A Spokane dealership group illegally passed on the Washington state business and occupation tax to its customers instead of absorbing the tax as part of its overhead or negotiating it into the sales price, a three-judge appeals panel has ruled.
The fact that dealership group Appleway Chevrolet Inc., a part of AutoNation Inc., itemized the tax in its sales and financing agreements and disclosed it in ads and signs didn't justify charging it to purchasers of vehicles, parts and services, the Washington Court of Appeals said. The only way to legally pass the tax on is through disclosure during negotiation of purchase price, the court said.
Washington imposes the business and occupation tax for the privilege of doing business. The intent is that "the person engaging in business activities" pays it, not purchasers, the court said.
The tax is assessed as a percentage of total sales. Thus, the amount of tax assessed on a transaction depends on the negotiated price of the vehicle or other items being purchased.
AutoNation spokesman Marc Cannon told Automotive News the company was following a state Department of Revenue notice that the practice is legal. "In itemizing, we were providing greater disclosure and transparency to customers," he said. "Appleway is the test case for this. I think the vast majority of dealerships do this." Cannon added that the company will "vigorously appeal."
Plaintiffs' lawyer Brian Sheldon, of Spokane, told Automotive News that he has no estimate of the amount of potential restitution at stake for Appleway customers, but, he said, "We think it's fairly sizable." The court said there are thousands of such customers.
The ruling has triggered another suit that seeks class-action status against all Washington dealerships that engage in the practice, Sheldon said.
And the state attorney general's office said it's talking about the issue with lawyers for customers and dealerships. "Though the court did not base its decision on the Consumer Protection Act, our office continues to express concern about the confusion and deception to consumers that can result when B&O (business and occupation) tax is stated separately from the sales price," spokeswoman Janelle Guthrie said in a statement.
In 2002, Herbert Nelson, of Spokane, bought a used 2000 Volks-wagen Cabriolet from Appleway Volkswagen, a part of Appleway Chevrolet Inc.'s group of dealerships, for $16,822. The itemized purchase agreement included $79.23 for the business and occupation tax.
Ruling in Nelson's lawsuit, a Spokane County Superior Court judge granted class-action status on behalf of all Appleway customers, declared the method of itemizing and collecting the taxes unlawful and issued an injunction that requires an end to the practice.
The appeals court upheld that decision in an opinion by Judge Frank Kurtz. "The seller can disclose the B&O overhead charge to the purchaser, but it must be done while setting the final purchase price," Kurtz wrote. "The process here involved negotiation of a price, and the information should have been disclosed as part of that process."
The court didn't discuss how dealerships could pass on the tax in situations where prices are fixed rather than negotiated, as in the sale of parts or in service rates.
The court said the amount of damages can be determined based on individual sales agreements.