 IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

WEDBUSH SECURITIES, INC.,
a California corporation,                        No. 71932-7-1


                     Respondent,                 DIVISION ONE


              v.                                 PUBLISHED OPINION

THE CITY OF SEATTLE, a municipal
corporation,

                     Appellant.                  FILED: August 10, 2015                     Ipr*
                                                                                       7*



       Trickey, J. — Business and occupation (B&O) taxes may be assessed for

the privilege of doing business in a city. Under RCW 35.102.130 an employer is
required to pay taxes on both payroll and service income. When that service
income is derived from customer contacts by telephone and the Internet, the entire

amount is subject to the B&O tax. This is particularly true here, where theemployer
established an office in the city of Seattle primarily to compete with other similar

businesses. We affirm.

                                         FACTS

       Wedbush Securities,        Inc.   (Wedbush)   is a    registered securities

broker/dealer, headquartered in Los Angeles, California.         It has offices and
customers throughout the United States, including Seattle, Washington. The
Seattle office has a retail stock brokerage for telephone and Internet customers;

and for institutional investors, a sales department.             Wedbush employs

approximately 28 people in Seattle and its income is primarily derived from
No. 71932-7-1/2


commissions received for services performed by its employees. The majority of

contact with customers occurs through the telephone and the Internet.

       The city of Seattle (City) conducted an audit for the period from January 1,

2008 through June 30, 2012. The City concluded that Wedbush had underpaid its

taxes by failing to include income derived from all its customers. For the audit

period, Wedbush had a total gross service revenue of $28,670,412.02, which the

City argues should have been reported in its entirety. Instead, Wedbush only

reported revenue that was obtained from those clients with Seattle addresses.

       The hearing examiner upheld the City's B&O tax assessment. Wedbush

filed a writ of review in superior court challenging the hearing examiner's decision.1
The superior court affirmed the hearing examiner.

       Wedbush appeals, arguing that the City misapplied the service income

factor in the statutory apportionment formula by including income derived from all
customers rather than income derived onlyfrom those customers who had Seattle

addresses.

                                     ANALYSIS

       In an appeal of a statutory writ, we review the findings offact for substantial

evidence and whether the conclusions of law as applied are erroneous. Getty

Images. Inc. v. Citv of Seattle. 163 Wn. App. 590, 599, 260 P.3d 926 (2011).

When, as here, the appellant does not assign error to the hearing examiner's

findings, they are verities on appeal. General Motors Corp. v. Citv of Seattle. Fin.
Dep't. 107 Wn. App. 42, 47-48, 25 P.3d 1022 (2011).



 RCW 7.16.120.
No. 71932-7-1/3



         A B&O tax is assessed for the privilege of conducting business in the taxing

jurisdiction. Ford Motor Co. v. Citv of Seattle. Exec. Servs. Dep't. 160 Wn.2d 32,

44,156 P.3d 185 (2007) (upholding cities' imposition of B&O tax on gross receipts

of wholesale auto sales to independent dealers within cities).

         Under Seattle Municipal Code (SMC) 5.55.140(B), the City's assessment is

prima facie correct.2 American Honda Motor Co.. Inc. v. Citv of Seattle. Dep't of

Exec. Admin., 167 Wn. App. 578, 583 n.4, 273 P.3d 498 (2012). We review de

novo the applicability of a city taxation ordinance as a legal question. Avanade.

Inc. v. Citv of Seattle. 151 Wn. App. 290, 297, 211 P.3d 476 (2009).

         On January 1, 2008, RCW 35.102.130 established new allocations and

apportionment requirements for cities with a gross receipt business tax.3 Under
RCW 34.102.130, gross income subject to tax under the service and other

business activities classification is apportioned using a two-factor formula. The

two factors are payroll and service income. The state mandated that municipalities

in Washington use a prescribed two-factor apportionment method for service
classification tax payers such as Wedbush, while businesses selling tangible

personal property allocate the income to the jurisdiction where delivery takes

place.

         Wedbush does not dispute that the two-factor formula is applicable to it.

Rather, Wedbush claims that the City misconstrued its ordinance as requiring itto


2 SMC 5.55.140(B) provides:
    The Director's assessment or refund denial shall be regarded as prima facie
    correct, and the person shall have the burden to prove that the tax assessed or
    paid by him is incorrect, either in whole or in part, and to establish the correct
    amount of tax.
3The City adopted RCW 35.102.130 in SMC 5.45.081.
No. 71932-7-1/4


report all income no matter where the customer resides. RCW 35.102.130(3)(b)4

provides:

      The service income factor is a fraction, the numerator of which is the
      total service income of the taxpayer in the city during the tax period,
      and the denominator of which is the total service income of the
      taxpayer everywhere during the tax period. Service income is in the
      city if:
                 (i) The customer location is in the city; or
            (ii) The income-producing activity is performed in more than
      one location and a greater proportion of the service-income-
      producing activity is performed in the city than in any other location,
      based on costs of performance, and the taxpayer is not taxable at
      the customer location; or
              (iii) The service-income-producing activity is performed within
      the city, and the taxpayer is not taxable in the customer location.

       Since 2008, as posted on its web site, the City has interpreted "customer

location" as the place where the majority of physical contacts with a customer

occur.5 In accord with that interpretation, there is no customer location because

there are no physical contacts, thus triggering RCW 35.102.130(3)(b)(ii). The
majority of the contacts take place in Seattle.

       Wedbush argues that the term "contact" is not ambiguous and that it
necessarily means any contact. The City argues that the word "contacts" is
ambiguous and that its interpretation is in accordance with normal statutory
construction rules. Where terms are not defined in a statue, courts turn to their

ordinary and contemporary dictionary meaning. Skagit County Pub. Hosp. Dist.
No. 1 v. State. Dep't of Revenue. 158 Wn. App. 426, 437-38, 242 P.3d 909 (2010);

Port of Seattle v. State. Dep't of Revenue. 101 Wn. App. 106, 111, 1 P.3d 607

(2000).     Webster's Third New International Dictionary 490 (2002) defines

4 See SMC 5.45.081(F)(2).
5 Certified Appeal Board Record at 67.
No. 71932-7-1/5


"contacts" as an "association or relationship (as in physical or mental or business

or social meeting or communication)"; "a condition or instance of meeting." Thus,

the City's interpretation that the word "contacts" means physical contacts is

appropriate.

       In construing revenue statutes, courts use the usual maxims of construction.

3A Sutherland Statutory Construction § 66.3 (6th ed. 2005). Accordingly,

courts assume that every clause in a legislative enactment is intended and has

meaning, giving effect to all language, rendering no portion meaningless or

superfluous. Getty Images. 163 Wn. App. at 600; AOL. LLC v. Wash. State Dep't

of Revenue. 149 Wn. App. 533, 542, 205 P.3d 159 (2009).

       RCW 35.102.130 has cascading clauses to determine whether the service

income is in the city. The first clause to determine service income (i) provides

contacts as the determining factor of income. If there are no contacts, then clauses

(ii) or (iii) come into play. Both of those clauses trigger a test of performance as
the mechanism with which to establish income for the service factor when the

customer contact is not established. Clause (ii) provides that where the income

producing activity is in more than one location but the greater proportion of that
service income is performed within the city rather than any other location, the

income is attributed to the place of business in the city. Likewise clause (iii)

provides for the income produced in the city where it is the sole basis of
performance.

       Thus, to give meaning to RCW 35.102.130(3)(b)(ii) and (iii), one has to

interpret "customer location" as the place where physical contact occurs. To hold
No. 71932-7-1/6


otherwise would render the place of performance tests contained in clauses (ii)

and (iii) meaningless.

          The B&O tax is imposed for the "privilege of engaging in business activities

within the City." SMC 5.45.050. Wedbush leases real property in the city and at

all times its employees use the facilities therein.        Wedbush's representative

testified that the revenue generated in the Seattle office was generated through

several operations that occur in other states. Wedbush argued that the business

performed in Seattle is limited to an employee answering the telephone, taking an

order, and placing that order on the computer which executes the trade.

          Although some of Wedbush's activities that occur outside the Seattle area

probably generate some revenue, Wedbush failed to provide any documentation

or support thereof. On the record before the hearing examiner, the majority of

income as defined in clause (ii) takes place in Seattle.

          Moreover, when asked by the hearing examiner why Wedbush needed an

office in Seattle, Wedbush responded that itwas in order to attract business in the

locale:

          [C]ompetitor-wise. Is why you need an office in Seattle. If you'rethe
          only one that doesn't have an office in Seattle, you're obviously not
          going to be able to gain the, any kind of business up against some
          of the larger wire houses in town. Everybody has a pretty much an
          office somewhere, from       Edward Jones to Smith Barney to
          WedbushJ6]

          Wedbush has maintained a business in Seattle for approximately 45 years.

Seattle is the place of performance of the service income producing activity.




 Clerk's Papers at 75.
No. 71932-7-1/7


      The City's interpretation gives meaning to all sections of RCW 35.102.130.

Accordingly, the superior court was correct in upholding the hearing examiner's

decision.

      Affirmed.




                                                  \/\<M*\j j

WE CONCUR:




   k*L4*s /f,
