West Coast Self Storage Group Llc V State Of Wa Dept Of Revenue

Key Facts

Tax Type

Transaction Type

Issues

• The court addressed whether the 2020 amendment to RCW 82.04.051(1), which excluded 'land development or management services' from retail sales tax, should apply retroactively to West Coast's activities. The court determined the amendment was not curative and does not apply retroactively to West Coast's activities, as the legislature did not intend to clarify an ambiguity but rather to remove barriers to affordable housing.
• The court determined whether West Coast met the definition of being 'responsible for the performance of' construction under RCW 82.04.051(4)(b). The court analyzed the CMAs which required West Coast to supervise and direct construction work, hold meetings with the general contractor, coordinate work, and ensure construction proceeded according to schedule. The court concluded that despite West Coast not performing construction personally, it was responsible to ensure a third party did through supervision and direction, meeting the statutory definition.
• The court examined whether construction was the predominant activity under the Development Agreements and Construction Management Agreements, as required by RCW 82.04.051(2). The court found that West Coast's compensation was tied to building permits and final construction approval, and that the predominant purpose of both agreements was the construction of self-storage facilities, making construction the predominant activity subject to retail sales tax.
• The court examined whether, at the time the Development Agreements were executed, the parties contemplated that West Coast would be awarded both the Development Agreements and Construction Management Agreements under RCW 82.04.051(2). The Board found that the Affiliation Agreement, Development Agreements, and Construction Management Agreements explicitly showed the parties intended West Coast would receive both agreements, and the court agreed, viewing the services provided under both agreements as a single taxing event.

Tax Years

• 2011
• 2013
• 2015
• 2014
• 2012

Holdings

Remedies

Tax Issue Category

Legal Principles

• The court analyzes whether the parties to the Affiliation Agreement and Development Agreements contemplated that West Coast would be awarded both Development Agreements and Construction Management Agreements at the time the agreements were executed. This determination is critical under RCW 82.04.051(2) for combining contracts and applying the predominant activity tax test. The court finds that the Affiliation Agreement, Development Agreements, and Construction Management Agreements explicitly show that parties intended West Coast would receive both contracts for each project, making the agreements a single taxing event subject to retail sales tax for construction activities.
• The court applies substance over form analysis to determine whether the Development Agreements and Construction Management Agreements should be combined and taxed as a single activity. Under RCW 82.04.051(2), when parties contemplated at the time of entering agreements that the same party would be awarded both contracts, the agreements are combined and taxed as a single activity. The court examines whether West Coast was 'responsible for the performance' of construction under RCW 82.04.051(4)(b), which defines responsibility as being obligated to perform activities either personally or through a third party, including supervising and directing the work. The court also applies the predominant activity test under RCW 82.04.051(2) to determine whether construction activities or service activities were predominant under the combined agreements.

Disputed Tax Amount

Precedent Name

• Ekelmann v. City of Poulsbo
• Condon v. Condon
• Hearst Commc'ns, Inc. v. Seattle Times Co.
• Echo Glob. Logistics, Inc. v. Dep't of Revenue
• PeaceHealth St. Joseph Med. Ctr. v. Dep't of Revenue
• Clark County v. Portland Vancouver Junction R.R., LLC
• Steven Klein, Inc. v. Dep't of Revenue
• Cave Props. v. City of Bainbridge Island
• McGee Guest Home, Inc. v. Dep't of Soc. & Health Servs.

Key Disputed Contract Clauses

• The court examined the modified West Seattle CMA, which changed terminology from 'Construction Manager' to 'Owner's Representative' and described services as 'oversight and advisory services.' Section 3.1 engaged the Owner's Representative to provide oversight and advisory services relating to construction. Section 3.2 required the Owner's Representative to monitor, make progress reports, and make recommendations to cause the General Contractor's construction to proceed. The court concluded that despite the language change, West Coast was still supervising and directing construction work, making it responsible for performance under RCW 82.04.051(4)(b).
• The court analyzed Section 4.1 of the Construction Management Agreements, which stated that the Owner engaged and authorized the Construction Manager to perform or provide services described in Section 4 relating to construction of improvements. This clause established West Coast's contractual obligation to perform construction-related services. The court found that the services described were directly related to construction and that West Coast was obligated to ensure construction proceeded through third parties, meeting the statutory definition of responsibility under RCW 82.04.051(4)(b).
• The court analyzed Section 4.7 of the Construction Management Agreements, which required West Coast as Construction Manager to cause construction of improvements to proceed so that improvements are substantially completed and then finally completed within the Development Budget, in a good and workmanlike manner in accordance with plans, specifications, and legal requirements, and in accordance with the Schedule. This clause was central to determining whether West Coast was 'responsible for the performance' of construction under RCW 82.04.051(4)(b). The court found that despite language changes in the West Seattle CMA, West Coast remained obligated to supervise and direct construction work.
• The court examined Section 4.2 of the Construction Management Agreements, which outlined services to be performed by the Construction Manager during construction. This section required the Construction Manager to monitor and use its best efforts to cause construction of improvements to proceed and be completed in accordance with or in advance of the schedule. The court determined that these responsibilities constituted supervision and direction of work, not merely review, making West Coast 'responsible for the performance' of construction activities under the statute.

Cited Statute

• Washington Business and Occupation Tax Act
• Washington Administrative Procedure Act

Penalty Amount

Judge Name

• Chung, J.
• Cohen, J.
• Mann, J.

Passage Text

• The court concludes that West Coast was responsible for the construction because the CMAs required West Coast to 'cause construction of the improvements to proceed so that the improvements are substantially completed and then finally completed... in accordance with the schedule. Construction Manager shall not permit the construction of the improvements to be abandoned or permanently discontinued.' The court further states that 'West Coast was still required to both supervise and direct the construction work for the West Seattle project and is therefore responsible for the performance of the work under RCW 82.04.051(4)(b).'
• The court states that 'we view the services provided under the Development Agreements together with the CMAs as a single taxing event' because 'at the time of entering the Affiliation Agreement and Development Agreements, the parties anticipated that West Coast would be awarded both the Development Agreements and CMAs.' The court further concludes that 'the predominant purpose of both the Development Agreements and CMAs was the construction of self-storage facilities.'
• RCW 82.04.051(1) defines 'services rendered in respect to' as 'those services that are directly related to the constructing, building, repairing, improving, and decorating of buildings or other structures and that are performed by a person who is responsible for the performance of the constructing, building, repairing, improving, or decorating activity.'

Interest Amount

Damages / Relief Type