Opinion Information Sheet

			

  IN THE SUPREME COURT OF THE STATE OF WASHINGTON

 TESORO REFINING AND 
 MARKETING COMPANY,
                                                               No. 85556-1
                Respondent,
                                                                 En Banc
        v.
                                                         Filed January 12, 2012
 STATE OF WASHINGTON,
 DEPARTMENT OF REVENUE,

                Petitioner.

       J.M. JOHNSON, J.  --  Washington's Business and Occupation (B&O) 

tax system imposes taxes on refining of oil products and, separately, on sales.  

The gross income from activities, from which each tax is calculated, can be 

reduced by certain statutory deductions.  The issue here is whether the RCW 

82.04.433(1) deduction applies to reduce B&O tax on sales and whether the 

statute allows a reduction of B&O tax for processing the same product (i.e.,  

Tesoro v. Dep't of Revenue, No. 85556-1

manufacturing activities).

       The Court of Appeals held that Tesoro Refining and Marketing could 

deduct the amount of its "offshore"1 bunker fuel sales from its B&O taxes on 

manufacturing activities.  The Department of Revenue (DOR) seeks review of 

this decision and contends that the offshore bunker fuel sales deduction 

applies only to B&O taxes on wholesale and retail sales, and not to reduce 

tax on manufacturing activities.  DOR makes two main arguments: (1) the 

common and ordinary meaning of the plain language in RCW 82.04.433(1) 

demonstrates that the deduction should apply only  to B&O taxes on 

wholesale and retail sales, and (2) the legislature adopted a "clarifying"

amendment in 2009 to the B&O tax deduction in RCW 82.04.433(1), which 

should not be viewed as a retroactive change of tax law in violation of the due 

process clause to the United States Constitution.

       We reverse the Court of Appeals and affirm the Thurston County 

Superior Court's grant of summary judgment to DOR.  We hold that the plain 

language of RCW 82.04.433(1) created for "sales of fuel" indicates that the 

B&O tax deduction applies only to B&O taxes on wholesale and retail sales,

1 We use the term "offshore" to denote the requirement in former RCW 82.04.433(1) 
(1985) that the bunker fuel sales be intended "for consumption outside the territorial 
waters of the United States."

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Tesoro v. Dep't of Revenue, No. 85556-1

not on manufacturing.  As our holding rests on statutory grounds, we need not 

address the constitutional issue of retroactivity.

                            Facts and Procedural History

       Tesoro owns and operates a refinery near Anacortes, Washington, and 

it processes crude oil from Alaska, Canada, and other foreign sources.  

Among Tesoro's products is a heavy fuel known as "marine bunker fuel,"

which is the residue fuel remaining after gasoline and distillate fuel are 

extracted from crude oil.  The majority of bunker fuel produced by Tesoro is 

shipped for sale to customers engaged in foreign commerce.  Between 

December 1, 1999, and December 31, 2007, Tesoro's Anacortes refinery 

made more than 9,700 individual sales of bunker fuel for consumption outside 

the United States.

       The Washington State Legislature, in enacting and defining B&O taxes 

on oil products, created a tax deduction for the amount of tax "derived from 

sales of fuel for consumption outside the territorial waters of the United 

States, by vessels used primarily in foreign commerce."  Former  RCW 

82.04.433(1)    (1985).     In 1986, DOR        issued WAC 458-20-175, which 

required the seller of fuel to obtain a certificate of sale from the buyer in order 

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Tesoro v. Dep't of Revenue, No. 85556-1

to qualify for the RCW 82.04.433(1) tax exemption.  There is no dispute in 

this case that Tesoro obtained the requisite certificates.  DOR also issued an 

unpublished determination in 1993 that held that RCW 82.04.433 may not be 

limited to wholesalers and retailers.            Clerk's Papers (CP) at  221-25.  

Furthermore, other similar unpublished determinations were issued in 1988 

and 1993.  CP at 294-95.

       On its monthly tax returns from 1999-2007, Tesoro reported its bunker 

fuel sales on both the "Manufacturing" B&O tax line and the "Wholesaling 

and Retailing" B&O tax line.  Tesoro Ref. & Mktg. Co. v. Dep't of Revenue, 

159 Wn. App. 104, 108, 246 P.3d 211 (2010).  Additionally, Tesoro took a 

single  multiple activities tax credit, pursuant to former RCW 82.04.440

(2007), reducing the wholesaling or retailing B&O tax otherwise payable.  

Tesoro, 159 Wn. App. at 108.

       After completing a detailed DOR audit of the Anacortes refinery, 

however, Tesoro requested a partial tax refund in the amount of $2,550,867, 

claiming the RCW 82.04.433(1) tax deduction, against amounts paid in B&O 

tax on manufacturing during the period of December 1, 1999, through April 

30, 2004.  Tesoro, 159 Wn. App. at 109.  This request was denied, and 

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Tesoro v. Dep't of Revenue, No. 85556-1

Tesoro filed an administrative appeal with DOR's appeals division.  Id. at 

109-10.    The  appeals division also denied Tesoro's refund request on the 

ground that the deduction applied only to taxes paid under the "wholesaler 

and retailer" B&O tax line.  Id. While the administrative appeal was pending, 

Tesoro continued to pay an additional $4,128,9972 in B&O taxes on its 

manufacturing activities between May 1, 2004, and December 31, 2007.  Id.

at 109-10.

       Subsequently, Tesoro appealed to the Thurston County Superior Court,

and the parties moved for partial summary judgment on the issue of whether 

Tesoro qualified for the RCW 82.04.433(1) deduction against manufacturing 

activities B&O taxes.  Tesoro, 159 Wn. App. at 110.  One day before the 

scheduled hearing, the governor signed a clarifying amendment to RCW 

82.04.433 into law that expressly limited the applicability of the deduction to 

wholesale and retail activities, thereby more expressly excluding 

manufacturing activities.  Tesoro, 159 Wn. App. at 110.                      This new 

amendment  purported to apply "'both prospectively and retroactively'" to 

1985 when the tax deduction was originally enacted.  Id. (quoting Laws of

2 As a result, Tesoro contends that it is entitled to a refund from DOR in the total amount 
of $6,679,864.  Tesoro, 159 Wn. App. at 110 n.5.

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Tesoro v. Dep't of Revenue, No. 85556-1

2009, ch. 494, § 4).

       The  Thurston County Superior Court granted summary judgment to 

DOR without addressing the issue of retroactivity.  Id.  Tesoro appealed, and 

the Court of Appeals reversed.  Id. at 110, 120.  The Court of Appeals held 

that the plain language of the former RCW 82.04.433 deduction could be 

deducted from Tesoro's manufacturing activities and that the legislature could 

not apply the clarifying amendment retroactively.  Tesoro, 159 Wn. App. at

119-20.  We granted review.  Tesoro Ref. & Mktg. Co. v. Dep't of Revenue, 

171 Wn.2d 1016, 253 P.3d 392 (2011).

                                       Analysis

       The issue before us is one of statutory interpretation, which is an issue 

of law that we review de novo.  City of Seattle v. Burlington N. R.R., 145 

Wn.2d 661, 665, 41 P.3d 1169 (2002).  "The primary objective of any 

statutory construction inquiry is 'to ascertain and carry out the intent of the 

Legislature.'"  HomeStreet, Inc. v. Dep't of Revenue, 166 Wn.2d 444, 451, 

210 P.3d 297 (2009) (quoting Rozner v. City of Bellevue, 116 Wn.2d 342, 

347, 804 P.2d 24 (1991)).  When determining the intent of the legislature, we 

first look to the plain language of the statute.  State v. Armendariz, 160 

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Tesoro v. Dep't of Revenue, No. 85556-1

Wn.2d 106, 110, 156 P.3d 201 (2007).  If the plain language is unambiguous, 

we give the words their common and ordinary meaning.  Garrison v. Wash. 

State Nursing Bd., 87 Wn.2d 195, 196, 550 P.2d 7 (1976).  "Where statutory 

language is plain and unambiguous, courts will not construe the statute but 

will glean the legislative intent from the words of the statute itself, regardless 

of contrary interpretation by an administrative agency."  Agrilink Foods, Inc. 

v. Dep't of Revenue, 153 Wn.2d 392, 396, 103 P.3d 1226 (2005).

       The State of Washington imposes B&O taxes on those  engaged in 

manufacturing activities or wholesale and retail sales.  RCW 82.04.240, .250, 

.270.  Individuals or persons engaged in both of these activities are subject to 

liability under separate B&O tax provisions.  RCW 82.04.440(1).  In 1985, 

the legislature created a fuel sales tax deduction, codified under former RCW 

82.04.433(1): "In computing tax there may be deducted from the measure of 

tax  . . .  amounts derived from sales of fuel for consumption outside the 

territorial waters of the United States, by vessels used primarily in foreign 

commerce."

       Tesoro contends that the language of the statute should allow a 

deduction against both  B&O taxes on manufacturing activities and B&O 

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Tesoro v. Dep't of Revenue, No. 85556-1

taxes on wholesale and retail sales.  According to Tesoro, the legislature 

intended the deduction to apply to all B&O taxes because of the inclusion of 

"[i]n computing tax" language. Former RCW 82.04.433(1).

       The plain language of the RCW 82.04.433(1) tax deduction, as enacted 

by the legislature in 1985, is  to the contrary.   The legislative use of the 

language "derived from sales of fuel" refers to wholesale and retail sales, and

not manufacturing activities.  Id. (emphasis added).  WAC 458-20-136(4)

indicates that "[p]ersons who manufacture products in this state are subject to 

the manufacturing B&O tax upon the value of the products . . . ."               Even if 

"'value of products' . . . [is] determined by 'gross proceeds of sales,'" WAC 

458-20-112, B&O tax liability will still attach even when there is no sale 

because the act of manufacturing the products is the triggering event.               See

RCW 82.04.220.  This supports the conclusion that "derived from sales of 

fuel" refers to wholesale and retail sales, and not manufacturing activities.  

Former RCW 82.04.433(1).

       Tesoro also argues that DOR should be bound by earlier agency 

opinion on the scope of the RCW 82.04.433(1) tax deduction.               According to 

Tesoro, DOR issued an unpublished determination in 1993 to U.S. Oil & 

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Tesoro v. Dep't of Revenue, No. 85556-1

Refining Co. in favor of applying the deduction to all measure of B&O tax, 

and not just B&O taxes on wholesale and retail activities.  CP at 221-25.  

Additionally, Tesoro cites two similar unpublished determinations from 1988 

and 1993.     CP at 294-95.  Based on Agrilink Foods, however, we glean 

legislative intent from the text of the statute, regardless of incidental and 

contrary agency interpretations.  Agrilink Foods,  153 Wn.2d at 396.  

Tesoro's argument would endorse a construction of the statutory  RCW 

82.04.433(1) exemption that would  give a double deduction to taxpayers.  

The United  States Supreme Court has  articulated the principle that "the 

[United  States] Code should not be interpreted to allow respondent the 

'practical equivalent of double deduction,' . . . absent a clear declaration of 

intent by [the legislature]."    United States v. Skelly Oil Co., 394 U.S. 678, 

684, 89 S. Ct. 1379, 22 L. Ed. 2d 642 (1969) (quoting Charles Ilfeld Co. v. 

Hernandez, 292 U.S. 62, 68, 54 S. Ct. 596, 78 L. Ed. 1127 (1934)).  The 

same principle is applicable with respect to the Washington State tax code, as 

adopted by our legislature.     Once a tax is adopted, the legislature may adopt 

exemptions, but such are narrowly construed.  Budget Rent-A-Car of Wash.-

Or., Inc. v. Dep't of Revenue, 81 Wn.2d 171, 174-75, 500 P.2d 764 (1972).

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Tesoro v. Dep't of Revenue, No. 85556-1

       Furthermore, Tesoro's argument would confuse the benefits of the 

multiple activities tax credit with the double tax deduction that it seeks with 

this lawsuit.  See Tesoro, 159 Wn. App. at 108.  This simply confirms our

commonsense reading of the plain language of the statute.  During the time 

period at issue, the Washington State tax code provided a multiple activities 

tax credit for the manufacturing  B&O tax payable to DOR.  RCW 

82.04.440(2).      The existence of such  tax credit is  inconsistent with a 

legislative intent to create a double tax deduction because the legislature dealt 

with the B&O tax liability on both manufacturing activities and wholesale or 

retail sales by enacting the tax credit.  Thus, we find that the plain language of 

RCW 82.04.433(1) indicates that the B&O tax deduction only applies to 

B&O taxes on wholesale and retail sales, and Tesoro would not be entitled to 

the B&O tax deduction for its manufacturing activities during the relevant 
time period of December 1, 1999, to December 31, 2007.3

                                         Conclusion

3 We need not address the constitutional issue of retroactivity because of the principle that 
a court should decide a case on nonconstitutional grounds if at all possible.  HJS Dev., 
Inc. v. Pierce County ex rel. Dep't of Planning & Land Servs., 148 Wn.2d 451, 469 n.74, 
61 P.3d 1141 (2003) ("It is well established that if a case can be decided on 
nonconstitutional grounds, an appellate court should decline to consider the constitutional 
issues.").

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Tesoro v. Dep't of Revenue, No. 85556-1

       We reverse the Court of Appeals and affirm the Thurston County 

Superior Court's grant of summary judgment to DOR.  The plain language of 

RCW 82.04.433(1), providing a credit for tax "derived from sales of fuel for 

consumption outside the territorial waters of the United States," indicates that 

the B&O tax deduction applies only to B&O taxes on wholesale and retail 

sales, and Tesoro and similar taxpayers should not gain the benefit of a 

double deduction in addition to the multiple activities tax credit.  We decline 

to address the constitutional  issue of retroactivity and grant summary 

judgment to DOR on statutory grounds. 

AUTHOR:

        Justice James M. Johnson

WE CONCUR:

        Chief Justice Barbara A. Madsen

        Justice Charles W. Johnson                       Justice Debra L. Stephens

        Justice Tom Chambers                             Justice Charles K. Wiggins

        Justice Susan Owens                              Gerry L. Alexander, Justice Pro Tem.

        Justice Mary E. Fairhurst

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