SCOW: When Is an Overhead Tax Not an Overhead Tax?

The Washington business and occupation (B&O) tax is a slippery little devil. RCW 82.04.500 makes clear that the tax is a tax on the business itself — not a tax on purchasers or customers. Accordingly, the statute provides that the tax “shall constitute part of the operating overhead of” the business. In other words, it’s not a sales tax, which is paid by the customers but which is collected by the business.

In a previous opinion, Nelson v. Appleway Chevrolet, Inc., 160 Wn.2d 173 (2007), the Supreme Court held that a business was “not permitted to pass the tax through as an added charge to the final purchase price.” Apparently, however, there has been some question about the scope of Nelson‘s holding. How much does disclosure matter? What about negotiation with the customer? Well, the Ninth Circuit Court of Appeals had some questions as well, so they certified a question to the Washington Supreme Court in Peck v. AT&T Mobility (Wash., April 26, 2012):

Under RCW 82.04.500, may a seller recoup its business and occupation taxes where, prior to the sale of a monthly service contract, the seller discloses that in addition to the monthly service fee, it collects a surcharge to cover gross receipts taxes?

The Supreme Court held that, regardless of disclosure, RCW 82.04.500 “prevents a business from recouping the B&O tax as an added charge to its sales price.” Continue reading


Daily Decisions: Seattle Business & Occupation Tax is Constitutional

Article I, Section 10, Clause 2 (known as the Import-Export Clause) of the U.S. Constitution states:

No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it’s inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Controul of the Congress.

Seattle imposes a Business and Occupation (“B&O”) tax on a “person engaging in business activities in the City who does not maintain an office or place of business in the City” in the amount of “that portion of the taxpayer’s gross income or gross proceeds of sales that are derived from business activities performed in the City.”  SMC 5.45.080(B).   Continue reading