Vehicle service contracts were Washington wholesale sales
The Washington Court of Appeals reversed the decision of the Washington Superior Court granting summary judgment to the Department of Revenue and remanded the matter for the superior court to grant summary judgment in favor of the taxpayer. The taxpayer, a seller of vehicle extended warranties (VSCs), had challenged the Department’s determination that transactions in which vehicle dealers sold the taxpayer’s VSCs to vehicle buyers constituted retail sales by the taxpayer to the vehicle buyers rather than wholesale sales to the dealers. The Department contended that the taxpayer was engaged in retail sales of the VSCs to the dealers’ customers and that the dealers were acting as the taxpayer’s sales agents. The Department assessed business and occupation (B&O) taxes on the full retail price of the VSCs rather than just on the amount of the net dealer cost payments that the taxpayer received, and required the taxpayer to pay an estimated amount of sales taxes on the retail sales that dealers had not collected. Wash. Admin. Code § 458-20-257(4)(b) provides that sales of agreements can be made at wholesale when the buyer will be reselling the agreement without intervening use. Here, the dealers clearly sold the VSCs to their customers without intervening use. Moreover, the facts in this matter are nearly identical to a regulatory example, in which the transaction constituted a wholesale sale. As for the argument that a seller can only be deemed a wholesaler if that seller receives a reseller permit from the buyer, this premise can be overcome by demonstrating facts and circumstances, according to rules adopted by the Department, that the sale was at wholesale. Here, the facts were identical to the example in the relevant regulatory provision, which described a wholesale sale even without a reseller permit. As such, the court concluded that the taxpayer was making wholesale sales of the VSCs to the dealers. Although the Department contended that the dealers were acting as agents of the taxpayer and selling the VSCs in exchange for a commission, the court found this argument inconsistent with the actual relationship between the taxpayer and the dealers. The court noted that a crucial factor for determining agency is the control over the manner of performance. Here, the taxpayer had almost no control over how the dealers marketed the VSCs. Lastly, the court determined that the customer owed the retail sales price to the dealer rather than to the taxpayer, the same as in the regulatory example. (Protective Administrative Services, Inc. v. Wash. Dept. Rev., Wash. Ct. App., Dkt. No. 56093-3-II, 11/08/2022.)
Vehicle service contracts were Washington wholesale sales
