577 P.3d 415
Wash. Ct. App.2025Background
- SonoSite, a Washington corporation, manufactured and sold medical imaging devices and was later acquired by FUJIFILM Holdings Corporation in 2012.
- In an effort to minimize Washington’s manufacturing B&O tax on worldwide sales, SonoSite sought to reorganize by creating a wholly owned subsidiary (SonoSite Manufacturing LLC) to handle manufacturing, while SonoSite would act as a reseller.
- SonoSite obtained a Department of Revenue (DOR) letter ruling based on representations that the subsidiary would independently purchase raw materials, manufacture goods, and maintain separate accounting records.
- Subsequent audits revealed that, contrary to the ruling's assumptions, SonoSite retained ownership of raw materials, kept main financial accounts in its own name, and failed to document intercompany sales or maintain truly separate operations.
- The DOR therefore assessed manufacturing B&O tax liability directly against SonoSite, which appealed to the trial court and then to the Court of Appeals after losing summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Safe harbor from tax under letter ruling | SonoSite complied with the letter ruling and should be taxed only as a reseller | SonoSite did not follow the pertinent facts in the letter ruling, so it cannot rely on it | SonoSite was not entitled to rely on the letter ruling as a safe harbor |
| Manufacturer classification | The subsidiary, not SonoSite, was the manufacturer, so SonoSite owed only reseller B&O tax | SonoSite retained ownership of materials and did not effectuate a true transfer of manufacturing | SonoSite properly classified as manufacturer for B&O tax |
| Separate entity status for tax purposes | Entities should be treated as separate for tax; DOR cannot collapse their status | Due to failure to maintain separate books and operations, DOR may consider relationship | DOR did not err by considering relationship and consolidating status |
| Appropriate summary judgment | Material facts in dispute preclude summary judgment | No genuine issue of material fact; DOR is entitled to judgment as matter of law | Summary judgment in favor of DOR was proper |
Key Cases Cited
- Steven Klein, Inc. v. Dep’t of Revenue, 183 Wn.2d 889 (Wash. 2015) (explains B&O tax structure and classification)
- Wash. Imaging Servs., LLC v. Dep’t of Revenue, 171 Wn.2d 548 (Wash. 2011) (describes burden on taxpayer to show erroneous assessment)
- Am. Sign & Indicator Corp. v. State, 93 Wn.2d 427 (Wash. 1980) (ownership of materials and manufacturing activity determines manufacturer status)