TAYLOR UNITED, INC. v. STATE, 28055-8-II (Wash.App. 12-31-2002)

No. 28055-8-IIThe Court of Appeals of Washington, Division Two.
Filed: December 31, 2002 UNPUBLISHED OPINION

Appeal from Superior Court of Thurston County Docket No: 00-2-00125-5 Judgment or order under review Date filed: 10/26/2001

Counsel for Appellant(s), Robert William Johnson, Attorney at Law, P.O. Box 1400, Shelton, WA 98584-0919.

Benjamin Hale Settle, Attorney at Law, P.O. Box 1400, Shelton, WA 98584-0919.

Counsel for Respondent(s), Debra Ellen Casparian, Attorney’s General Ofc, P.O. Box 40123, Olympia, WA 98504-0123.

Anne Elizabeth Egeler, Attorney at Law, 400 General Admin Bldg, P.O. Box 40123, Olympia, WA 98504-0123.

SEINFELD, J.

Taylor United, Inc. (Taylor), a shellfish producer, appeals an excise tax assessment. We hold that the Department of Revenue (DOR) failed to show the inadequacy of Taylor’s records with regard to clams purchased from commercial suppliers; that clams raised in artificial tanks were not subject to the tax because they did not originate in Washington waters; and that the proper time to calculate the tax was at the point of harvest. Thus, we reverse the summary judgment in favor of DOR.

FACTS
Taylor is an aquaculture farmer producing shellfish on the West Coast. DOR audited Taylor’s records for the period of January 1, 1993, through March 1, 1996. It then assessed an additional $166,096.00 enhanced food fish excise tax under former RCW 82.27 on Taylor’s Manila clams.

The Manila clams Taylor produced either: (1) were purchased from third parties who delivered them to Taylor’s processing plant; (2) originated in Taylor’s artificial hatchery system, and were later planted in Washington tidelands; or (3) were naturally-set clams on Washington tidelands. To calculate the tax, DOR valued both the hatchery-originated and the naturally-set clams at the point Taylor harvested them from tidelands; it used the price Taylor had paid for clams it purchased from third parties to value all the clams.

Taylor petitioned for a corrected assessment. But DOR’s Appeals Division denied Taylor’s petition and its request for reconsideration and then made a final determination upholding the assessment.

Taylor paid the tax and then sought a refund by filing a notice of appeal and complaint for refund of taxes in Thurston County Superior Court. It requested a de novo hearing under RCW 82.32.180 (2000).

Both Taylor and DOR moved for summary judgment. DOR argued that (1) it was authorized to tax clams Taylor allegedly purchased from third parties because Taylor failed to provide evidence or documentation of the purchases; (2) clams Taylor raised in its hatchery system were not exempt from the tax; (3) it properly valued clams at the point when Taylor ultimately harvested them; and (4) it properly did not deduct post-harvest costs when valuing the clams because Taylor failed to provide records of those costs.

On appeal to the superior court, Taylor sought reversal of the tax assessment, arguing that (1) DOR had records of the clams purchased from third parties and those clams were not taxable under the statute; (2) clams originating in its hatchery system were not taxable because they did not fall under the statutory definition of “enhanced food fish”; (3) the proper point to calculate the tax was at a point well before Taylor ultimately harvested them; and (4) when valuing taxable clams, DOR must deduct post-harvest costs from the wholesale price. Clerk’s Papers at 94.

The superior court granted DOR’s motion for summary judgment and denied Taylor’s motion. Taylor now appeals.

DISCUSSION
We review a summary judgment de novo, engaging in the same inquiry as the trial court; we may affirm on any basis the record supports. Int’l Bhd. of Elec. Workers, Local Union No. 46 v. TRIG Elec. Constr. Co., 142 Wn.2d 431, 434-35, 13 P.3d 622 (2000); Redding v. Virginia Mason Med. Ctr., 75 Wn. App. 424, 426, 878 P.2d 483 (1994). Summary judgment is appropriate only if there is no issue of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c).

A. Clams Acquired from Third Parties
Chapter 82.27 RCW, which taxes enhanced food fish, requires the first owner in commercial possession of shellfish originating in Washington territorial and adjacent waters to pay an excise tax. During the audit period, former RCW 82.27.020(1) (1998) provided:

In addition to all other taxes, licenses, or fees provided by law there is established an excise tax on the commercial possession of enhanced food fish as provided in this chapter. The tax is levied upon and shall be collected from the owner of the enhanced food fish whose possession constitutes the taxable event. The taxable event is the first possession in Washington by an owner. Processing and handling of enhanced food fish by a person who is not the owner is not a taxable event to the processor or handler. (emphasis added).

DOR does not dispute that during the audit period, the statute exempted clams acquired through properly documented purchases from third parties after the clams were landed.[1] But it contended below that Taylor failed to provide it with evidence or documentation of these purchases and, on appeal, DOR argues that because of this failure, RCW 82.32.070(1) (2000) bars Taylor from challenging the tax assessment.[2] Thus, the issue with regard to third-party purchases is whether the trial court properly found no issue of material fact as to the adequacy of Taylor’s recordkeeping, thereby supporting its grant of summary judgment on this basis.

DOR asserted in its motion for summary judgment that Taylor had not provided records of its third-party purchases. Taylor responded that DOR’s own audit report established the quantity of third-party purchases. The audit report apparently used the figures Taylor submitted as part of its original enhanced food fish excise tax returns. DOR did not respond to this contention with evidence or argument specifying in what way Taylor’s recordkeeping was not “suitable.” RCW 82.32.070(1). It merely argued that Taylor bore the burden of proving it was entitled to a tax exemption.

Neither party to a motion for summary judgment may rest on the allegations of the pleadings alone; they must affirmatively present the factual evidence upon which they rely. Leland v. Frogge, 71 Wn.2d 197, 200-01, 427 P.2d 724 (1967). “One who moves for summary judgment . . . must prove by uncontroverted facts that no genuine issue of material fact exists. This is true whether the opponent . . . has the burden of proof on the issue at trial.” Duckworth v. City of Bonney Lake, 91 Wn.2d 19, 22, 586 P.2d 860 (1978).

Here, DOR failed to carry its burden of showing that Taylor did not have “suitable records” as RCW 82.32.070(1) requires; thus, it was not entitled to summary judgment. DOR had sufficient data of third party purchases to assess the tax but it claimed, without providing an evidentiary basis, that this data was inadequate to allow Taylor to challenge the tax. Its bald assertion was insufficient to resolve the factual issue of the suitability of Taylor’s records. Thus, the trial court erred by granting DOR summary judgment on this basis.

Taylor supported its cross motion for summary judgment as to the assessment on clams purchased from third parties with declarations stating that these purchases occurred at its processing plant and that the third parties were commercial suppliers who already commercially possessed the clams. Again, DOR responded with the mere assertion that Taylor had not provided documentation of the purchases and that due to its inadequate recordkeeping, Taylor was barred from challenging the tax assessment.

Taylor, as the party moving for summary judgment, had the burden of clearly demonstrating the absence of any genuine issue of fact. Spurrell v. Bloch, 40 Wn. App. 854, 860, 701 P.2d 529 (1985). When it did so by submitting declarations describing the purchases, the burden shifted to DOR to demonstrate the existence of an issue of material fact and thus avoid summary judgment.[3] Hash v. Children’s Orthopedic Hosp. Med. Ctr., 110 Wn.2d 912, 915, 757 P.2d 507 (1988). DOR needed to do more than express an opinion or make conclusive statements; it had to establish “`specific and material facts to support each element'” of its prima facie case. Chen v. State, 86 Wn. App. 183, 190, 937 P.2d 612 (1997) (quoting Hiatt v. Walker Chevrolet Co., 120 Wn.2d 57, 66, 837 P.2d 618
(1992). But DOR did not respond with any evidence showing the inadequacy of Taylor’s documentation of its purchases. Thus, DOR failed to carry its burden.

Under former RCW 82.27.020(1), the clams that Taylor purchased at its processing plant from commercial suppliers were exempt from tax. The commercial suppliers, rather than Taylor, were responsible for the tax as the first commercial possessors. Thus, the trial court erred by granting summary judgment to DOR denying Taylor’s motion for summary judgment as to the assessment on clams Taylor purchased from third parties.

B. Clams Originating in Artificial Hatchery
Taylor argues that the clams that originated in its hatchery system did not fall under the definition in former RCW 82.27.010(1) (1994) of “enhanced food fish” and, thus, were not taxable. DOR responds that the legislature did not intend to exempt these shellfish.

During the audit period, former RCW 82.27.010(1) provided: “`Enhanced food fish’ includes all species of food fish, shellfish, and anadromous game fish, including byproducts and parts thereof, originating within the territorial and adjacent waters of Washington . . . .”[4] (emphasis added). To determine the taxability of Taylor’s hatchery-originated clams, we must strictly construe the statutory definition against DOR. Shurgard Mini-Storage of Tumwater v. State Dep’t of Revenue, 40 Wn. App. 721, 726-27, 700 P.2d 1176 (1985) (in determining legislative intent regarding application of tax against specific businesses, court must consider: “if there is any doubt as to the meaning of a taxing statute it must be construed most strongly against the taxing authority and in favor of the taxpayer.”).

Strictly construing the statute against DOR, we conclude that Taylor’s hatchery-originated clams did not fit the definition of enhanced food fish because they originated in Taylor’s artificial hatchery tanks, not in Washington territorial or adjacent waters. Taylor’s hatchery process began when Taylor induced its own brood stock clams to spawn in a 30-gallon tank at Taylor’s hatchery facility. Spawning produced clam larvae, which Taylor placed in a larger 10,000-gallon tank, where they grew for about two weeks. Taylor then transferred the larvae, which at this point had matured into very small clams, to a downweller tube suspended in another tank of water, where they changed into seed clams.

Generally, the clams remained and grew in Taylor’s tanks for three to four months until they reached a size appropriate for planting on tidelands. Two to five years later, Taylor harvested the clams from the tidelands.

As these clams originated in Taylor’s hatchery facilities, not in Washington waters, the trial court erred by granting summary judgment to DOR and denying Taylor’s motion for summary judgment as to the tax assessed on hatchery-originated clams.[5]

C. Valuation of Claims
Taylor’s next argument is less persuasive. It contends that the naturally-set clams landed on its tidelands when they first burrowed in and that DOR should have determined the value of these clams at that point in time, not when Taylor ultimately harvested them.

RCW 82.27.020(3) provides: “The measure of the tax is the value of the enhanced food fish at the point of landing.” As we stated above, RCW 82.27.010(5) defines landing as the act of physically placing enhanced food fish on a tender within the State of Washington or on land. Taylor did not physically place the naturally-set clams on its tidelands when the clams first settled there. Rather, the free-swimming clams settled on their own when they lost the ability to swim. This does not meet the statutory definition of landing.

Taylor argues in the alternative that DOR should have valued the naturally-set clams at the point when Taylor employees first handled them. Every 18 months, Taylor employees harvested some clams from tidelands by turning the ground over with a rake and sorting through the ground by hand, keeping the market-sized clams and either returning the smaller clams to the beach to grow or transporting them to other beaches to grow. Taylor asserts that the point of landing for each clam occurred when a Taylor employee first moved it about on the tidelands, somewhere between zero and 18 months after that clam settled in.

In construing a statute, our goal is to effectuate the legislative intent. Sacred Heart Med. Ctr. v. State Dep’t of Revenue, 88 Wn. App. 632, 636, 946 P.2d 409 (1997). “Legislative intent is ascertained from the statutory text as a whole, interpreted in terms of the general object and purpose of the legislation.” Group Health Coop. of Puget Sound, Inc. v. State Dep’t of Revenue, 106 Wn.2d 391, 401, 722 P.2d 787 (1986). We strictly construe provisions providing for credits, exemptions, or deductions against the taxpayer, but we normally construe an ambiguous tax statute most strongly against the taxing authority. MAC Amusement Co. v. State Dep’t of Revenue, 95 Wn.2d 963, 966, 633 P.2d 68 (1981); Vita Food Prods., Inc. v. State, 91 Wn.2d 132, 134, 587 P.2d 535 (1978).

The statutory language here, read as a whole, indicates that the legislature intended to tax enhanced food fish at the point of harvest.

RCW 82.27.020(1) taxes “the commercial possession of enhanced food fish[.]” And “`[c]ommercial’ means related to or connected with buying, selling, bartering, or processing.” RCW 82.27.010(2). Each one of these words refers to actions taken by the taxpayer with regard to the product and suggests actions that occur after the clams are raised and that are related to marketing the harvested clams. When Taylor merely moved the clams from one location to another during the production phase, it did not possess them for the purpose of exchanging or processing them. The latter did not occur until the point of harvest. See High Tide Seafoods v. State, 106 Wn.2d 695, 700, 725 P.2d 411 (1986) (enhanced food fish excise tax “is imposed upon an owner’s exercising control over fish for purposes of disposing of them for profit[.]”); See also Olympia Oyster Co. Inc., v. Dep’t of Revenue, No. 89-12, Bd. of Tax Appeals (Wash. 1991) (“The measure of the tax is the value at the end of the raising function.”)

To read the statute as Taylor suggests would lead to an unrealistic result; it would require taxpayers to weigh and value the clams when they first handle them. See Bour v. Johnson, 122 Wn.2d 829, 835, 864 P.2d 380
(1993) (court must avoid “[s]trained, unlikely or unrealistic” statutory interpretations). Thus, we hold that the word “landing” as used in RCW 82.27.020(3) refers to the permanent removal of clams from tidelands for marketing purposes, in other words when the taxpayer harvests them. Consequently, DOR correctly valued the naturally-set clams at the point of harvest.

Finally, Taylor argues that DOR incorrectly failed to account for post-harvest costs, profit, and shrinkage when valuing the naturally-set clams. DOR responds that Taylor failed to maintain and provide records of these costs, barring it from challenging DOR’s valuation.

DOR assigned a value to Taylor’s naturally-set clams equal to the wholesale price that Taylor had paid to third parties for harvested and processed clams. This price allegedly included post-harvest costs, profit, and shrinkage.

RCW 82.27.020(3) directs DOR to value food fish “at the point of landing,” not afterward when the value may have increased due to post-harvest processing and shipping. The statutory scheme evidences an intent that value should be determined using a market approach.[6]

DOR moved for summary judgment, arguing in its memorandum that it properly used the figure Taylor had paid for clams purchased from third parties to calculate the taxes on the naturally set claims. It argued that it was appropriate to use this figure because Taylor had failed to maintain and provide the records necessary to calculate post-harvest costs. But DOR did not submit any evidence regarding the status of Taylor’s financial records.

“At the very least, to support a motion for summary judgment the moving party is required to set out its version of the facts and allege that there is no genuine issue as to the facts as set out.” Hash, 110 Wn.2d at 916; CR 56. Because DOR failed to sustain its burden of producing factual evidence showing that it was entitled to judgment as a matter of law, the trial court erred in granting summary judgment on this issue.

Taylor also moved for summary judgment, supporting its motion with a declaration alleging that the value of its clams at the point of landing was $1.038 per pound. DOR did not respond to this evidence with any opposing evidence. It merely took issue with the formula that Taylor was proposing to use. But neither the statute nor controlling precedent dictate the use of any particular formula to calculate the value of claims “at the point of landing.” Thus DOR’s bald assertion, without more, was insufficient to raise an issue of material fact as to the clam’s value. Thus, the trial court erred in denying summary judgment on this point to Taylor.

Accordingly, we reverse the denial of summary judgment in favor of Taylor as to the assessment on clams Taylor purchased from third parties and as to the clams it raised in artificial tanks. We affirm the trial court’s ruling that it was proper for DOR to value naturally-set clams at the point of final harvest but reverse its denial of summary judgment in favor of Taylor as to the value of those naturally-set clams.

A majority of the panel having determined that this opinion will not be printed in the Washington Appellate Reports, but will be filed for public record pursuant to RCW 2.06.040, it is so ordered.

HUNT, C.J. and BRIDGEWATER, J., concur.