GRESHAM v. DEPT OF REVENUE, 26798-5-II (Wash.App. 4-5-2002)

No. 26798-5-II.The Court of Appeals of Washington, Division Two.
Filed: April 5, 2002. UNPUBLISHED OPINION.

Appeal from Superior Court of Kitsap County, No. 99-2-03170-1, Hon. Leonard W. Kruse, November 30, 2000, Judgment or order under review.

Counsel for Appellant(s), William H. Broughton, Broughton Assoc Inc PS, 9057 Washington Ave NW, Silverdale, WA 98383.

Counsel for Respondent(s), Debra E. Casparian, Asst Atty General, P.O. Box 40123, Olympia, WA 98504-0123.

HOUGHTON, J.

Craig and Margaret Gresham (the Greshams) appeal from the Board of Tax Appeals’ (Tax Board) decision[1] sustaining the Department of Revenue’s assessment of motor vehicle excise tax (MVET) against them.[2] We affirm.

FACTS
The Greshams are husband and wife and residents of Washington. They ordered a 1995 American Eagle motor home from an Oregon dealer on September 7, 1994, and received it on November 10, 1994. They paid $236,623 for the motor home. They filed title and registration for the motor home in Oregon in Craig Gresham’s and Mike Baxter’s names. Baxter is an Oregon resident and the Greshams’ friend. The Greshams paid the entire price of the motor home. Baxter contributed no money to its purchase. Because the purchase occurred in Oregon, the Greshams paid no sales tax.[3]

After purchasing the motor home, Craig Gresham and Baxter signed a partnership agreement on November 10, 1994, assigning Craig Gresham a 75 percent interest and Baxter a 25 percent interest in the partnership. The partnership agreement purported to form “GREBAX ASSOCIATES” to “acquire, own, and operate for the production of income a 1995 American Eagle Motor Home.” Administrative Record (AR) at 98. The partnership agreement indicates that it was governed by the laws of Oregon. GREBAX ASSOCIATES did not own any property other than the motor home. GREBAX ASSOCIATES was not a registered business name in Oregon, and the motor home was never rented to third parties.

The motor home was registered and licensed in Oregon until its sale in May 1997. Craig Gresham and Baxter were listed as the registered owners. The Greshams drove the motor home for personal use at various times from 1995 to 1997 both inside and outside the state of Washington. The motor home was stored in garages at times in Washington and at times in Oregon. Ninety percent of the motor home’s use was attributed to the Greshams, with Baxter accounting for the other 10 percent. The Greshams purchased insurance for the motor home, listing Craig Gresham as the primary driver.

The motor home was not insured in the name of GREBAX ASSOCIATES, nor was it insured for commercial leasing. The insurance policy specifically excluded coverage if the motor home was leased or rented. Each time the Greshams used the motor home in Washington, they filled out and displayed a trip permit that they purchased in bulk from the Washington Department of Licensing. The motor home was never registered and licensed in Washington.

In May 1997, the Department of Revenue (Department) assessed the Greshams $22,093.20 in use tax, including penalties and interest.[4] The Greshams do not challenge the use tax assessment. The Department also assessed the Greshams $23,769.29 in MVET, including penalties and interests.

The Appeals Division of the Department later removed the evasion penalty and reduced the total MVET assessment to $17,387.82. The Greshams appealed the decision of the Appeals Division to the Tax Board, which affirmed the Appeals Division. The Tax Board disregarded the partnership agreement and treated the Greshams as the motor home owners for purposes of the MVET assessment. The Tax Board concluded that as Washington residents operating a vehicle on the highways of Washington, the Greshams were required to register and license their motor home in Washington under RCW 46.16.028, which includes paying the MVET. The Board then ruled that as Washington residents, the Greshams could not avail themselves of the trip permit exception in RCW 46.16.160 by licensing their motor home in another state while operating it on Washington highways.

The Greshams appealed to the superior court, which affirmed the Tax Board’s decision on the same grounds. The Greshams appeal.

ANALYSIS
Standard of Review

This appeal arises from a formal agency hearing in front of the Tax Board and is thus governed by chapter 34.05 RCW, the Administrative Procedure Act (APA). RCW 82.03.180; United Parcel Serv., Inc. v. Dep’t of Rev., 102 Wn.2d 355, 359, 687 P.2d 186 (1984). We sit in the same position as the superior court in reviewing an agency’s decision and apply the APA standards directly to the record before the agency. Stuewe, 98 Wn. App. at 949 (citing Tapper v. Employment Sec. Dep’t, 122 Wn.2d 397, 402, 858 P.2d 494 (1993)).

We review the Tax Board’s conclusions of law under an error of law standard, giving substantial deference to the interpretation of an ambiguous statute within its expertise. Stuewe, 98 Wn. App. at 949-50. We review an agency’s findings of facts for substantial evidence, which is “a sufficient quantity of evidence to persuade a fair-minded person of the truth or correctness of the order.” King County v. Central Puget Sound Growth Mgmt. Hearings Bd., 142 Wn.2d 543, 553, 14 P.3d 133 (2000) (quoting Callecod v. State Patrol, 84 Wn. App. 663, 673, 929 P.2d 510
(1997)); Heidgerken v. Dep’t of Natural Resources, 99 Wn. App. 380, 384, 993 P.2d 934 (citing Hilltop Terrace Homeowner’s Ass’n v. Island County, 126 Wn.2d 22, 30, 891 P.2d 29 (1995)), review denied, 141 Wn.2d 1015 (2000). Unchallenged findings of fact are verities on appeal and, if challenged, are verities if supported by substantial evidence. The party asserting the invalidity of the agency action has the burden to show the invalidity. RCW 34.05.570(1)(a); King County, 142 Wn.2d at 552; City of Redmond v. Central Puget Sound Growth Mgmt. Hearings Bd., 136 Wn.2d 38, 45, 959 P.2d 1091 (1998).

An agency’s order is arbitrary or capricious if it is willful, unreasoning, and issued without regard to or consideration of the surrounding facts and circumstances. City of Redmond, 136 Wn.2d at 46. An agency order issued after due consideration is not arbitrary and capricious if there is room for two opinions, even if we disagree with the opinion chosen. City of Redmond, 136 Wn.2d at 47.

The APA lists nine grounds for granting relief from an agency order.[5]
The Greshams claim four apply here: (1) an erroneous interpretation and application of the law, RCW 34.05.570(3)(d); (2) a violation of constitutional provisions as applied, RCW 34.05.570(3)(a); (3) the order is not supported by evidence that is substantial when viewed in light of the whole record, RCW 34.05.570(3)(e); and (4) the order is arbitrary and capricious, RCW 34.05-.570(3)(i). Ownership of the Motor Home The only error the Greshams assign to the Tax Board’s decision is the Board’s finding that the partnership did not own the motor home.[6] Although the Greshams assign error to this finding, they did not argue or brief this issue. Rather, throughout their opening brief and reply brief, the Greshams presume the partnership owned the motor home. Appellant’s Brief at 23 (“if the partnership had not licensed the motor home in Oregon . . . the partnership complied with Oregon law . . . .”); Appellant’s Brief at 30 (“the partnership complied with Oregon law . . . .”); Appellant’s Reply Brief at 4 (“By licensing the motor home in Oregon, the Oregon partnership would have been provided reciprocity in Washington . . . .”).[7] Such evidence in the record supports the Tax Board’s finding. The Greshams paid for the motor home. The motor home’s title and registration were in Craig Gresham’s and Baxter’s names as individuals, and not as the partnership GREBAX ASSOCIATES. The motor home insurance policy in effect from November 1994 to November 1997 listed Craig Gresham and Margaret Gresham as the insureds, not GREBAX ASSOCIATES. The insurance policy specifically excluded coverage if the motor home was rented or leased. Although Craig Gresham and Baxter signed a partnership agreement purportedly establishing GREBAX ASSOCIATES as a partnership to operate the motor home for the production of income (presumably by leasing or renting it to third parties), the motor home was never rented to a third party. Craig Gresham testified before the Tax Board that they changed their minds after signing the partnership agreement and decided to use the motor home exclusively for personal use. The Greshams were responsible for 90 percent of the motor home’s use and Baxter was responsible for the other 10 percent. This is substantial evidence to support the Tax Board’s finding that the Greshams, rather than the partnership, owned the motor home. Trip Permit Exemption The Greshams next contend that the Tax Board erred in interpreting RCW 46.16.160(1) as excluding Washington residents from using trip permits as an alternative to licensing their vehicles in Washington. In arguing that the Tax Board erred in upholding the decision of the Appeals Division, the Greshams bear the burden of demonstrating the invalidity of the Tax Board’s decision. RCW 34.05.570(1)(a); Stuewe, 98 Wn. App. at 951. Washington requires its residents to register and license their vehicles with the state before operating them on the state’s highways.[8] RCW 46.16.028(3). Part of the vehicle licensing requirement formerly involved paying a mandatory excise fee for the privilege of using the state’s highways. Former RCW 82.44.020(1) (1998) (repealed 2000). For vehicle license registration purposes, “a resident is a person who manifests an intent to live or be located in this state on more than a temporary or transient basis.” RCW 46.16.028(1). A Washington resident was required to pay the MVET on his vehicle even when he decided to register and license his vehicle in another state or foreign country.[9] Former RCW 82.44.020(6). As Washington residents,[10] the Greshams were required to register and license their motor home in Washington, which included paying the associated MVET. Their efforts to license the motor home in Oregon did not relieve them of their obligation to pay the Washington MVET. Nevertheless, the Greshams maintain that they were legally authorized to use trip permits under RCW 46.16.160(1) in lieu of registering and licensing the motor home each time they traveled into Washington in the motor home. They argue that the trip permit is an alternative to, not an exemption from, vehicle licensing and registration. They are incorrect. Although a tax statute is usually construed “most strongly against the taxing authority,” the taxpayer bears the burden of demonstrating that an exemption applies, and the exemption is construed “strictly, though fairly” against the taxpayer if it is ambiguous or there is any doubt. Simpson Inv. Co. v. Dep’t of Revenue, 141 Wn.2d 139, 149-50, 3 P.3d 741 (2000). Tax exemptions are construed narrowly. Stroh Brewery Co. v. Dep’t of Revenue, 104 Wn. App. 235, 240, 15 P.3d 692, review denied, 144 Wn.2d 1002
(2001). Further, we construe a statute to give effect to all of the language and not render any portion meaningless or superfluous. Stroh Brewery, 104 Wn. App. at 240 (citing City of Seattle v. State, 136 Wn.2d 693, 698, 965 P.2d 619 (1998)). Finally, we will not construe a statute to reach “strained, unlikely or unrealistic” results. Simpson, 141 Wn.2d at 149 (citing Bour v. Johnson, 122 Wn.2d 829, 835, 864 P.2d 380
(1993)).

RCW 46.16.160(1), the trip permit statute, is an exemption to the default rule that all vehicles traveling on the highways of this state must be registered and licensed in this state. See RCW 46.16.010(1) (unlawful to operate any vehicle on public highway without first licensing it); see also RCW 46.16.028(3) (resident of Washington must register vehicle to operate it in the state). The trip permit statute provides in pertinent part:

The owner of a vehicle which under reciprocal relations with another jurisdiction would be required to obtain a license registration in this state or an unlicensed vehicle which would be required to obtain a license registration for operation on public highways of this state may, as an alternative to such license registration, secure and operate such vehicle under authority of a trip permit issued by this state in lieu of a Washington certificate of license registration, and licensed gross weight if applicable.

RCW 46.16.160(1).[11]

The Greshams argue that they were allowed to use trip permits as an alternative to licensing the motor home in Washington because Washington’s reciprocal relations with Oregon required them to license their motor home in Washington. This is a misapplication of the statute. The Washington Legislature has plenary power to levy taxes, and this power is only constrained by the state and federal constitutions. State ex rel. Heavey v. Murphy, 138 Wn.2d 800, 808-09, 982 P.2d 611 (1999). Thus, the state derives its taxation powers by virtue of its existence. A person submits to the laws and statutes of this state if he or she is within its borders. Accordingly, a Washington resident is subject to the tax laws of this state because of his or her residency here.

The requirement of vehicle licenses and the associated taxes arose not from any reciprocal relations with another jurisdiction but, rather, from Washington’s plenary power to tax. Here, the Greshams were not required to license their motor home in Washington because of any reciprocal relations between Washington and Oregon. The requirement arose because they were Washington residents who operated their motor home on state highways.

As Washington residents who were required to pay the MVET as part of the vehicle licensing requirement, the Greshams had to demonstrate that they qualified for the trip permit exemption. Simpson, 141 Wn.2d at 149 Stroh Brewery, 104 Wn. App. at 240. The Greshams have not met their burden. The Tax Board indicated that it could not apply the trip permit exemption to the default licensing statute because it could not `identify from the facts of this appeal `reciprocal relations with another jurisdiction’ which would require license registration of Taxpayers’ motorhome [sic] in the state of Washington.’ Clerk’s Papers (CP) at 91-92.

We agree with this interpretation and application of the statute. Here, the Greshams must present evidence of Washington’s `reciprocal relations’ with Oregon that require them to license their motor home in Washington.

Because the Greshams presented no evidence to overcome this burden, the Tax Board properly held they were ineligible for the trip permit exemption.[12]

The Greshams also contend that the Tax Board’s erroneous interpretation of RCW 46.16.160(1) effectively rewrites the statute because it excludes Washington residents from qualifying for the trip permit alternative. The Tax Board’s interpretation of RCW 46.16.160(1) identifies the class of ineligible persons as “Washington residents . . . whose vehicles are licensed in another state, but operated on the highways of Washington” (CP at 95) is not a rewriting of the statute. It is merely an interpretation of the statute. We give substantial deference to an agency’s interpretation of a statute within its expertise. Stuewe, 98 Wn. App. at 950.

The Tax Board’s interpretation of this statute was not in error. Although neither “owner” nor “reciprocal relations” are defined in the statute, the Tax Board’s interpretation of “owner” as “nonresident owner” is reasonable. Throughout the Motor Vehicles Chapter, RCW 46, the term “reciprocity” is consistently used to refer to the benefits and privileges of nonresidents from other jurisdictions traveling in the state of Washington. See RCW 46.85.060 (exempting nonresidents from Washington vehicle license requirements if they meet license requirements from nonresidents’ jurisdiction); RCW 46.16.030 (exempting nonresidents from Washington vehicle license requirements to the extent nonresidents’ jurisdictions provide the same exemption to Washington residents). Nowhere in chapter 46 RCW does the term `reciprocity’ or `reciprocal relations’ refer to exemptions or benefits Washington provides for its own residents.[13] Thus, the Tax Board’s interpretation of `owner’ to mean `nonresident owner’ as it relates to the reciprocal relations element of RCW 46.16.160(1) is reasonable and harmonizes the statute with other sections of the Motor Vehicles Chapter.

The Greshams next contend that the Tax Board erred in concluding that the motor home was licensed because it was licensed in Oregon. They argue that because the motor home’s Oregon license was invalid in Washington as it applies to them, the motor home should be considered an unlicensed vehicle, which would qualify them for the trip permit under the second exemption in RCW 46.16.160(1). The Greshams also argue that a vehicle is unlicensed if it cannot be driven in Washington for any reason under the Motor Vehicles Chapter, even if the vehicle is validly licensed in another state. They urge us to interpret “unlicensed” to mean “unlicensed in Washington.” We are not persuaded by their arguments. Adopting the Greshams’ argument would render the reciprocal relations provision superfluous and meaningless. We construe a statute to give effect to all of the language and not rendering any portion meaningless or superfluous. Stroh Brewery, 104 Wn. App. at 240. Under the reciprocal relations exemption provision of RCW 46.16.160(1), a resident of another state is authorized to use a trip permit in lieu of licensing his or her vehicle in Washington if the reciprocal relations between Washington and the nonresident’s home state requires the nonresident to license his or her vehicle in Washington. According to the Greshams’ interpretation, this nonresident’s vehicle would be unlicensed, as the vehicle license from its home state is invalid in Washington. Thus, there is no need for the reciprocal relations provision if all nonresident vehicles are `unlicensed.’ This result renders superfluous and meaningless the reciprocal relations provision, which the Legislature could not have intended. Further, a review of other statutory provisions does not support the Greshams’ interpretation. It is a gross misdemeanor under RCW 46.16.010(2) for a resident to license his vehicle in another state to evade paying the Washington fees and taxes. Former RCW 82.44.020 required residents to pay the MVET even when they license their vehicles in another state or foreign country. These two statutory provisions would be meaningless and have no effect under the Greshams’ interpretation of “unlicensed.” The Greshams’ interpretation would allow a Washington resident to license his or her vehicle in another state, be unlicensed, and use the trip permit exemption when traveling in Washington to avoid criminal prosecution and paying the MVET. The Legislature could not have intended for RCW 46.16.160(1) to have such an absurd result.[14]

Equal Protection Challenge

Finally, the Greshams contend that the Tax Board’s interpretation of RCW 46.16.160(1) violated the equal protection clause of the state constitution.[15] The Tax Board’s interpretation of RCW 46.16.160(1) passes constitutional muster. The right to equal protection under the law under the Fourteenth Amendment of the United States Constitution and the privileges and immunities clause of Washington Constitution, article I, sec. 12 are substantially identical.[16] In the Matter of the Detention of Turay, 139 Wn.2d 379, 412, 986 P.2d 790 (1999), cert. denied, 531 U.S. 1125 (2001); State v Manussier, 129 Wn.2d 652, 672, 921 P.2d 473
(1996), cert. denied, 520 U.S. 1201 (1997). The rational relationship or rational basis test is the appropriate standard of review where there is no suspect or semi-suspect class, and the classification does not threaten a fundamental right. State v. Shawn P., 122 Wn.2d 553, 560, 859 P.2d 1220 (1993). Classification as either resident or nonresident of Washington is not a suspect or semi-suspect class, and the use of a vehicle trip permit is not a recognized fundamental right, thus rational basis is the appropriate test in this case.

Under the rational basis test, the Tax Board’s interpretation of RCW 46.16.160(1) is constitutional. We uphold the classification unless it rests on grounds that are wholly irrelevant to achieve legitimate state objectives, and the party challenging the constitutionality of the classification has the burden to prove its arbitrariness. Turay, 139 Wn.2d at 410 (citing State v. Thorne, 129 Wn.2d 736, 771, 921 P.2d 514
(1996)). Here, the objective of differentiating between resident and nonresident vehicle owners was to ensure residents pay their MVET assessments. The revenue generated by the MVET were used to fund local and state services, including transportation, criminal justice, health services, and air pollution control. See former RCW 82.44.110 (1998) (repealed 2000) (allocating the revenue from MVET to the various funds to provide local and state services). Because residents of this state presumably benefited more from state and local services than nonresidents, it is only reasonable that they bore the burden of funding for these services.

In addition, the different classification promotes the goal of economic and social development and state growth. See RCW 46.85.010 (policy of state reciprocal agreements with other states is to encourage full use and accessibility of the state’s highway system to support economic and social development and growth). Allowing a nonresident vehicle owner to use trip permits as an alternative to the more burdensome licensing requirement encourages interstate travel, which promotes business opportunities and facilitates the transfer of resources. The ease of interstate travel naturally results in economic and social growth and development for the state. Thus, the Tax Board’s interpretation of the reciprocal relations trip permit provision of RCW 46.16.160(1) as not being available to resident vehicle owners who licensed their vehicles in another state is rationally related to the former legitimate goal of generating funds for state and local services and current legitimate goal of promoting economic and social growth and development.

Finally, the Greshams argue that discriminating against resident vehicle owners who licensed their vehicles in another state from those who maintain a completely unlicensed vehicle in Washington failed to promote the goal of providing funds. Again, they are incorrect. Before January 1997,[17] as resident owners of an unlicensed vehicle, the Greshams were authorized to use three trip permits each month at a cost $10 each[18] (for a total of $30). Assuming they used the statutory maximum number of trip permits allowed each month, the total annual revenue generated by the use of trip permits for their motor home would have totaled $360 ($30 x 12 months equals $360). Under the Tax Board’s interpretation, as resident vehicle owners who licensed their vehicle in Oregon, former RCW 82.44.020(7) required the Greshams to pay the MVET on the vehicle. The MVET on the Greshams’ motor home was $2,602.50 for the six-month period from November 1994 to April 1995, another $5,205 for the 12-month period from May 1995 to April 1996, and $5,205 for the 12-month period from May 1996 to April 1997,[19] totaling $13,012.50. AR 248. Under the Tax Board’s interpretation, construing the term `unlicensed’ to mean `unlicensed anywhere’ generated more income for the state through the MVET assessments. As indicated, revenue generated from the MVET was used to fund the various local and state services that primarily benefited Washington residents. The Board’s interpretation of RCW 46.16.160(1) was rationally related to the legitimate goals of the MVET. The Greshams fail to meet their burden of showing that the Tax Board’s interpretation was arbitrary.

Costs and Attorney Fees
The Greshams request an award of costs and attorney fees.[20] Because we affirm the Tax Board’s decision, we do not award attorney fees or costs to the Greshams. RCW 4.84.350(1).

Affirmed.

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.

MORGAN, J. and QUINN-BRINTNALL, A.C.J., concur.