                                                                                                           FILED
                                                                                                    COURT OF APPEALS
                                                                                                       DIVISJON 1!
                                                                                                  20I5 FEB 10
                                                                                                              AM 8 59




    IN THE COURT OF APPEALS OF THE STATE OF WASHINGTO

                                                DIVISION II


JESSICA MAE MATHESON,                                                          No. 45485 -8 -II


                                     Appellant,


           v.

                                                                       UNPUBLISHED OPINION
 STATE OF WASHINGTON DEPARTMENT
 OF REVENUE,


                                     Respondent.




       MAxA, J. —       Jessica Mae Matheson, a Native American residing on the Colville Indian

Reservation in Idaho, appeals the superior court' s order affirming the Department of Revenue' s

Department) final decision revoking her Washington State certificate of registration to operate as

a cigarette     and tobacco wholesaler.       The Department previously ruled that Matheson failed to

report the purchase and account for the disposition of 703, 400 packs of unstamped cigarettes that


she purchased from Spokane wholesalers between 2006 and 2007, as required under her certificate

of registration.    As a result, the Department imposed taxes and penalties on her in excess of $9

million.        When Matheson did not pay a subsequent tax warrant, the Department revoked

Matheson' s certificate of registration as authorized in RCW 82. 32.215. Matheson administratively

appealed the revocation, and both the Department and the superior court affirmed.


        Matheson      argues   that: ( 1)   because   she was not a " taxpayer,"         RCW 82. 32. 215 does not


apply to her, ( 2) the Department failed to properly          serve   her   with   the   revocation notice, (   3) the
45485 -8 -II



Department lacked jurisdiction because she was an Idaho resident who had no minimum contacts

with   Washington, ( 4)        Indian Tribal Court has exclusive jurisdiction over licensing matters

involving   her, ( 5) RCW 82. 32. 215 is unconstitutional when applied to her because she is not a


resident of Washington, and ( 6) the Administrative Law Judge ( ALJ) hearing the matter was

biased. We reject these arguments, and affirm the Department' s and the superior court' s rulings


upholding the Department' s revocation of Matheson' s certificate of registration.

                                                           FACTS


Certificate ofRegistration

          In 2006, Matheson applied for and obtained a registration certificate from the state of

Washington to      conduct      business     as a .cigarette and   tobacco   wholesaler under     the   name "   Jess' s


Wholesale."      Clerk'   s   Papers ( CP)    at   36.   This certificate, along with her license to operate as a

cigarette wholesaler, allowed her to purchase unstamped and .untaxed cigarettes. 1

Unreported Purchase of Cigarettes

          Matheson, operating as Jess' s Wholesale, used her cigarette wholesaler license to purchase

703, 400 packs of unstamped and untaxed cigarettes from two Washington distributors between

July 1,   2006   and   June    30, 2007. Neither distributor was located on a reservation or in " Indian




1 To conduct business in Washington, a corporation or sole proprietor must register and obtain a
registration certificate authorizing the business activity from the Department of Revenue.
Former RCW 82. 32. 030 ( 1996). ( "[ I] f any person engages in any business or performs any act
upon which a     tax   is imposed ...      he or she shall, under such rules as the department of revenue
shall prescribe,   apply for     and obtain        from the department   a registration certificate. ").   In

Washington, persons desiring to do business in the state must complete a " Master Application"
that includes the registration and all necessary licenses needed to conduct business in the state.
Former RCW 19. 02. 070, . 020 ( 1990).



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45485 -8 -II



               2
Country."           CP     at   138.   Under the terms of her wholesaler license and former WAC 458 -20-

186( 702) (        2004), 3 Matheson was required to report these purchases to the Department using a

Schedule C tax form.                She also was required to account for the disposition of the cigarettes and


provide supporting documentation, including whether the cigarettes were sold to an entity that was

exempt from the cigarette tax, such as the federal government, an out -of -state purchaser, or another

wholesaler. Former WAC 458 -20 -186 ( 702).


Tax and Penalty Assessment

          By January             2008,     Matheson had not provided Schedule C reports documenting the

disposition         of   the   unstamped cigarettes.         The Department      assessed   her $ 1, 424, 385 in taxes and a


    10- per   -pack      penalty   totaling $ 7, 034, 000 under RCW 82. 24. 120, plus additional penalties and

interest.      She appealed to the Department' s internal appeals division, and the appeals division

offered       her   another      opportunity to      provide    the Schedule     C   reports.   She failed to do so and the


appeals division upheld the assessment.


          Matheson              appealed    to the   Board      of   Tax Appeals ( Board).         The Board upheld the


Department' s decision, ruling that Jess' s Wholesale failed to comply with the Schedule C reporting

requirement, thereby subjecting Matheson to the cigarette tax and penalties under chapter 82.24

RCW.




2"
      Indian country"              includes    all   lands    within     an   Indian   reservation,   all dependent Indian
communities, and all               Indian   allotments.      18 U. S. C. § 1151.

3
                         which details the Department' s reporting requirements for cigarette
     WAC 458 -20- 186( 702),
wholesalers, has remained effectively the same since 2006, when Matheson first purchased the
unstamped cigarettes.



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45485 -8 -II



         Matheson petitioned for review in superior court and sought an injunction against the

Department. The superior court dismissed Matheson' s petition. Matheson appealed to this court.

The Department filed a motion on the merits and on September 17, 2012, this court granted the


motion, affirming the superior court.4 We expressly rejected as meritless Matheson' s arguments

that the tax and penalty assessment was unconstitutional.


Revocation of Certificate ofRegistration

         Because Matheson did not pay the tax and penalty assessment, on September 29,. 2009, the

Department issued a tax warrant for unpaid taxes and penalties totaling $9, 142, 016. 14. On January

11, 2010, the Department filed the tax warrant with Thurston County Superior Court pursuant to

RCW 82. 32. 210 -.212.


         When Matheson still did not pay the tax assessment, on February 21, 2012, the Department

mailed a notice of revocation hearing to Matheson and her attorney. The Department mailed the

notice to Matheson at an address in Milton, which she provided as the business address of Jess' s

Wholesale.


         The Department conducted an adjudicative hearing on March 21, 2012, with a regional

compliance     manager as   the presiding      officer.   Matheson did not appear at the hearing, but her




4 Matheson also filed a complaint in the U.S. District Court for the Western District of Washington,
against the State of Washington and its employees, asserting six claims for relief against the tax
assessment,    including   an   injunction   against collection.   Matheson v. Smith, Cause No. 3: 11 - CV-
05496 -RBL ( W. D. Wash. 2012).        On May 17, 2012, the federal district court dismissed Matheson' s
claims   and   denied her   motion    for preliminary injunction.       She appealed to the U. S. Court of
Appeals for the Ninth Circuit and in an unpublished decision filed on December 26, 2013, Cause
No. 12- 35479, the Ninth Circuit affirmed the federal district court and dismissed Matheson' s
claims. Matheson v. Smith, 551 F. App' x. 292 ( 9th Cir. Dec. 26, 2013).


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45485 -8 -II




attorney did.            At the   revocation     hearing, Matheson' s attorney argued that the underlying

assessments were invalid and that Matheson, as a Native American, was not required to pay

Washington state taxes or obtain a certificate of registration in order to buy and sell cigarettes. He

also objected      to the   service of   the   hearing   notice.      On March 26, 2012, the Department issued an


initial order revoking Matheson' s certificate of registration, precluding her from doing business in

the state of Washington or its 29 Indian reservations.


         Matheson appealed to the Department' s appeals division. An ALJ reviewed the transcript


and all of the evidence submitted, including additional information requested of the parties, and

affirmed the revocation. Matheson then petitioned for judicial review of the Department' s decision


to the superior court, which affirmed the Department' s order revoking her registration certificate.

         Matheson appeals.


                                                         ANALYSIS


A.         STANDARD OF REVIEW


         Under Washington'          s   Administrative Procedures Act (APA),                chapter 34. 05 RCW, the party

asserting agency error has the burden of demonstrating the invalidity of the agency' s action. RCW

34. 05. 570( 1)(   a).    We sit in the same position as the superior court and apply the APA standards

directly   to the record      before the agency.         Dep' t    of Revenue      v.   Bi- Mor, Inc.,   171 Wn. App. 197,

201 -02, 286 P. 3d 417 ( 2012).


           RCW 34. 05. 570( 3)       sets out nine grounds            for   invalidating   an administrative order.   Four


grounds     potentially     are applicable     here: ( a) the order or the statute on which it is based violates


the constitution, (b) the order is outside the agency' s jurisdiction, (c) the agency has failed to follow

the   proscribed procedure, and (          d) the agency erroneously interpreted               or applied   the   law. RCW



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34. 05. 570( 3).   We   review     these   grounds   de   novo.    Life Care Ctrs. ofAm., Inc. v. Dep' t of Soc. &

Health Servs.,     162 Wn. App. 370, 374, 254 P. 3d 919 ( 2011).

B.       APPLICABILITY OF RCW 82. 32. 215


         Matheson argues that RCW 82. 32. 215, which provides for revocation of certificates of


registration,   is inapplicable to her because        she   is   not a "   taxpayer."   We disagree, and hold that the


Department had statutory authority to revoke Matheson' s certificate of registration.

         RCW 82. 32. 215( 1)        provides   that the department may          revoke a "   taxpayer['   s]"    certificate of



registration if a tax warrant is not paid within 30 days after it has been filed with the superior court.


Former RCW 82. 32.215 ( 1998). 5 RCW 82. 02. 010 defines " taxpayer" to include " any individual,

group of individuals, corporation, or association liable for any tax or the collection of any tax

hereunder, or who engages in any business or performs any act for which a tax is imposed by this

title." Former RCW 82. 02. 010( 3) ( 1967). Because Matheson was and is liable for taxes collected



by the Department, there is no question that she falls within the definition of "taxpayer" as used in

RCW 82. 32. 215.


         Further, it is undisputed that after finding that Matheson owed the tax and penalties, the

Department filed      a    tax   warrant with   Thurston     County        Superior Court    on   January       11, 2010.   See


RCW 82. 32. 210 -.212. It also is undisputed that Matheson never paid the warrant. The Department


clearly has    satisfied   the   requirements   for revocation       under    former RCW 82. 32. 215.            Accordingly,

we hold that the Department had authority to revoke Matheson' s certificate of registration.




5 Because RCW 82. 32.215 was amended in 2013, and the State filed its tax warrant in 2010, we
apply the statute in effect at the time of Matheson' s situation. But the current version of RCW
82. 32. 215 does    not change our analysis.
45485 -8 -I1




C.       COLLATERAL CHALLENGES TO REVOCATION ORDER


         Matheson             makes several collateral challenges                  to the   revocation order.     She argues ( 1) the


Department failed to properly                        serve   her   with   the   revocation notice, (    2) the Department lacked


jurisdiction because she was an Idaho resident who had no minimum contacts with Washington,

 3) Indian Tribal Court has                 exclusive        jurisdiction       over   licensing   matters   involving   her, ( 4) RCW


82. 32. 215 is unconstitutional when applied to her because she is not a resident of Washington, and


 5) the ALJ hearing the matter was biased. We reject all these arguments.

          1.         Service of Notice


         Matheson argues that the Department lacked jurisdiction because it failed to properly serve

her   with     the   notice of revocation              hearing. She argues that the notice should have been mailed to

her residence in Idaho and not to her business address in Milton. We disagree.

         RCW 82. 24. 550( 3)                provides         that "[ a] license shall not be suspended or revoked except


upon notice          to the   licensee   and after a         hearing   as prescribed      by the board."     The Department' s rules

                                            6
provide      for     notice    by   mai1,       as   does the APA. RCW 34. 05. 010( 19).                Under RCW 82. 32. 130, if


notice is mailed it must be " addressed to the address of the taxpayer as shown by the records of

the department."


          Here, the Department served the hearing notice to Matheson by first -class mail to the

Milton address that she listed in her registration and license application, which also matched the


address on her performance bond in connection with her cigarette wholesaler' s license. Matheson


notes that she filed an affidavit in superior court regarding her appeal of the tax assessment to the




6
    Former WAC 458- 20- 10001( 3)(                     a),   5 ( 2011).

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Board stating that her residence address was in Idaho. However, in that same affidavit she stated

that her location for license contact on the Puyallup Indian Reservation was the Milton address.

         We hold that the Department properly served Matheson with the hearing notice by

mailing it to her business address as shown in the Department' s records.

         2.     Personal Jurisdiction


         Matheson argues that the Department lacked jurisdiction to revoke her certificate of

registration.     She argues that her application for a license in 2006 does not satisfy due process

minimum contacts for long arm jurisdiction of an Idaho resident, and that because she is a Native

American       living   on an   Indian    reservation, she     is   not subject   to   state   licensing    laws.    The State


responds that, when Matheson voluntarily applied for and obtained a wholesaler' s license, she

subjected      herself to Washington jurisdiction.                  We    agree   with   the State,       and hold that the


Department had personal jurisdiction over Matheson.


         RCW       4.28. 185( 1)(   a),   Washington'     s   long    arm    jurisdiction      statute,    extends    personal




jurisdiction over a person who has done some act or consummated some transaction in Washington


that   gave rise   to the   cause    of   the   action.   Here, Matheson availed herself of the benefits and


protections of Washington' s laws by applying for and obtaining a cigarette wholesaler license.

This    license    allowed      Matheson to        purchase         and   transport    unstamped,         untaxed    cigarettes



throughout the State.           RCW 82. 24. 040.          But for the license, she would not have access to


unstamped and untaxed cigarettes. And as a condition of this license, she was required to comply

with Washington' s cigarette laws and Department rules. See RCW 82. 24. 500, . 540.


         These facts show that Matheson submitted herself to the jurisdiction of the Department and

the Liquor Control Board. Accordingly, Matheson has not sustained her burden of showing error.


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        3.      Tribal Court Jurisdiction


        Matheson argues that because she is a Native American, the case should have been

transferred to tribal    court pursuant   to CR 82. 5(    a).   We disagree.


        CR 82. 5( a) provides that an action filed in superior court must be dismissed or transferred


to tribal    court when   federal law    grants or reserves exclusive        jurisdiction to a tribal      court.   But


Matheson has cited no authority for the proposition that federal law grants exclusive jurisdiction

to tribal   courts of   license   revocation   hearings   involving     Native Americans.         And here Matheson


voluntarily subjected herself to Washington jurisdiction by voluntarily applying for and obtaining

a license.


        We reject Matheson' s argument that this case should have been transferred to tribal court.


        4.      Constitutionality of RCW 82. 32. 215

        Matheson argues that because the Department revoked the license of a non -resident of

Washington, RCW 82. 32. 215 is unconstitutional as applied in violation of substantive-due process.

She states that she " has the protection of freedom from state licensing under the supremacy clauses;

the interstate commerce and Indian commerce and privileges and immunities clause to be free to

do business     anywhere      in the United States."      Br.   of   Appellant   at   39.   She also argues that under


federal law, the State may not forbid her from continuing to do business if she does not pay her

tax assessments. We disagree.


        A due process challenge to the state' s taxation concerns whether the state is taxing beyond

its jurisdictional   reach.    Chicago Bridge &     Iron Co. v. Dep' t ofRevenue, 98 Wn.2d 814, 820, 659

P. 2d 463 ( 1983).      Ordinarily we apply a two pronged test to state taxation of interstate business:

   1) There must be a minimal connection or nexus between the interstate taxing activities and the


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45485 -8 -II



taxing state; and ( 2) the income attributed to the state for tax purposes must be rationally related

to   values connected with           the    taxing State." Chicago Bridge, 98 Wn.2d at 820 ( internal quotations

omitted). "           Nexus is established if the corporation ` avails itself of the substantial privilege of


carrying        on    business   within    the State."         Chicago Bridge, 98 Wn.2d at 820 ( quoting Mobil Oil Corp.

v. Comm 'r of Taxes, 445 U.S. 425; 437, 100 S. Ct. 1223, 63 L. Ed. 2d 510 ( 1980)).

           But Matheson fails to raise any argument under this test, so we need not address it. RAP

10. 3(   a)(   6).    Instead, Matheson challenges the fundamental premise that, as an Idaho resident and

a Native American, she can be subject to Washington .state taxation.


           Native Americans who conduct business off -reservation are subject to generally applicable

state law. Mescalero Apache Tribe v. Jones, 411 U. S. 145, 148 -49, 93 S. Ct. 1267, 36 L. Ed. 2d

114 ( 1973); Grand River Enters. Six Nations, Ltd. v. Pryor, 425 F. 3d 158, 173 -74 ( 2nd Cir. 2005)


 Congress' s power to regulate commerce with Indian tribes does not preclude Native Americans


from     state       taxation and   regulation when             transacting business         outside of   Indian country). Beyond


reservation boundaries, Native Americans " have generally been held subject to non -discriminatory

state    law         otherwise   applicable        to    all   citizens   of   the State."     Mescalero, 411 U. S. at 148 -49.


Matheson does             not argue    that RCW 82. 32. 215 is                 discriminatory.    And we hold that the taxation


statute    is generally       applicable      to   all   Washington        cigarette wholesalers —        it does not extend solely

to foreign residents who purchase cigarettes wholesale in Washington.

               We reject Matheson' s arguments that RCW 82. 32.215 is unconstitutional and that federal

law     exempts        her from    state   licensing       and   taxation.
45485 -8 -II




            5.    Alleged Bias of ALJ


           Matheson argues that the ALJ, as a Department employee, acted as a representative of the


Department and had a direct interest in the matter. Therefore, she contends that the ALJ was biased

in violation the Fourteenth Amendment to the U. S. Constitution. We disagree.

           Prejudgment         bias, partiality,     or personal interest may disqualify an administrative

adjudicator on       due    process grounds.       Nationscapital     Mortg. Corp.   v.   Dep' t   of Fin. Insts., 133 Wn.


App.   723, 765 -66, 137 P. 3d 78 ( 2006). However, we assume that an adjudicator is impartial, and


the party claiming bias            must     make    an    affirmative   showing that it     exists.     Id.   at   766.   The


combination of investigative, prosecutorial, and adjudicative functions within an agency does not

violate due process. Id.


            Here, Matheson has            not made    a   showing that the ALJ       was    biased.     She provides no


authority suggesting that the fact that the Department employed the ALJ, without more, means that

the ALJ is biased. Hardee            v.
                                          Dep' t   of Soc. & Health     Servs., 152 Wn. App. 48, 57, 215 P. 3d 214

 2009) ( rejecting         a similar argument).      And our Supreme Court has held that there is " no inherent


unfairness       in the mere   combination of       investigative    and adjudicative   functions."    Med. Disciplinary

Bd.   v.   Johnston, 99 Wn.2d 466, 479, 663 P. 2d 457 ( 1983);              see also Hardee, 152 Wn. App. at 58.

            We hold that there is no evidence that the ALJ was biased, and therefore that Matheson' s


due process argument fails.


D.          CHALLENGE TO UNDERLYING TAX ASSESSMENT


            Matheson repeatedly argues that the Department' s underlying tax assessment was

unlawful,        raising   a number       of constitutional arguments.       In fact, at times it is difficult to tell


whether her arguments relate to the revocation of her certificate of registration or the legality of


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45485 -8 -II



the   assessment.   We decline to address the arguments regarding the validity of the assessment

because that    was     not   at   issue in the    revocation      hearing.    In addition, this court upheld the


assessment     in her    previous      appeal     of   that   assessment,     and expressly rejected Matheson' s

constitutional and jurisdictional arguments as meritless. Therefore, res judicata prevents Matheson


from challenging the assessment. Nw. Wholesale, Inc. v. PAC Organic Fruit, LLC, 183 Wn. App.

459, 492, 334 P. 3d 63 ( 2014).


         We affirm the Department' s and the superior court' s rulings upholding the Department' s

revocation of Matheson' s certificate of registration.

         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.




 We concur:




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