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Washington Holds B&O Tax Recovery May Not Be Added to Sales Price as a Surcharge

Tax Development Jun 08, 2012

On April 26, 2012, the Washington Supreme Court held that regardless of disclosure, Washington law prevents a business from recouping the Business and Occupation (“B&O”) tax as an added charge to its sales price. The court stated that the B&O tax may be included in the sales price, but it may not be added as a separate charge on top of the sales price, whether disclosed or not. Specifically, the court addressed whether a seller may recoup its B&O taxes where, prior to the sale of a monthly service contract, the seller discloses that it will collect a gross receipts surcharge in addition to the monthly service fee. Peck v. AT&T Mobility, No. 85581-1 (Wash. Apr. 26, 2012) (en banc).

The matter stems from the plaintiff’s purchase of cell phones and a monthly service plan for each phone from Cingular. The Wireless Services Agreement (“Agreement”) provided that a “Regulatory Cost Recovery Fee” would be imposed in addition to a gross receipts charge. The Terms of Service, likewise, stated that in addition to the rate plan, the phone company’s charges would include all “applicable taxes and governmental fees, whether assessed directly on you or upon Cingular.” Although the B&O tax was not mentioned anywhere in the Agreement or the Terms of Service, the plaintiff’s monthly bills included a charge for “State B and O Surcharge.” The plaintiff asserted that Cingular could not recoup the B&O tax by disclosing it as a gross receipts surcharge on a customer’s bill.

The existing case law in Washington stated that a seller could recoup the B&O charge from the customer where the seller discloses the B&O charge as an overhead cost during negotiation and before the agreed price is reached. The seller could not add the B&O tax onto the final price like a sales tax. In this case, the court’s holding is consistent with prior law, but it disregards the disclosure requirement. The court held that regardless of disclosure, the B&O tax may be built into the sales price, but a business may not recoup the B&O tax as an additional charge.