264 P.3d 259
Wash. Ct. App.2011Background
- Nord Northwest Corporation built two condominium projects on real property owned by Stanwood Condominiums LLC and Bellingham Condominiums LLC.
- Nord formed the two LLCs in 1999 to own, manage, and develop real estate and to obtain financing; Nord contributed services and received ownership interests, while LLC members contributed cash.
- Nord operated as prime contractor, entering construction contracts with the LLCs and receiving payment from the LLCs’ gross proceeds; LLCs funded construction through bank loans.
- Nord treated itself as a speculative builder under WAC 458-20-170(2)(a), avoiding B&O tax and retail sales tax on construction services, while the LLCs owned the property.
- The Department audited Nord (1998–2002); the Board of Tax Appeals ruled in Nord’s favor, but a superior court reversal held Nord did not own the property and thus was not a speculative builder.
- This Washington Court of Appeals decision affirms the superior court, holding that the LLCs owned the property and Nord was not a speculative builder under WAC 458-20-170(2).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Nord satisfy ownership under WAC 458-20-170(2) to be a speculative builder? | Nord argues it owned the land via ownership interests and related control. | The LLCs owned the land; Nord did not own property and the attributes of ownership were not met. | No; real property was owned by LLCs; Nord not a speculative builder. |
| Is Nord governed by WAC 458-20-170(2)(f) as constructing on land owned by others? | Nord seeks speculative-builder status despite constructing on LLC land. | Under (2)(f), construction on land owned by officers, shareholders, or others is taxable as a seller, not a speculative builder. | Nord taxed as a seller; cannot be speculative builder. |
| Did the Board improperly interpret the attributes of ownership under (2)(a) when the LLCs owned the land? | Attributes of ownership should establish Nord as owner. | Attributes are to distinguish ownership from security interests; they do not override actual ownership by LLCs. | Yes; Board erred in applying (2)(a) when LLCs owned the land. |
Key Cases Cited
- Stuewe v. State Dep't of Revenue, 98 Wash.App. 947 (2000) (APA standard of review for Board decisions)
- Verizon Nw. v. Wash. Employment Sec. Dep't, 164 Wash.2d 909 (2008) (deference to agency interpretations within expertise)
- Cannon v. Dep't of Licensing, 147 Wash.2d 41 (2002) (interpretation must harmonize with statutory policy)
- Saviano v. Westport Amusements Inc., 144 Wash.App. 72 (2008) (capital contributions vs. loans in partnership context)
- Bank of Am. v. Prestance Corp., 160 Wash.2d 560 (2007) (ownership concepts and security interests in real property context)
- Wash. Sav.-Mor Oil Co. v. Tax Comm'n, 58 Wash.2d 518 (1961) (separate corporate existence of parent and subsidiary)
- Coast Pac. Trading, Inc. v. Dep't of Revenue, 105 Wash.2d 912 (1986) (statutory exemptions and regulatory interpretations)
- Impecoven v. Dep't of Revenue, 120 Wash.2d 357 (1992) (legislative purpose behind B&O tax exemptions)