Court of Appeals hears Port of Seattle challenge to tax treatment of SeaTac security system

The Division II panel of the Washington Court of Appeals heard oral argument in Port of Seattle v. Washington State Department of Revenue, case number 618087. Appellant counsel Matthew Siegel argued the contract at issue was an information-technology services agreement for system design, configuration and integration, not a construction contract subject to retail sales tax. Assistant Attorney General David Moon contended the contract’s predominant activity was installation and therefore taxable under the relevant RCW provisions. The court took the case under advisement and announced no ruling.

The dispute centers on how to apply the hybrid-contract/predominant-activity test in the RCW language cited during argument and whether installation and services “directly related” to installation convert the bundle into taxable construction. Siegel told the court, “The trial court erred in this case by allowing the Department of Revenue to reverse engineer a construction contract out of an information technology services agreement or IT agreement solely because the IT agreement contained an installation component.” Moon countered that “Installation services are subject to retail sales tax,” pointing the court to invoices, the RFP’s on-premise expectation, and line items in the project bill of materials that, he said, show installation and related work were the dominant economic activity.

Judges pressed both sides on whether the predominance inquiry is a legal question appropriate for summary disposition or a factual question for a finder of fact; counsel disagreed about the degree to which the record supports one or the other outcome. The court concluded the calendar and said it would take the case under advisement.