After a six-month investigation by legal counsel and an eight-member Tax Appeal Committee, the Washington State Hotel & Lodging Association (WSH&LA) Board of Directors voted unanimously to support the Mayflower Park Hotel's lawsuit against the Washington State Department of Revenue (DOR) as a test case for all Washington State lodgings. The suit, currently in Thurston County Superior Court, seeks to exempt from sales and use tax, at the time of purchase by the lodging operator, the personal items, amenities, furniture, fixtures, furnishings and equipment that lodging operators place in guest rooms for use by and resale to guests.

Because of dollars at stake, the losing party is expected to appeal the trial court's decision to the Washington State Court of Appeals. Given that, our legal strategy will plan for two, and possibly three, levels of judicial review. The case may take from three to five years to resolve, with anticipated legal fees of approximately $100,000.

If the suit is successful, lodging operators will be able to purchase amenities, furniture, fixtures, furnishings and equipment for guest rooms without paying retail sales or use tax. This would be a savings, on average, of 8.6% of the cost of these guest room items. Depending upon the amount of these expenditures, and the extent of a property's in-room remodels and upgrades, it would be possible to save thousands of dollars annually.

If the suit succeeds, there will be an immediate return on your investment. WSH&LA members and contributors to the Tax Appeal will receive instructions and text for a letter to be filed with the state DOR that will protect their claims to the maximum refund of sales taxes already paid. Letters postmarked in 2002 will preserve the right to refunds from as far back as 1998, as well as each subsequent year up to and including the year in which the suit is successfully concluded. (While the tax appeal is pending, WSH&LA recommends that lodging operators continue to pay sales tax on the guest room items that the suit seeks to exempt.)

Give your fair share to ensure that WSH&LA can move forward with this essential litigation.

Your investment of $3 per room per property (a flat $50 for properties with 16 and under rooms) will be put in a dedicated account used only to administer the Tax Appeal. Your contribution is needed ASAP. Please join WestCoast Hospitality owned and managed properties, Hilton and Doubletree owned and managed properties, the Mayflower Park Hotel, and other respected Washington lodging establishments in support of this Tax Appeal!

Our lead attorney, George Mastrodonato of the Olympia firm Lane Powell Spears Lubersky LLP, is a former Administrative Law Judge with the Washington State Department of Revenue. He and WSH&LA's Tax Appeal Committee determined that the greatest chance for success would come from focusing on the language of the Washington state statute granting sales tax exemption for any tangible personal property that a taxpayer purchases and resells in the regular course of that taxpayer's business without "intervening use," meaning use by the taxpayer itself.

The law clearly states that lodging operators must pay sales tax on anything they purchase and make intervening use of, such as cleaning supplies. But, the law is equally clear that if there is no intervening use of the amenities, furniture, fixtures and equipment located within the guest room, and retail sales tax is collected on the charge for the rental, use or license of these items, then lodging operators should be able to purchase these items exempt from sales tax, because such items are for the sole and exclusive use of guests who pay retail sales tax for their use. Thus, the sales tax exemption for resale should apply to lodging operations.

The DOR will likely argue that it has consistently and uniformly required lodgings to pay sales tax on these items for more than 40 years and, for the most part, its interpretation has gone unchallenged. However, the law is equally clear that the department's interpretation cannot be in conflict with the statute. If it is, the interpretation must be struck down regardless of how long the department's interpretation has been in effect.

A close analogy is the car rental business. The rental of motor vehicles is, like lodging, subject to retail sales tax. However, the state DOR allows car rental companies to purchase motor vehicles without paying retail sales tax because they are purchasing the vehicles for resale (by rental thereof). They also purchase parts and repair services exempt from retail sales tax because, again, they are deemed to be reselling the vehicles.

Likewise, the purchase of a meal in a restaurant is subject to retail sales tax. However, restaurants pay no sales tax when purchasing the food, ingredients, condiments, paper and take-out containers because tax laws treat them as purchases for resale. WSH&LA is supporting this suit to give the lodging industry the same tax treatment that is currently applied to the car rental and restaurant industries.

WSH&LA has designated a Tax Appeal Committee that will report to and act at the direction of the Board of Directors and coordinate the conduct of the litigation. This committee includes Shaiza Damji, attorney and operator of Northgate Hotels; Birney Dempcy attorney and operator, and Paul Ishii, both of the Mayflower Park Hotel; Doug Dreher, The Hotel Group; Greg Duff, attorney with Cairncross & Hempelmann; Stu Heller, attorney with Harrell Desper Connell Hunter & Gautschi; Jan Simon, WSH&LA Executive Vice President; and Brian Zuber, Silver Cloud Inns. No WSH&LA member and/or Tax Appeal Fund donor will have independent right to direct the course of the litigation; instead, WSH&LA's Board of Directors maintains that right and responsibility.

If Tax Appeal Fund contributions total $100,000 by July 1, 2002, WSH&LA will continue to support the lawsuit on behalf of the Washington State lodging industry. Members and donors will then receive instructions and text for the letter to send the DOR protecting their claims to the maximum potential tax refund, and will receive regular updates on the status of the suit. When the appeal is resolved, donors will vote on the distribution of any funds that remain after fees have been paid. Without contributions of $100,000 by July 1, however, WSH&LA will be forced to withdraw its support, and the suit will be abandoned.

Exemptions would include furnishings and equipment in guest rooms for the accommodation of the guests (including bed bolts, frames, headboards, spreads, springs, mattresses, pillows, blankets; carpets, carpet pads, chairs; desks, dressers, luggage racks, sofas, stools, tables, wall coverings, etc.), plus consumable items and supplies provided in rooms for the accommodation of guests. Non-exempt items would include room fixtures incorporated into real property, cleaning supplies, miscellaneous items not used directly in making retail sales, items used in lobbies and halls, and items used in food and bar service operations.

Contact WSH&LA with specific questions, or participate in a conference call with your colleagues and members of WSH&LA's Tax Appeal Committee. Call for times and to sign up for a conference call: (206) 306-1001 or Toll-Free (877) 906-1001.