediate." Proprietary members may access all services and facilities; they can serve as directors and officers and vote in elections for these offices; proprietary membership may be transferred to another person in a member's immediate family; and resignation of a proprietary membership may yield a "refund equity." Clerk's Papers (CP) at 46-47. Similarly, corporate members may access all facilities and services. Intermediate members may also access all of Royal Oaks’ facilities and services. Intermediate members pay half dues until reaching a certain age, at which point their membership is converted to proprietary. These members cannot vote for or serve as directors or officers, and their memberships are not transferrable.

¶4 "Social with golf" members have limited access to golfing facilities but have full access to the fitness center, swimming facilities, dining, and social events. CP at 47. These members are allowed one round of golf monthly and on that day may access golfing facilities and services. They may purchase additional rounds of golf from winter to spring by paying green fees. Like intermediate members, social with golf members cannot participate in elections or governance of the club. "Social" members cannot use the golf course or practice facilities but have unlimited access to the other facilities. Id. Social members cannot participate in club governance.

¶5 Finally, "dining" members cannot access the golf course, golf-related practice facilities, or the swimming and fitness centers. Dining members have unlimited access to the dining services. Like social with golf and social members, dining members cannot participate in club governance.

¶6 New members must pay a one-time initiation fee. The fee is due along with the application for membership. Members must pay the initiation fee and their first month's dues before accessing any facility, service, or social event at Royal Oaks. Nonmember guests must pay "green fees" to access the golf course and other golfing facilities. CP at 100.

¶7 Initiation fees are tied to membership level, as are monthly dues. Members received monthly statements of accounts that included their monthly dues and other debts (e.g., green fees and dining charges). If a member was more than 60 days late in payment, Royal Oaks suspended all member privileges until payment was made.

¶8 Royal Oaks had not historically sought a deduction for bona fide initiation fees. In 2014, it claimed the deduction. This led to an audit for the 2011-2016 tax period. The auditor divided Royal Oaks’ income accounts into three categories: dues, retail, and service. The auditor placed the one-time initiation fees, monthly dues, and other types of income into the dues category and then calculated the deductible percentage of bona fide dues at approximately 65 percent. This percentage was derived from former Rule 183's "cost of production" method.² The parties stipulated that the Washington State Department of Revenue (DOR) assessed $2,640 in retail B&O tax and $45,245 in retail sales tax on Royal Oaks’ initiation fee receipts for the tax period.

¶9 Royal Oaks sought administrative review of the assessment, arguing the initiation fees were "solely capital contributions" and therefore completely deductible under RCW 82.04.4282. CP at 106. Noting that Royal Oaks failed to provide any contractual or bylaw language "indicating the nature of its initiation fees," the hearing examiner denied the initiation fee argument and affirmed the audit. Id . at 109.

¶10 On reconsideration, Royal Oaks provided documentation on its initiation fees. According to Royal Oaks, this documentation showed the fees were purely for entry and thus fully deductible. The tax review officer concluded the documentation did not describe whether the fees were considered solely capital contributions or if the fees entitled new members to goods and services, and denied reconsideration.

¶11 Royal Oaks paid the tax assessment and filed a refund action in superior court. Royal Oaks maintained that the initiation fees were statutorily deductible. The parties filed cross motions for summary judgment. The court granted DOR's motion and denied Royal Oaks’ motion, ruling the initiation fees were only partially deductible.

¶12 The Court of Appeals held the initiation fees were wholly deductible based on RCW 82.04.4282 and reversed the superior court's grant of summary judgment. Royal Oaks Country Club v. Dep't of Revenue , 25 Wash. App. 2d 468, 469, 476-81, 523 P.3d 1198 (2023). DOR petitioned for review here, which we granted.

ANALYSIS

¶13 Summary judgment decisions are reviewed de novo, considering the evidence and reasonable inferences in the light most favorable to the nonmoving party. Keck v. Collins , 184 Wash.2d 358, 370, 357 P.3d 1080 (2015) (citing Folsom v. Burger King , 135 Wash.2d 658, 663, 958 P.2d 301 (1998) ). Summary judgment is appropriate only when no genuine issue exists as to any material fact and the moving party is entitled to judgment as a matter of law. Id. (citing Scrivener v. Clark Coll. , 181 Wash.2d 439, 444, 334 P.3d 541 (2014) ). When the issue is how a tax statute applies to the facts of a case, the reviewing court treats the issue as a question of law and reviews it de novo. Wash. Imaging Servs., LLC v. Dep't of Revenue , 171 Wash.2d 548, 555, 252 P.3d 885 (2011).

¶14 The parties disagree whether Royal Oaks’ initiation fees are wholly deductible under RCW 82.04.4282. Therefore, this case presents a question of statutory interpretation, which we review de novo. Dep't of Ecology v. Campbell & Gwinn, L.L.C. , 146 Wash.2d 1, 9, 43 P.3d 4 (2002). The primary objective is to "ascertain and carry out the Legislature's intent." Id. If the meaning of the statute is plain on its face, we give effect to that plain meaning as an expression of legislative intent. Id . at 9-10, 43 P.3d 4. We discern plain language from the ordinary meaning of the language in the context of related statutory provisions, the entire statute, and related statutes. Id. at 9-12, 43 P.3d 4. To determine the ordinary meaning of an undefined term, we may look to dictionaries. Boeing Co. v. Aetna Cas. & Sur. Co. , 113 Wash.2d 869, 877, 784 P.2d 507 (1990).

¶15 RCW 82.04.4282 concerns certain deductions to the B&O tax. A B&O tax is assessed "for the act or privilege of engaging in business activities." RCW 82.04.220(1). "Business" includes "all activities engaged in with the object of gain, benefit, or advantage to the taxpayer or to another person." RCW 82.04.140. Retail sale is one classification of business activity that can determine the B&O tax rate. RCW 82.04.250. During Royal Oaks’ 2011-2016 audit, "retail sales" included provision of "amusement and recreation services including but not limited to golf," "[p]hysical fitness services," and swimming services. Former RCW 82.04.050(3)(a), (g) (2011). The B&O tax applies broadly, and deductions are construed narrowly. Avnet, Inc. v. Dep't of Revenue , 187 Wash.2d 44, 49-50, 384 P.3d 571 (2016) (plurality opinion); Budget Rent-A-Car of Wash.-Or., Inc. v. Dep't of Revenue , 81 Wash.2d 171, 175, 500 P.2d 764 (1972) ("the tax is very broad and the exemptions correspondingly narrow").

¶16 RCW 82.04.4282 states,

In computing tax there may be deducted from the measure of tax amounts derived from bona fide (1) initiation fees , (2) dues , (3) contributions, (4) donations, (5) tuition fees, (6) charges made by a nonprofit trade or professional organization for attending or occupying space at a trade show, convention, or educational seminar sponsored by the nonprofit trade or professional organization, which trade show, convention, or educational seminar is not open to the general public, (7) charges made for operation of privately operated kindergartens, and (8) endowment funds. ... If dues are in exchange for any significant amount of goods or services rendered by the recipient thereof to members without any additional charge to the member, or if the dues are graduated upon the amount of goods or services rendered, the value of such goods or services shall not be

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