Court of Appeals affirms B&O tax assessment against Fujifilm SonoSite
October 02, 2025 | Supreme Court Judicial Rulings ( Opinions ), Judicial , Washington
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The Washington Court of Appeals, Division II, affirmed a trial court’s ruling that Fujifilm SonoSite Inc. owed manufacturing business and occupation (B&O) taxes for Jan. 1, 2012, through June 30, 2015, and denied SonoSite’s attempt to rely on a prior Department of Revenue letter ruling as a safe harbor. The court’s opinion was filed Aug. 19, 2025, and an order granting the Department of Revenue’s motion to publish the opinion was filed Sept. 30, 2025.
The decision matters because it clarifies how Washington’s B&O tax rules apply when a seller creates a wholly owned manufacturing subsidiary but continues to control funds, ownership of raw materials and invoicing. The court held that SonoSite’s factual practice during the relevant tax period did not match the facts the company submitted in its letter ruling request, so the ruling was not binding; the court also concluded SonoSite retained ownership of raw materials and was correctly classified as a manufacturer for B&O purposes.
The panel, writing through CRUSER, C.J., described the controlling statutory and administrative framework: Washington taxes sales under retailing or wholesaling classifications but taxes manufacturing on the value of products manufactured in the state, with manufacturers liable on worldwide sales under RCW 82.04.240 and related rules. The court summarized SonoSite’s corporate reorganization: SonoSite formed SonoSite Manufacturing LLC in 2011 as a wholly owned subsidiary intended to manufacture devices that SonoSite would resell, and the company requested a DOR letter ruling reflecting that structure.
DOR’s letter ruling, based on the facts SonoSite presented, said the subsidiary would be taxed as a manufacturer and SonoSite would be a reseller taxed only on Washington sales; DOR also advised that SonoSite would owe B&O tax for administrative services paid for by the subsidiary. However, after conducting audits covering the 2012–2015 tax period, DOR determined that SonoSite’s actual business practices differed from the facts in the ruling request.
Specifically, the court noted that bank accounts for the first two years of the tax period were in SonoSite’s name and the subsidiary opened its bank account only in January 2014. Invoices for raw materials and manufacturing equipment listed SonoSite as the billing and shipping customer; the subsidiary did not issue sales invoices to SonoSite as contemplated by the written agreements; and SonoSite sought and received tax refunds and deferrals available only to manufacturers. DOR assessed tax of $4,783,435.42 and applied credits for taxes the subsidiary had paid; SonoSite paid $2,748,470.65 and sued for refund under RCW 82.32.180.
The court rejected SonoSite’s primary arguments. On the letter ruling, CRUSER, C.J., wrote that SonoSite “did not adhere to the pertinent facts in its letter ruling request, so the letter ruling did not provide safe harbor from manufacturer tax liability.” The opinion emphasized the administrative requirement that a ruling request “contain[] all pertinent facts” and that a written ruling is binding only so long as the facts remain as presented (citing former WAC 458-20-100(2)(b)).
On tax classification, the court applied RCW 82.04.110(1) and related precedent, explaining that a manufacturer is defined by both (1) ownership of materials and (2) fabrication from those materials. The panel concluded the undisputed record showed SonoSite owned the raw materials used in production and therefore was properly classified as a manufacturer for B&O tax purposes, regardless of whether the subsidiary performed manufacturing labor.
The opinion also addressed SonoSite’s argument that DOR improperly disregarded the subsidiary’s separate entity status. The court explained that while affiliated entities are generally taxed separately, the relationship and recordkeeping are relevant when entities fail to maintain distinct books or otherwise distinguish their roles: here, the lack of separate accounting and the ownership of raw materials allowed DOR to treat the entities’ relationship as material to classification.
The court affirmed the trial court’s grant of summary judgment to the Department of Revenue and denial of SonoSite’s motion for summary judgment. The panel stated the opinion would be filed for public record in accordance with RCW 2.06.040; the opinion notes a majority determined it will not appear in the Washington Appellate Reports but will be filed for the public record.
The panel composition listed J. Maxa and J. Lee as concurring members. No further appellate disposition is contained in the filed opinion.
The decision matters because it clarifies how Washington’s B&O tax rules apply when a seller creates a wholly owned manufacturing subsidiary but continues to control funds, ownership of raw materials and invoicing. The court held that SonoSite’s factual practice during the relevant tax period did not match the facts the company submitted in its letter ruling request, so the ruling was not binding; the court also concluded SonoSite retained ownership of raw materials and was correctly classified as a manufacturer for B&O purposes.
The panel, writing through CRUSER, C.J., described the controlling statutory and administrative framework: Washington taxes sales under retailing or wholesaling classifications but taxes manufacturing on the value of products manufactured in the state, with manufacturers liable on worldwide sales under RCW 82.04.240 and related rules. The court summarized SonoSite’s corporate reorganization: SonoSite formed SonoSite Manufacturing LLC in 2011 as a wholly owned subsidiary intended to manufacture devices that SonoSite would resell, and the company requested a DOR letter ruling reflecting that structure.
DOR’s letter ruling, based on the facts SonoSite presented, said the subsidiary would be taxed as a manufacturer and SonoSite would be a reseller taxed only on Washington sales; DOR also advised that SonoSite would owe B&O tax for administrative services paid for by the subsidiary. However, after conducting audits covering the 2012–2015 tax period, DOR determined that SonoSite’s actual business practices differed from the facts in the ruling request.
Specifically, the court noted that bank accounts for the first two years of the tax period were in SonoSite’s name and the subsidiary opened its bank account only in January 2014. Invoices for raw materials and manufacturing equipment listed SonoSite as the billing and shipping customer; the subsidiary did not issue sales invoices to SonoSite as contemplated by the written agreements; and SonoSite sought and received tax refunds and deferrals available only to manufacturers. DOR assessed tax of $4,783,435.42 and applied credits for taxes the subsidiary had paid; SonoSite paid $2,748,470.65 and sued for refund under RCW 82.32.180.
The court rejected SonoSite’s primary arguments. On the letter ruling, CRUSER, C.J., wrote that SonoSite “did not adhere to the pertinent facts in its letter ruling request, so the letter ruling did not provide safe harbor from manufacturer tax liability.” The opinion emphasized the administrative requirement that a ruling request “contain[] all pertinent facts” and that a written ruling is binding only so long as the facts remain as presented (citing former WAC 458-20-100(2)(b)).
On tax classification, the court applied RCW 82.04.110(1) and related precedent, explaining that a manufacturer is defined by both (1) ownership of materials and (2) fabrication from those materials. The panel concluded the undisputed record showed SonoSite owned the raw materials used in production and therefore was properly classified as a manufacturer for B&O tax purposes, regardless of whether the subsidiary performed manufacturing labor.
The opinion also addressed SonoSite’s argument that DOR improperly disregarded the subsidiary’s separate entity status. The court explained that while affiliated entities are generally taxed separately, the relationship and recordkeeping are relevant when entities fail to maintain distinct books or otherwise distinguish their roles: here, the lack of separate accounting and the ownership of raw materials allowed DOR to treat the entities’ relationship as material to classification.
The court affirmed the trial court’s grant of summary judgment to the Department of Revenue and denial of SonoSite’s motion for summary judgment. The panel stated the opinion would be filed for public record in accordance with RCW 2.06.040; the opinion notes a majority determined it will not appear in the Washington Appellate Reports but will be filed for the public record.
The panel composition listed J. Maxa and J. Lee as concurring members. No further appellate disposition is contained in the filed opinion.
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