Brundage-Bone Concrete Pumping, Inc., V. Dept. Of Revenue ( 2024 )

Filed
Washington State
Court of Appeals
Division Two
February 27, 2024
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
BRUNDAGE-BONE CONCRETE No. 58528-6-II
PUMPING, INC.,
Appellant,
v. UNPUBLISHED OPINION
STATE OF WASHINGTON, DEPARTMENT
OF REVENUE,
Respondent.
MAXA, P.J. – Brundage-Bone Concrete Pumping, Inc. (Brundage-Bone) appeals the trial
court’s order denying its challenge to a Department of Revenue (DOR) rule, WAC 458-20-211
(Rule 211). Brundage-Bone provides concrete pumping services to contractors for use in
construction projects, supplying a concrete pumping truck with an operator to control the pump.
Rule 211 states that stand-alone concrete pumping services will be taxed as retail sales rather
than as wholesale sales.
RCW 82.04.050(9) states that the term “retail sale” includes “the charge made for
providing tangible personal property along with an operator for a fixed or indeterminate period
of time.” However, RCW 82.04.050(14) states that the term retail sale “does not include the sale
for resale of any service described in this section if the sale would otherwise constitute a ‘sale at
retail’ and ‘retail sale’ under this section.” (Emphasis added.) And RCW 82.04.060(3) states
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that a “wholesale sale” includes “[t]he sale of any service for resale, if the sale is excluded from
the definition of ‘sale at retail’ and ‘retail sale’ in RCW 82.04.050(14).”
Rule 211(5)(a) states that providing equipment with an operator to a building contractor
generally is classified as a retail sale for B&O tax purposes. Rule 211(6)(a) states that retail
sales tax applies to providing tangible personal property with an operator. However, WAC 458-
20-170 (Rule 170) states that a person who leases equipment to a prime contractor and also
operates the equipment is a subcontractor taxable under the wholesaling classification. Rule
170(1)(b), 3(a).
Before 2019, DOR’s website had a section providing industry guidance regarding the tax
treatment of concrete pumping services. The guidance stated that concrete pumping services for
another contractor was a wholesaling activity subject to B&O tax under the wholesale
classification and not subject to sales tax.
But in August 2019, DOR issued an interim guidance statement to clarify the tax
treatment of certain concrete pumping services. DOR explained that the rental of concrete
pumping equipment with an operator was subject to the retailing B&O tax and retail sales tax.
DOR subsequently incorporated the interim guidance statement into amendments to Rule 211
that were adopted in March 2021.
Brundage-Bone argues that Rule 211 is invalid because (1) the rule exceeds DOR’s
statutory authority by excluding stand-alone concrete pumping services from the definition of a
sale for resale, (2) the rule exceeds DOR’s statutory authority to the extent that it conflicts with
the provisions of Rule 170, and (3) DOR adoption of the 2021 amendments was arbitrary and
capricious.
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We hold that (1) because DOR’s interpretation of RCW 82.04.050(9), RCW
82.04.050(14), and RCW 82.04.060(3) in Rule 211 is reasonably consistent with those statutes,
DOR did not exceed its statutory authority by adopting Rule 211; (2) Rule 211 does not exceed
statutory authority simply because it conflicts with Rule 170; and (3) DOR’s 2021 amendments
to Rule 211 were not arbitrary and capricious because DOR duly considered the relevant facts
and circumstances when it adopted the amendments. Accordingly, we affirm the trial court’s
order denying Brundage-Bone’s challenge to Rule 211.
FACTS
Stand-Alone Concrete Pumping Services
Brundage-Bone is a business that provides concrete pumping services to residential,
commercial, and industrial park customers. Their customers include both prime contractors and
subcontractors.
When hired to provide concrete pumping services, Brundage-Bone delivers a concrete
pumping truck to the jobsite with an operator. The contractor purchases concrete from another
vendor, who pours the concrete into the pumping truck’s hopper. Concrete pumping trucks have
powerful pumps with an extendable hose. The operator controls the pump to discharge concrete
as instructed by the contractor. The contractor provides the workers responsible for placing and
finishing the pumped concrete.
Statutory Change and 1996 Amendments to Rule 211
RCW 82.04.050 defines what transactions are classified as “retail sales” for tax purposes.
A retail sale generally is defined as “every sale of tangible personal property . . . to all persons
irrespective of the nature of their business.” RCW 82.04.050(1)(a).
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In 1993, the legislature amended RCW 82.04.050 to include in the definition of retail sale
“the rental of equipment with an operator.” Former RCW 82.04.050(4) (1993).1 In 1996, DOR
incorporated that statutory change into its Rule 211. See Former WAC 458-20-211 (1996)
(former Rule 211). Provisions of the amended Rule 211 stated that renting equipment with an
operator generally is a retail sale, former Rule 211(5)(b), and the lessee is not purchasing the
equipment for resale. Former Rule 211(4). And the 1996 amendments included an example
specific to concrete pumping:
XYZ Concrete Pumping is hired by a prime contractor to supply a concrete pump
and operator to pump concrete from a premix concrete delivery truck to the location
of the forms. XYZ has no responsibility to build forms, do the concrete finishing,
or otherwise see that the concrete meets or is placed according to contract
specifications. In short, the pump functions similarly to a wheelbarrow, but in a
more efficient manner. XYZ is not a subcontractor and is making a retail rental of
equipment with an operator.
Former Rule 211(8)(c).
DOR Industry Guidance and Interim Guidance Statement
For some time before 2019, DOR’s website listed industry guidance for how certain
activities are classified for tax purposes. The guidance included a section specifically related to
concrete pumping services:
Concrete pumping services are considered to be construction services. As such,
concrete pumping for a landowner is a retail sale and subject to sales tax. Income
received from this activity is subject to B&O tax under the Retailing classification.
Concrete pumping services for another contractor is a wholesaling activity, if a
reseller permit is obtained from the hiring contractor. Such charges are not subject
to sales tax and income from this activity is subject to B&O tax under the
Wholesaling classification.
1
This provision subsequently was expanded and renumbered, and currently is codified at RCW
82.04.050(9). The current version states, “The term [retail sale] also includes the charge made
for providing tangible personal property along with an operator for a fixed or indeterminate
period of time.” RCW 82.04.050(9).
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Clerk’s Papers (CP) at 66 (emphasis added). Classifying concrete pumping services as
construction services meant that concrete pumping companies could treat their transactions as
wholesale sales when they sold their services to other contractors.
In August 2019, DOR issued an interim guidance statement regarding the tax treatment of
concrete pumping service providers. The interim guidance stated,
This section applies to taxpayers who provide stand-alone concrete pumping
services. . . .
A “retail sale” includes the charges made for providing tangible personal property
along with an operator for a fixed or indeterminate period of time. RCW
82.04.050(9). Accordingly, consistent with the example in Rule 211(8)(c), the
rental of concrete pumping equipment with an operator (i.e., the concrete pumping
service) is subject to retailing B&O and retail sales tax.
Customers, including construction contractors or subcontractors, who rent concrete
pumping equipment with an operator are considered consumers of such retail sales
and cannot use a reseller permit.
Admin. Rec. (AR) at 2.
DOR further explained that when a concrete pumping service provider sells construction
materials or other construction services in addition to the rental of concrete pumping equipment
with an operator, providers must look to the primary purpose of the sale to determine its tax
treatment. When the primary purpose of the sale is providing the concrete materials, then the
sale is subject to retailing B&O taxes unless it qualifies as a purchase for resale. However, if the
primary purpose of the sale is the provision of construction services, then it may qualify as a
purchase for resale under certain circumstances.
DOR Initiates Rulemaking Process to Update Rule 211
In September 2019, DOR filed a preproposal statement of inquiry to incorporate its
interim guidance statement regarding the tax treatment of concrete pumping services into Rule
211. In October, DOR held a public meeting about the proposed rulemaking. It did not provide
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draft amendments to Rule 211 at this meeting. Representatives of concrete pump operators and
industry groups attended the meeting and provided comments. At the meeting, DOR explained
that there was conflicting guidance on the treatment of concrete pumping services on their
website, but that it since had been taken down.
After the meeting, eight stakeholders provided written comments on DOR’s proposed
amendments to Rule 211. One person expressed support for the proposed amendments to the
rule. The seven other stakeholders who provided comments after the October meeting expressed
opposition to the proposed changes. Many expressed concerns that the proposed amendment
was unfair, because it would treat companies that only provide stand-alone concrete pumping
services differently from companies that provide both concrete pumping and other materials or
services. One stakeholder argued that DOR lacked legal authority to issue its interim guidance.
Based on the comments received at the meeting, DOR extended the effective date of the
interim guidance statement to April 1, 2020, to give time to affected parties to comply.
Legislation Regarding Concrete Pumping Services
In January 2020, both the House of Representatives and the Senate considered bills that
would have stated that the terms “constructing,” “building,” “repairing,” “decorating,” and
“improving” when used in the context of services rendered with respect to real property were
deemed to include the provision of “concrete pumping services.” CP at 125-26. Both bills died
in committee.
DOR Finalizes Amendments to Rule 211
In May 2020, DOR released a second preproposal statement of inquiry. It held a second
public meeting in June. DOR did not provide a draft of the amendments at this meeting.
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In November, DOR released a third preproposal statement of inquiry. DOR also
announced a third public meeting, and presented a draft of the proposed amendments to Rule
211. The draft rule made relatively minor changes to several sections of Rule 211 and also
included a number of examples to illustrate the tax treatment under various scenarios.
On December 2, DOR held a third public meeting. At the meeting, a representative from
DOR stated:
The Department’s goal is to address the issue of distinguishing concrete pumping
services, classified as rentals of equipment with an operator, from sales of
construction services or sales of construction materials, particularly in cases where
multiple goods or services are provided for a single charge; thus, the Department is
proposing the inclusion of additional examples in the rule to illustrate sales
transactions that involve the provision of a concrete pumping apparatus with an
operator.
AR at 238.
On December 16, DOR filed a notice of proposed rulemaking for its updates to Rule 211.
DOR held its fourth and final public meeting in February 2021. DOR issued an
explanatory statement in which it summarized and addressed the comments it had received.
In March, DOR adopted permanent amendments to Rule 211. In a memorandum to the
agency head, DOR stated that “[w]e responded to comments as necessary, however, we did not
make any changes to the proposed rule amendments based on the comments received.” AR at
44.
The primary changes in the 2021 amendments were the inclusion of multiple, more
extensive examples. Like the 1996 amendments, the 2021 amendments included an example
regarding stand-alone concrete pumping services:
Example 9. DEF Builders Co. (prime contractor) is hired to construct an apartment
complex. DEF is performing a significant portion of the construction services
associated with the project on its own behalf, including construction of the
building’s foundation. After constructing forms for the apartment’s foundation,
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No. 58528-6-II
DEF contracts with XYZ Concrete Co. to pump premixed concrete from a ready
mix truck (located at the construction site) into the forms. XYZ operates its own
pumping equipment, however, DEF controls the flow and placement of the
concrete, directing XYZ’s operator to start and stop the pump. The premixed
concrete is not provided by XYZ. DEF is responsible for finishing the concrete.
In this scenario, XYZ is providing stand-alone concrete pumping services, and its
business activity is classified as a rental of equipment with an operator, the charges
for which are subject to retailing B&O and retail sales tax. Additionally, XYZ’s
activity is not eligible for resale, as DEF is considered the consumer of the operated
rental equipment.
Rule 211(8) (emphasis added).
Trial Court Ruling
In September 2021, Brundage-Bone filed a petition for declaratory judgment in the trial
court. Brundage-Bone argued that (1) Rule 211 was invalid because DOR exceeded its statutory
authority by excluding stand-alone concrete pumping services from “sale[s] for resale of any
service” under RCW 82.04.050(14), (2) Rule 211 was invalid because it includes definitions that
conflicted with Rule 170, and (3) the 2021 amendments to Rule 211 were arbitrary and
capricious because they treated concrete pumping services subcontractors differently from other
subcontracted services. CP at 5.
DOR argued that its amendments to Rule 211 were consistent with RCW 82.04.050(9),
which provides that a retail sale includes a charge made “for providing tangible personal
property along with an operator for a fixed or indeterminate period of time.”
DOR explained that it first issued Rule 211 in 1970, and they have amended the rule
several times to incorporate statutory changes. Therefore, after the legislature enacted RCW
82.04.050(9), which amended the definition of “retail sale” to include “the rental of equipment
with an operator,” DOR accordingly amended Rule 211 to reflect that change in 1996.
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DOR incorporated the interim guidance statement into Rule 211 to “provide additional
guidance distinguishing (1) stand-alone concrete pumping services classified as rental of
equipment with an operator under RCW 82.04.050(9), from (2) sales of construction materials
and sales of construction services classified as wholesale sales.” CP at 98.
In February 2023, the trial court entered an order denying Brundage-Bone’s challenge to
Rule 211. Specifically, the court ruled that Brundage-Bone did not meet its burden to prove that
Rule 211 exceeds DOR’s statutory authority, and also failed to prove that the 2021 amendments
to Rule 211 were arbitrary and capricious.
Brundage-Bone appeals the trial court’s order denying the challenge to Rule 211.
ANALYSIS
A. STANDARD OF REVIEW
Parties can petition for judicial review of an agency rule at any time. RCW 34.05.542(1).
The party challenging a rule bears the burden of proving its invalidity. Bassett v. Dep’t of
Ecology, 8 Wn. App. 2d 284, 297, 438 P.3d 563 (2019). “[T]he court shall declare the rule
invalid only if it finds that: The rule violates constitutional provisions; the rule exceeds the
statutory authority of the agency; the rule was adopted without compliance with statutory rule-
making procedures; or the rule is arbitrary and capricious.” RCW 34.05.570(2)(c); see also Nw.
Pulp & Paper Ass’n v. Dep’t of Ecology, 200 Wn.2d 666, 672, 520 P.3d 985 (2022).
DOR has no authority to amend tax statutes by regulation. Ctr. for Biological Diversity
v. Dep’t of Fish & Wildlife, 14 Wn. App. 2d 945, 967, 474 P.3d 1107 (2020). “Rules that are not
consistent with or are broader than the statutes they implement are invalid.” Id. However,
administrative rules written within the framework of the applicable statutes do not exceed
statutory authority. Id. An agency does not exceed its statutory authority as long as the rule is
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“ ‘reasonably consistent with the controlling statute[s].’ ” Id. (quoting Wash. Pub. Ports Ass’n
v. Dep’t of Revenue, 148 Wn.2d 637, 646, 62 P.3d 462 (2003)); see also Dep’t of Revenue v.
GameStop, Inc., 8 Wn. App. 2d 74, 82, 436 P.3d 435 (2019) (“We presume that a regulation is
valid if it is reasonably consistent with the statute it implements.”).
We review the validity of an agency rule de novo. Ctr. for Env’t Law & Pol’y v. Dep’t of
Ecology, 196 Wn.2d 17, 28, 468 P.3d 1064 (2020).
B. STATUTORY AND REGULATORY FRAMEWORK
1. Relevant Statutes
Washington levies B&O taxes on companies that engage in business in the state. RCW
82.04.220(1). There is a B&O tax rate for “sales at retail,” RCW 82.04.250(1), and a tax rate for
“sales at wholesale.” RCW 82.04.270. Sales taxes are imposed only on sales included in the
RCW 82.04.050 definition of retail sale. RCW 82.08.020.
RCW 82.04.050 defines what transactions are classified as “sales at retail” or “retail
sales” for tax purposes. A retail sale generally is defined as “every sale of tangible personal
property . . . to all persons irrespective of the nature of their business and including, among
others, without limiting the scope hereof, persons who install, repair, clean, alter, improve,
construct, or decorate real or personal property of or for consumers.” RCW 82.04.050(1)(a).
A “sale at retail” also includes “labor and services rendered in respect to . . . (b) The
constructing, repairing, decorating, or improving of new or existing buildings or other structures
under, upon, or above real property of or for consumers.” RCW 82.04.050(2)(b).
RCW 82.04.051(1) states:
As used in RCW 82.04.050 . . . the term “services rendered in respect to” means,
in the context of constructing, building, repairing, improving, and decorating
buildings or other structures, those services that are directly related to the
constructing, building, repairing, improving, and decorating of buildings or other
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structures and that are performed by a person who is responsible for the
performance of the constructing, building, repairing, improving, or decorating
activity.
(Emphasis added).
Relevant here, the term “sale at retail” expressly includes “the charge made for providing
tangible personal property along with an operator for a fixed or indeterminate period of time.”
RCW 82.04.050(9).
However, RCW 82.04.050(14) states that the term retail sale “does not include the sale
for resale of any service described in this section if the sale would otherwise constitute a ‘sale at
retail’ and ‘retail sale’ under this section.” (Emphasis added.) And RCW 82.04.060(3) states
that a “wholesale sale” includes “[t]he sale of any service for resale, if the sale is excluded from
the definition of ‘sale at retail’ and ‘retail sale’ in RCW 82.04.050(14).”
2. Applicable Regulations
The 1996 amendments to Rule 211 included a new introductory paragraph:
This section explains how persons are taxable who rent or lease tangible personal
property or rent equipment with an operator. RCW 82.04.050(4) was amended by
chapter 25, Laws of 1993 sp. sess. to specifically include the rental of equipment
with an operator as a retail sale. However, as will be explained in more detail
below, some activities performed by operated equipment may be taxable under
classifications other than retail sales if the operator and equipment perform
activities as a prime contractor or subcontractor and these activities are
specifically classified under other tax classifications by the revenue act.
Former Rule 211(1) (emphasis added).
The amendments included two provisions that addressed supplying equipment with an
operator. Former Rule 211(4) stated, “[P]ersons who rent equipment with an operator are not
purchasing the equipment for resale . . . and must pay retail sales or use tax at the time the
equipment is acquired.” Former Rule 211(5)(b) stated, “In the case of building construction, it
will be presumed that the rental of equipment with operator to a contractor is a retail sale unless
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the operator has responsibility for performing construction to contract specifications and assumes
control over how the work will be performed.”
In addition, the pre-1996 version of Rule 211 provided as follows, after renumbering in
the 1996 amendments: “[The] retail sales tax applies upon sales to persons who provide
[tangible personal property] with operators for a charge, without relinquishing substantial
dominion and control.” Former Rule 211(6)(a).
The 1996 amendment to Rule 211 defined “subcontractor” as:
[A] person who has entered into a contract for the performance of an act with the
person who has already contracted for its performance. A subcontractor is
generally responsible for performing the work to contract specification and
determines how the work will be performed. In purchasing subcontract services,
the customer is primarily purchasing the knowledge, skills, and expertise of the
contractor to perform the task; as distinguished from the operation of the
equipment.
Former Rule 211(2)(c).
The 1996 amendment to Rule 211 incorporated a “true object test” to help DOR
determine the proper tax treatment for a transaction involving equipment with an operator:
The term “true object test” as it relates to this section means the analysis of a
transaction involving equipment and an operator to determine if the lessee is simply
purchasing the use of the equipment or purchasing the knowledge, skills, and
expertise of the operator beyond those needed to operate the equipment.
Former Rule 211(2)(e).
Included in the 1996 amendments were examples to illustrate the tax treatment of
different services. A crane operator hired to supply a crane and operator to lift air conditioning
to a rooftop and hold it in place while the hiring contractor bolted the unit down was providing a
transaction taxable as a retail sale. Former Rule 211(8)(a). That is because the operator has “no
responsibility to perform actual construction to contract specification.” Former Rule 211(8)(a).
In contrast, a company hired to install a neon sign and was responsible for installing electrical
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connections and fastening the sign to the building was performing construction services, and that
transaction was treated as a wholesale sale. Former Rule 211(8)(b).
As noted above, the 1996 amendments included an example specific to concrete
pumping:
XYZ Concrete Pumping is hired by a prime contractor to supply a concrete pump
and operator to pump concrete from a premix concrete delivery truck to the location
of the forms. XYZ has no responsibility to build forms, do the concrete finishing,
or otherwise see that the concrete meets or is placed according to contract
specifications. In short, the pump functions similarly to a wheelbarrow, but in a
more efficient manner. XYZ is not a subcontractor and is making a retail rental of
equipment with an operator.
Former Rule 211(8)(c).
The 2021 amendments made a few technical changes to the existing provisions of Rule
211. But the primary changes were replacing the 2006 examples with different and more
extensive examples. The amendments modified the examples involving a crane operator:
Example 6. ABC Crane Co. is hired by DEF Builders Co. to supply a crane and
operator to lift air conditioning equipment from the ground and hold it in place on
the roof of a six story building while DEF employees bolt the unit down. ABC’s
operator will retain control over the crane. ABC has no responsibility to attach
wiring, plumbing, or otherwise make the unit operational.
In this scenario, ABC’s business activity is classified as a rental of equipment with
an operator the charges for which are subject to retailing B&O and retail sales tax.
RCW 82.04.050(9). This is demonstrated by the fact that ABC is not responsible
for the performance of any services, other than those necessary to operate the crane.
Example 7. ABC Crane Co. (ABC) is hired by DEF Builders Co. (DEF), the prime
contractor, to install a neon sign on the side of a new six-story building DEF is
constructing. At the time of purchase, DEF provides ABC with a reseller permit in
lieu of paying retail sales tax. ABC is responsible for making certain that the sign
is correctly fastened to the side of the building and in accordance with the contract
specifications established between DEF and the property owner.
In this scenario, ABC’s business activity is classified as a construction service, the
charges for which are generally subject to retailing B&O and retail sales tax. RCW
82.04.050(2). However, in this scenario the charges are subject to wholesaling
B&O tax, as construction services are eligible for resale, and ABC received a
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reseller permit from DEF, who is reselling construction services to the property
owner.
Rule 211(8).
The 2021 amendments included three examples involving concrete pumping services:
Example 9. DEF Builders Co. (prime contractor) is hired to construct an apartment
complex. DEF is performing a significant portion of the construction services
associated with the project on its own behalf, including construction of the
building’s foundation. After constructing forms for the apartment’s foundation,
DEF contracts with XYZ Concrete Co. to pump premixed concrete from a ready
mix truck (located at the construction site) into the forms. XYZ operates its own
pumping equipment, however, DEF controls the flow and placement of the
concrete, directing XYZ’s operator to start and stop the pump. The premixed
concrete is not provided by XYZ. DEF is responsible for finishing the concrete.
In this scenario, XYZ is providing stand-alone concrete pumping services, and its
business activity is classified as a rental of equipment with an operator, the charges
for which are subject to retailing B&O and retail sales tax. Additionally, XYZ’s
activity is not eligible for resale, as DEF is considered the consumer of the operated
rental equipment.
Example 10. DEF Builders Co. (prime contractor) is hired to construct an
apartment complex. DEF is performing a significant portion of the construction
services associated with the project on its own behalf, including construction of the
building’s foundation. After constructing forms for the apartment’s foundation,
DEF contracts with XYZ Concrete Co. to provide premixed concrete and to pump
for the pour. XYZ operates its own pumping equipment, however, DEF controls
the flow and placement of the concrete, directing XYZ’s operator to start and stop
the pump. At the time of its purchase, DEF provides XYZ with a reseller permit in
lieu of paying retail sales tax.
In this scenario, where the taxpayer is providing both the concrete materials and the
concrete pumping equipment and pumping services, XYZ’s activity is classified
according to subsection (2)(e)(iii) of this rule. In this case, the transaction’s true
object (or primary purpose) is the sale of premixed concrete. The sale of tangible
personal property (concrete) for resale is subject to wholesaling B&O tax.
Example 11. DEF Builders Co. (prime contractor) is hired to construct an
apartment complex. DEF hires subcontractors to perform a significant portion of
the construction services associated with the project, including construction of the
building’s foundation. DEF contracts with XYZ Concrete Co. to pour and finish
the building’s concrete foundation, including construction of forms to pour the
foundation. XYZ operates its own pumping equipment, in addition to providing
on-site contractors who will manage the flow and placement of the pumped
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concrete. After the pour, XYZ is responsible for finishing the concrete. XYZ’s
contract with DEF requires the finished foundation meet the contract specifications
entered into between DEF and its customer, the building owner.
In this scenario, XYZ’s business activity is classified as the sale of subcontracted
construction services, the charges for which are subject to wholesaling B&O tax,
provided XYZ received a reseller permit from DEF.
Rule 211(8) (emphasis added).
In addition to Rule 211, Rule 170 also addresses the rental of equipment. At least since
1987, Rule 170 has provided a definition of “subcontractor” that “includes persons who rent or
lease equipment to prime contractors or subcontractors for use in respect to constructing,
repairing, etc., when such equipment is operated by the lessor.” Rule 170(1)(b). Further, Rule
170(3)(a) states that subcontractors are taxable under the wholesaling classification.
C. STATUTORY AUTHORITY FOR RULE 211
Brundage-Bone argues that Rule 211 is invalid because it exceeds DOR’s statutory
authority in that it conflicts with RCW 82.04.050(14). We disagree.
RCW 82.04.050(9) states that a retail sale includes “providing tangible personal property
along with an operator for a fixed or indeterminate period of time.” However, a service defined
in RCW 82.04.050 is not a “sale at retail” if it amounts to “the sale for resale of any service.”
RCW 82.04.050(14). And RCW 82.04.060(3) provides that a “wholesale sale” or “sale at
wholesale” includes “the sale of any service for resale, if the sale is excluded from the definition
of ‘sale at retail’ and ‘retail sale’ in RCW 82.04.050(14).”
Under these statutory provisions, the issue is whether providing stand-alone concrete
pumping services to a prime contractor constitutes the sale of a service for resale under RCW
82.04.050(14) and RCW 82.060(3). In other words, the question is whether a contractor renting
a pumping truck with an operator resells concrete pumping services to the project owner. No
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cases have addressed RCW 82.04.050(9) or RCW 82.04.050(14). And no statute defines what
constitutes a “sale for resale” of a service.
Brundage-Bone asserts that RCW 82.04.050(9) is subject to the “sale for resale”
exclusion from the definition of retail sale in RCW 82.04.050(14). Brundage-Bone focuses on
the term “any services” in RCW 82.04.050(14). Brundage-Bone contends that the sale of
concrete pumping services to a contractor or subcontractor constitutes a sale for resale because
the contractor resells those services to the “consumer” – the project owner.
DOR’s interpretation, expressed in Rule 211, depends on the nature of the services the
concrete pumper provides. If the operator merely provides pumping services, rental of the
pumping equipment is a retail sale and is not a sale for resale. Rule 211(4), (5)(b), (6)(a), (8)
(example 9). But there is no retail sale if the operator also “is responsible for performing
construction to contract specifications and assumes control over how the work will be
performed.” Rule 211(5)(b); see also Rule 211(8) (example 11).
DOR emphasizes that this interpretation is consistent with RCW 82.04.050. Under RCW
82.04.050(2)(b), a contractor’s construction of a building for the project owner constitutes a
retail sale. The contractor must pay the B&O retail tax and must collect sales tax from the
project owner. Therefore, it makes sense that the sale of services or materials to the contractor
that will be incorporated into the building is a sale to the contractor for resale to the project
owner. The cost of those services or materials will be included in the total price paid by the
project owner, which is subject to the B&O retail tax and sales tax. When a concrete pump
operator also is responsible for providing additional construction services regarding the contract
specifications for the finished concrete, those services are incorporated into the building and are
resold to the owner.
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However, the analysis is different when a contractor rents equipment with an operator.
Neither the pumping truck nor the operator’s services are incorporated into the building. In that
situation, the contractor – not the project owner – is the “consumer” of the equipment and the
operator’s services. The contractor does not resell the equipment and services to the project
owner. Instead, the contractor merely uses the equipment and services just like they would rent
and use a backhoe, crane, or other tool. DOR characterizes the pumping truck as a fancy
wheelbarrow. Just as the contractor would not resell a wheelbarrow to the project owner, neither
are they reselling the pumping truck and pumping services to the project owner.
Under this analysis, the contractor does not rent concrete pumping services for resale to
the project owner. Therefore, RCW 82.04.050(14) and RCW 82.04.060(3) are inapplicable.
And RCW 82.04.050(9) controls: a retail sale includes “providing tangible personal property
along with an operator for a fixed or indeterminate period of time.”
As noted above, rental of a pumping truck with an operator may not be a retail sale and
might constitute a sale for resale if the operator does more than merely pump concrete and
instead “is responsible for performing construction to contract specifications and assumes control
over how the work will be performed.” Rule 211(5)(b). In this case, the operator is providing
services that are incorporated into the building, and therefore constitute a resale to the project
owner. This scenario is illustrated in example 11, where the concrete pumping company not
only pumps the concrete but also is responsible for the construction of forms and finishing the
concrete. In this situation, the activity is the sale for resale and subject to the wholesaling B&O
tax. Rule 211(8) (example 11).
Because of the posture of this case, we need not determine whether DOR or Brundage-
Bone has the “better” interpretation of the relevant statutory provisions. Specifically, the issue
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here is not the meaning of RCW 82.04.050(14). The only issue is whether Rule 211 is invalid
because it exceeds DOR’s statutory authority. The ultimate question regarding statutory
authority for Rule 211 is whether the rule is “ ‘reasonably consistent with the controlling
statute[s].’ ” Ctr. for Biological Diversity, 14 Wn. App. 2d at 967 (quoting Wash. Pub. Ports
Ass’n, 148 Wn.2d at 646).
We conclude that Rule 211 is reasonably consistent with RCW 82.04.050(9) and (14) and
RCW 82.04.060(3). Under RCW 82.04.050(9), the provision of tangible personal property with
an operator is a retail sale. Brundage-Bone relies on the “sale for resale” provision of RCW
82.04.050(14), but the statute does not define that term. It is reasonable for DOR to classify
stand-alone concrete pumping services as a retail sale to the contractor rather than as a resale
from the contractor to the project owner because the contractor is using the pumping services
rather than incorporating them into the building.
Accordingly, we hold that the trial court did not err in denying Brundage-Bone’s
challenge to Rule 211 based on a conflict with RCW 82.04.050(14).
D. CONFLICT BETWEEN RULE 211 AND RULE 170
Brundage-Bone argues that Rule 211 is invalid because it conflicts with Rule 170. We
disagree.
Rule 170 applies to construction upon real property. Its definition of “subcontractor”
includes “persons who rent or lease equipment to prime contractors or subcontractors for use in
respect to constructing, repairing, etc., when such equipment is operated by the lessor.” Rule
170(1)(b). Rule 170 provides that subcontractors are subject to wholesaling B&O tax upon the
gross contract price for services provided to prime contractors or others. Rule 170(3)(a). Under
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this rule, a person providing concrete pumping services is a “subcontractor” that falls within the
wholesaling classification.
But Rule 211, which governs leases or rentals of tangible personal property, has a
different definition of “subcontractor.” Rule 211(2)(c) defines “subcontractor” as someone who
“is generally responsible for performing the work to contract specification and determines how
the work will be performed.” The rule further states that when someone purchases the services
of a subcontractor, they are “primarily purchasing the knowledge, skills, and expertise of the
contractor to perform the task, as distinguished from the operation of the equipment.” Rule
211(2)(c). In other words, to qualify as a subcontractor a concrete pumping service provider
must do something more than merely operating the pumping equipment. Rule 211(5)(b), (8)
(examples 10, 11).
Brundage-Bone argues that Rule 170 states the correct test and that Rule 211 improperly
treats concrete pumping companies differently than other subcontractors subject to Rule 170.
DOR acknowledges that Rule 170 is inconsistent with Rule 211. But DOR argues that
because the fact that Rule 211 is inconsistent with Rule 170 does not meant that it has exceeded
its statutory authority. DOR explains that Rule 170’s definition of “subcontractor” is incorrect
and outdated. That rule predates the legislature’s enactment of RCW 82.04.050(9), which
classified the provision of tangible personal property with an operator as a retail sale. DOR
argues that Rule 211 controls over the conflicting language in Rule 170(1)(b) because it is more
up-to-date and involves a more specific subject matter.
We agree with DOR. We may invalidate an agency rule only if it exceeds statutory
authority, is unconstitutional, was adopted without compliance with statutory rule-making
procedures, or is arbitrary and capricious. RCW 34.05.570(2)(c); Nw. Pulp & Paper Ass’n, 200
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Wn.2d at 672. Conflict with another rule is not the basis for invalidating a rule. In addition, we
agree that the more recent rule should control over an older rule.
We conclude that the conflict between Rule 211 and Rule 170 does not provide a reason
to invalidate Rule 211.
E. ARBITRARY AND CAPRICIOUS CLAIM
Brundage-Bone argues that DOR was arbitrary and capricious in amending Rule 211.
We disagree.
1. Legal Principles
We will consider an agency action to be arbitrary and capricious only if the action is
“ ‘willful and unreasoning and taken without regard to the attending facts or circumstances’ ”
Whidbey Env’t Action Network v. Growth Mgmt. Hr’gs Bd., 14 Wn. App. 2d 514, 526, 471 P.3d
960 (2020) (quoting Att’y Gen.’s Off. v. Utils. & Transp. Comm’n, 128 Wn. App. 818, 824, 116
P.3d 1064 (2005)). If there is room for two opinions and the agency duly considered its action,
the action is not arbitrary and capricious. Whidbey Env’t Action Network, 14 Wn. App. 2d at
526. Even if the reviewing court believes the action was erroneous, the court will affirm the
action if taken with due consideration. Id. The existence of contrary evidence also does not
render an agency decision arbitrary and capricious. Id.We base our review of whether an agency rule is arbitrary and capricious on the rule-
making file and the agency’s explanations for the rule. Wash. Rest. Ass’n v. Liquor and
Cannabis Bd., 10 Wn. App. 2d 319, 341, 448 P.3d 140 (2019).
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2. Analysis
DOR proposed amendments to Rule 211 and explained that its intention was to clarify the
tax treatment of concrete pumping services. Specifically, DOR stated in its interim guidance
statement that:
[Rule 211] provides that concrete pumpers providing a concrete pump and operator
to pump concrete are subject to the retailing B&O and retail sales tax. However,
the Department’s industry guide also indicates that concrete pumping services are
considered construction services. This interim guidance statement is intended to
clarify the tax treatment of certain concrete pumping services.
AR at 1.
DOR held four public meetings at which stakeholders shared their comments and
concerns about the proposed amendments. DOR then responded to stakeholders’ written
comments in a concise explanatory statement. The record shows that DOR conducted a reasoned
and thoughtful rulemaking process, and that its decision to amend Rule 211 in 2021 was rooted
in the record and supported by DOR’s guiding statutes. For that reason, we hold that DOR’s
2021 amendments to Rule 211 were not arbitrary and capricious.
Brundage-Bone argues that DOR failed to explain why they changed their tax treatment
of concrete pumping services when it updated Rule 211. They claim that DOR failed to include
a rationale for their updates to Rule 211 in the rulemaking record. They argue that DOR’s
explanatory statement merely explains what the DOR was doing, but does not explain why they
were doing it. Finally, they argue that the conflicting guidance that DOR purported to address in
the amendments to Rule 211 did not exist on their website – rather, they contend that DOR’s
interim guidance statement was the cause of that conflict.
These arguments are not persuasive. DOR explains in the interim guidance statement
why it issued the statement. The interim guidance statement was part of the rulemaking file, and
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was available for stakeholders to review. Asserting that DOR failed to provide a rationale for its
amendments to Rule 211 when that explanation is clearly in the interim guidance statement
elevates form over substance. DOR explained why it began the rule-making process and
provided the statutory authority on which it relied, and it responded to comments received during
the rule-making process.
Next, Brundage-Bone argues that stakeholders raised multiple issues on the record before
the DOR, and that DOR failed to address their concerns. They claim that the agency failed to act
on stakeholder comments. They point to DOR’s statement that it “did not make any changes to
the proposed rule amendments based on the comments received.” AR at 44.
However, as stated above, an agency action is not arbitrary and capricious merely
because there is room for disagreement on the issue. Whidbey Env’t Action Network, 14 Wn.
App. 2d at 526. Here, although there was disagreement from many of the stakeholders, not every
concrete pumping stakeholder disagreed with DOR’s proposed changes to Rule 211. In addition,
DOR is not required to act on stakeholder comments – rather, they have a duty to conduct a
reasoned rulemaking process that considers the relevant facts and circumstances. Id. The
amendments to Rule 211 did not violate DOR’s statutory authority and DOR properly responded
to stakeholder comments.
Finally, Brundage-Bone argues that DOR treats concrete pumping services differently
than other subcontracted labor services in contravention of RCW 82.04.050, RCW 82.04.060,
and the rulemaking file. But as explained above, the 2021 amendments to Rule 211 did not
exceed DOR’s statutory authority under RCW 82.04.050 or RCW 82.04.060. Nothing in the
rulemaking file supports the notion that DOR was “willful and unreasoning” in its decision to
amend Rule 211.
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We hold that DOR’s 2021 amendments to Rule 211 were not arbitrary and capricious.
CONCLUSION
We affirm the trial court’s order denying Brundage-Bone’s challenge to Rule 211.
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 in accordance with RCW
2.06.040, it is so ordered.
MAXA, P.J.
We concur:
PRICE, J.
CHE, J.
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