Johanson, J.
¶ 1 In this state tax refund claim case, Lowes Home Centers LLC appeals the superior courts order denying Lowes a tax refund on cross motions for summary judgment filed by the Department of Revenue (DOR) and Lowes. Lowes customers made retail purchases using Lowes credit cards issued by GE Capital Financial Inc. and Monogram Credit Bank of Georgia (collectively the Bank). The Bank paid Lowes in full for the cardholders purchases within one to two days of each transaction. Some cardholders defaulted on their credit card payments to the Bank, and Lowes profit-share amount under agreements with the Bank was reduced by the amount in which cardholders had defaulted, up to a specified cap. Lowes argues that as a matter of law under the undisputed facts, it is entitled to a state retail sales tax and corresponding retailing business and occupation (B&O) tax refund on the reductions to its profit-sharing income based on its guaranty of defaulted accounts under the profit-sharing agreements. And it argues that the superior court violated its due process and equal protection rights. We affirm.
FACTS
¶ 2 Between April 1, 2001 and December 31, 2009, the relevant tax assessment period, Lowes sold merchandise at its retail stores. Many customers paid for products using private label credit cards (PLCC) that could be used only at Lowes stores. Clerks Papers (CP) at 68. A PLCC is a customized credit card that may be used only at a particular retailers outlets.
¶ 3 The PLCCs were issued under agreements between Lowes and the Bank. The agreements provided (1) the terms under which the Bank extended credit to Lowes customers and furnished cash payment to Lowes for items purchased under the PLCC accounts, (2) the terms governing ownership and management of PLCC accounts, and (3) the terms by which Lowes and the Bank jointly marketed the PLCCs to Lowes customers and shared profits and losses resulting from the PLCC accounts.
I. PAYMENT FOR PLCC PURCHASES
¶ 4 Under the PLCC agreements, the Bank would extend credit to qualified Lowes customers for purchases at Lowes stores. The cardholder could then purchase goods from Lowes stores using the line of credit provided by the Bank.
¶ 5 When a cardholder made a purchase using a PLCC, the Bank forwarded full payment for the purchase and all corresponding taxes to Lowes within one to two days. Lowes promptly remitted to the DOR all Washington sales and B&O taxes on the PLCC transactions. Lowes accounted for PLCC transactions as cash and cash equivalents, the same term used for customers payments with cash, check, or other credit cards. CP at 60.
II. OWNERSHIP AND MANAGEMENT OF PLCC ACCOUNTS
¶ 6 Under the PLCC agreements, the Bank was the sole and exclusive owner and manager of all PLCC accounts and outstanding receivables. CP at 136. As such, credit sales generated through Lowes PLCCs were not reflected in Lowes accounts receivable.
¶ 7 In addition, the Bank had the sole right to establish the finance charge rates and all other terms and conditions related to the credit accounts. CP at 136. Lowes had no right, title or interest in the credit accounts and transaction-related documentation. CP at 136. The Bank had the exclusive right to receive cardholder payments. And the Bank was entitled to receive all payments made by or on behalf of Cardholders on Accounts. ... Retailers acknowledge and agree that they have no right, title or interest in or to ... any payments made by or on behalf of Cardholders on Accounts or any proceeds with respect to the accounts. CP at 136. All marketing and promotional materials given to customers had to clearly disclose that Bank is the owner and creditor on all Accounts. CP at 134. All PLCC services were to be performed and controlled directly by the Bank. CP at 49.
III. JOINT MARKETING AND PROFIT AND LOSS SHARING
¶ 8 Lowes and the Bank jointly marketed and promoted PLCCs. As an incentive to Lowes to promote the use of the PLCCs, the Bank and Lowes agreed to share profits and losses associated with the accounts.
¶ 9 Under the agreements terms, Lowes was entitled to additional profits generated by the PLCC portfolio once the Bank reached its target rate of return. Lowes and the Bank settled the profit-sharing obligations on a monthly basis after balancing the revenues generated by finance charges, fees, debt insurance premiums, and other services against program expenses, including net write-offs.
¶ 10 In exchange for the benefits Lowes received from the PLCC agreements, including sharing profits and giving its customers increased access and incentives to purchase additional merchandise, Lowes agreed to pay to the Bank[ ] any amounts that the Cardholders failed to pay on their PLCC accounts, up to a specified cap. CP at 453-54. The defaulted accounts Lowes guaranteed under the profit-sharing agreements included the purchase prices and retail sales taxes for Lowes products that cardholders had failed to repay the Bank. To satisfy Lowes obligation under the profit-sharing agreements guarantee provision, the Bank reduced Lowes monthly share of profit distributions up to a specified percentage of anticipated average net receivables on the PLCC accounts. The Bank was responsible for losses on defaulted accounts exceeding the cap.
¶ 11 The agreements stated that Lowes and not Bank shall have the right to claim any available sales tax deductions related to Net Write-Offs borne by Lowes. CP at 454, 523, 613, 696, 782.
¶ 12 When a customer defaulted on its PLCC account, the Bank, not Lowes, possessed the accounts receivable and had authority to write off the uncollectible debt on its books and records. CP at 113 ([The Bank] has the receivables and liabilities, along with anything else on their books, and Lowes does not have a receivable or liability on its books and records at all.); CP at 945 ([The Bank] owns the receivable and [Lowes] do[es] not make an entry when an account is uncollectible.). Although Lowes books and records reflected Lowes profit-sharing reductions, Lowes books and records did not reflect any accounts receivable on the PLCC accounts nor unpaid debt obligations owed to Lowes by cardholders.
IV. PROCEDURAL HISTORY
¶ 13 Throughout the relevant assessment period, Lowes filed federal corporate income tax returns. Under 26 U.S.C. § 166, Lowes deducted its profit-sharing reductions as Bad Debts on line 15 of the tax returns. CP at 846. The Internal Revenue Service (IRS) audited these returns and proposed no adjustments to Lowes bad debt deductions.
¶ 14 Lowes also claimed a Washington retail sales tax credit under RCW 82.08.037 and retailing B&O tax deduction under RCW 82.04.4284 for Lowes profit-sharing reductions. The DOR audited Lowes and determined that Lowes had improperly claimed bad debt sales tax credits and B&O tax deductions on the defaulted PLCC accounts.
¶ 15 After these audits, the DOR assessed retail sales taxes and retailing B&O taxes against Lowes. Lowes paid in full both assessments. Lowes filed an appeal under RCW 82.32.180 seeking a retail sales tax and retailing B&O tax refund.
¶ 16 The parties filed cross motions for summary judgment. The superior court ruled that under Home Depot USA, Inc. v. Department of Revenue , the DOR properly denied Lowes tax refund. Consequently, the superior court granted the DORs summary judgment motion and denied Lowes summary judgment motion. Lowes appeals.
ANALYSIS
I. PRINCIPLES OF LAW
A. STANDARD OF REVIEW
¶ 17 We review a summary judgment order de novo, and we perform the same inquiry as the superior court. Sheehan v. Cent. Puget Sound Regl Transit Auth. , 155 Wash.2d 790, 796-97, 123 P.3d 88 (2005). We consider all the facts submitted to the superior court and all reasonable inferences from the facts in the light most favorable to the nonmoving party. Keck v. Collins , 184 Wash.2d 358, 370, 357 P.3d 1080 (2015). The moving party is entitled to summary judgment if it shows that the pleadings, affidavits, depositions, and admissions on file demonstrate the absence of any genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. Sheehan , 155 Wash.2d at 797, 123 P.3d 88 ; CR 56(c).
B. RETAIL SALES TAX BACKGROUND
¶ 18 Washington imposes a 6.5 percent tax on each retail sale of tangible personal property. RCW 82.08.020(1)(a). The tax is based on the selling price, which means the total amount of consideration for which a good is sold, without deduction for the sellers overhead expenses or any other expenses whatsoever and without deduction on account of losses. RCW 82.08.010(1). The buyer has the primary obligation to pay the sales tax, but the seller has the duty to remit sales tax even if no tax is collected at the time of sale. RCW 82.08.050(1) ; AARO Med. Supplies, Inc. v. Dept of Revenue , 132 Wash. App. 709, 716, 132 P.3d 1143 (2006). Sales taxes paid by the seller on the buyers behalf but not paid from the buyer to the seller are a debt owed by the buyer to the seller. Home Depot , 151 Wash. App. at 917, 215 P.3d 222.
¶ 19 A seller is entitled to a credit or refund for sales taxes previously paid on bad debts, as that term is used in 26 U.S.C. Sec. 166. RCW 82.08.037(1). In Puget Sound National Bank v. Department of Revenue , our Supreme Court stated that RCW 82.08.037 has three requirements: (1) the seller must be a person, (2) making sales at retail, and (3) entitled to a refund for sales taxes previously paid on debts which are deductible as worthless for federal income tax purposes. 123 Wash.2d 284, 287, 868 P.2d 127 (1994). The legislative purpose of RCW 82.08.037 is to provide a remedy for sellers that paid taxes they could not collect from the buyer . Home Depot , 151 Wash. App. at 917, 920-21, 215 P.3d 222.
¶ 20 In addition to recognizing tax credits and refunds for bad debts resulting from retail sales tax unpaid by consumers under RCW 82.08.037, Washington law separately recognizes tax credits and deductions for bad debts that result from other sources , including B&O tax bad debts ( RCW 82.04.4284 ).
¶ 21 The B&O tax applies to virtually all business activities carried on within the state. Steven Klein, Inc. v. Dept of Revenue , 183 Wash.2d 889, 896, 357 P.3d 59 (2015) (internal quotation marks omitted) (quoting Simpson Inv. Co. v. Dept of Revenue , 141 Wash.2d 139, 149, 3 P.3d 741 (2000) ). Various rates apply to different business activities. Steven Klein, Inc. , 183 Wash.2d at 897, 357 P.3d 59. For those making retail sales, the retailing B&O tax applies at the rate of .471 percent of the gross proceeds of sales of the business. RCW 82.04.250(1). When computing B&O tax, a party may deduct from the measure of tax bad debts, as that term is used in 26 U.S.C. Sec. 166... on which tax was previously paid. RCW 82.04.4284(1).
¶ 22 Until 2018, the DORs regulations governing bad debt credits, refunds, and deductions under RCW 82.08.037 and RCW 82.04.4284 include the following:
Washington credits, refunds, and deductions for bad debts are based on federal standards for worthlessness under section 166 of the Internal Revenue Code [ (IRC) ]. ...
(2) Retail sales and use tax .
(a) General rule . Under RCW 82.08.037 and 82.12.037, sellers are entitled to a credit or refund for sales and use taxes previously paid on bad debts under section 166 of the [IRC ]. ... Taxpayers may claim the credit or refund for the tax reporting period in which the bad debt is written off as uncollectible in the taxpayers books and records and would be eligible for a bad debt deduction for federal income tax purposes. ...
(3) Business and occupation tax .
(a) General rule . Under RCW 82.04.4284, taxpayers may deduct from the measure of B&O tax bad debts under section 166 of the [IRC ], as amended or renumbered as of January 1, 2003, on which tax was previously paid.
Former WAC 458-20-196(1)(c)-(3) (2010) (emphasis added). The unpaid debt obligation must have been reported as income, and debts from unpaid fees or unrealized profits do not qualify. 26 C.F.R. § 1.166-1(a), (c), (e).
¶ 23 Taxes are presumed to be just and legal, and the burden is on the taxpayer to prove that the tax is incorrect. AOL, LLC v. Dept of Revenue , 149 Wash. App. 533, 554, 205 P.3d 159 (2009) (citing Ford Motor Co. v. City of Seattle , 160 Wash.2d 32, 41, 156 P.3d 185 (2007) ). The taxpayer seeking a refund has the burden of proving that the DOR incorrectly assessed the tax and it is entitled to a refund. RCW 82.32.180 ; Wash. Imaging Servs., LLC v. Dept of Revenue , 171 Wash.2d 548, 555, 252 P.3d 885 (2011). Courts focus on substance rather than form when determining tax classifications. First Am. Title Ins. Co. v. Dept of Revenue , 144 Wash.2d 300, 303, 27 P.3d 604 (2001).
II. BAD DEBT TAX REFUND
¶ 24 The parties agree there are no genuine issues of material fact. The parties dispute whether, as a matter of law, Lowes was entitled to a bad debt retail sales tax refund under RCW 82.08.037 and a corresponding retailing B&O tax refund under RCW 82.04.4284 for Lowes profit-sharing bad debts. We agree with the DOR that Lowes was not entitled to a sales or B&O tax refund.
A. BAD DEBT REFUND REQUIREMENTS
¶ 25 We first identify the requirements Lowes must satisfy to be eligible for a tax refund under RCW 82.08.037. Lowes argues that its profit-sharing reductions qualify for a tax refund under RCW 82.08.037 because the reductions were deductible under 26 U.S.C. § 166. The DOR asserts that in addition to qualifying for a bad debt deduction under 26 U.S.C. § 166, Lowes must also show that its profit-sharing reductions are sales taxes previously paid and written off as uncollectible to obtain a tax refund under RCW 82.08.037(1) ; WAC 458-20-196(2)(a). We agree with the DOR.
1. PRINCIPLES OF LAW
¶ 26 RCW 82.08.037(1) provides that [a] seller is entitled to a credit or refund for sales taxes previously paid on bad debts, as that term is used in 26 U.S.C. Sec. 166. (Emphasis added.) Taxpayers may claim a credit or refund under RCW 82.08.037 only for the tax reporting period in which the bad debt is written off as uncollectible in the taxpayers books and records and would be eligible for a bad debt deduction for federal income tax purposes. Former WAC 458-20-196(2)(a) (emphasis added). A party is eligible for a state tax refund under RCW 82.08.037 only when it has bad debt directly attributable to a retail sales tax payment. Home Depot , 151 Wash. App. at 922, 215 P.3d 222. In addition, the party seeking the state bad debt deduction must be the one holding the bad debt as well as the one to whom repayment on such debt would be made. Home Depot , 151 Wash. App. at 922, 215 P.3d 222.
¶ 27 A deductible bad debt under 26 U.S.C. § 166 is defined broadly and must arise[ ] from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money. 26 C.F.R. § 1.166-1(c). Bad debts under 26 U.S.C. § 166 can result from a variety of transactions, including losses on unpaid loans or payments on a guaranty. 26 C.F.R. § 1.166-9(a) ; see, e.g. , Trent v. C.I.R. , 291 F.2d 669, 671 (2d Cir. 1961) ;
First Trust & Sav. Bank of Davenport, Iowa v. United States , 301 F.Supp. 194, 197 (S.D. Iowa, 1969).
2. FEDERAL DEDUCTIBILITY NOT SOLE REQUIREMENT
¶ 28 Contrary to Lowes assertions, whether Lowes qualified for a federal bad debt deduction is not at issue. Here, the DOR agrees that Lowes profit-sharing reductions qualified as federal bad debts arising from a guarantor loss under 26 C.F.R. § 1.166-9(a). Wash. Court of Appeals oral argument, Lowes Home Centers, LLC, v. Dept of Revenue , No. 50080-9-II (Feb. 21, 2018), at 22 min., 40 sec. through 25 min., 24 sec. (on file with court). The core of the parties disagreement is whether there are additional requirements to obtain a state tax refund and, if so, whether Lowes has satisfied the requirements.
¶ 29 However, the fact that a bad debt is deductible under federal law is not itself sufficient to support a tax credit under RCW 82.08.037. Although there are many forms of federal bad debt that may be claimed under 26 U.S.C. § 166, 26 C.F.R. § 1.166-1(a), (c), and 26 C.F.R. § 1.166-9(a), only bad debts on sales taxes previously paid that are written off as uncollectible qualify for a retail sales tax refund. RCW 82.08.037(1) ; former WAC 458-20-196(2)(a). Thus, Lowes has the burden to establish that its profit-sharing reductions are sales taxes previously paid and written off as uncollectible. RCW 82.08.037(1) ; former WAC 458-20-196(2)(a). To the extent Lowes asserts that it qualifies for a state tax refund because its profit-sharing reductions were deductible as bad debts under 26 U.S.C. § 166, its claim fails.
B. SALES TAXES PREVIOUSLY PAID
¶ 30 Lowes attempts to frame its federal bad debts as debts on sales taxes previously paid because its profit-sharing reductions covered some of the Banks losses on PLCC accounts that included charges for retail sales tax. RCW 82.08.037(1). The DOR asserts that Lowes profit-sharing bad debts are not debts on sales taxes previously paid because (1) Lowes received payment on the gross proceeds for retail sale PLCC transactions and (2) under Home Depot , Lowes profit-sharing bad debts were not directly attributable to a retail sale but instead were attributable to its separate contractual agreements with the Bank. RCW 82.08.037(1) ; 151 Wash.App. at 922, 215 P.3d 222. We agree with the DOR.
1. RETAIL SALE PROCEEDS RECEIVED
¶ 31 The parties dispute whether Lowes receipt of gross proceeds on the PLCC retail sales eliminated any debt on sales taxes previously paid by Lowes. RCW 82.08.037(1). We agree with DOR that because Lowes received proceeds from the Bank for the PLCC retail sale transactions, Lowes had no debts on sales taxes previously paid. RCW 82.08.037(1).
¶ 32 RCW 82.08.037(1) provides that [a] seller is entitled to a credit or refund for sales taxes previously paid on bad debts, as that term is used in 26 U.S.C. Sec. 166. A bad debt under 26 U.S.C. § 166 must arise[ ] from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money. 26 C.F.R. § 1.166-1(c). Importantly, courts focus on the substance of a transaction to determine how it is classified for tax purposes, rather than relying on the characterization of transactions provided in taxpayers contracts with third parties. See First Am. Title Ins. Co. , 144 Wash.2d at 303, 27 P.3d 604. Retail sales tax is based on the [s]elling price, which means the total amount of consideration for which a good is sold. RCW 82.08.010(1)(a)(i). Sales taxes paid by the seller on behalf of the buyer but not paid from the buyer to the seller are a debt owed by the buyer to the seller. Home Depot , 151 Wash. App. at 917, 215 P.3d 222.
¶ 33 Here, when a cardholder made a purchase using a PLCC, the Bank forwarded to Lowes full payment for the purchase and all corresponding taxes within one to two days. Lowes thus received the [s]elling price from the Bank. RCW 82.08.010(1)(a)(i). Lowes accounted for PLCC transactions as cash and cash equivalents, the same term used for customers payments with cash, check, or other credit cards. CP at 60. In addition, Lowes books and records did not reflect any unpaid debt obligations on defaulted credit card accounts, and Lowes did not carry any of the cardholders accounts on its books. Once the Bank paid Lowes proceeds for the selling price including sales tax, any debt for sales tax by the customer to Lowes was satisfied. See Home Depot , 151 Wash. App. at 921-22, 215 P.3d 222. Because Lowes had actually collected the sales tax that it remitted to the State, it had no bad debt on sales tax paid to the DOR.
¶ 34 Lowes profit-sharing reductions did not result in a bad debt on sales tax previously paid because the reductions did not cover sales tax that Lowes remitted to the State that the buyer failed to repay but instead were profit-sharing reductions that covered some of the Banks PLCC losses for credit it extended to cardholders. See Home Depot , 151 Wash. App. at 921-11, 215 P.3d 222 ; 26 C.F.R. § 1.166-9(a). As such, Lowes profit-sharing bad debt resulted from the bargained-for profit-sharing agreements and not debts on sales tax owed to Lowes on a retail sales transaction.
¶ 35 Although Lowes correctly asserts that the PLCC agreements stated that Lowes had the right to claim any available sales tax deductions related to its profit-sharing reductions, this contract provision does not control our characterization of the transactions for tax purposes. CP at 523. A private agreement does not disrupt a partys statutory tax obligations or the proper characterization of its transactions for tax purposes. Wash. Imaging Services , 171 Wash.2d at 556-57, 252 P.3d 885.
¶ 36 Because Lowes profit-sharing reductions were not bad debts on sales taxes previously paid, they did not qualify for a state sales tax refund under RCW 82.08.037(1).
2. HOME DEPOT
¶ 37 To further support its argument that Lowes federal bad debts were not debts on sales taxes previously paid, the DOR relies on Home Depot . We agree with the DOR that under Home Depot , Lowes profit-sharing bad debts are not directly attributable to retail sales and thus not subject to a tax refund under RCW 82.08.037. 151 Wash. App. at 922, 215 P.3d 222.
a. HOME DEPOT HOLDING
¶ 38 Lowes argues that Home Depot does not require a taxpayer to own and initiate the bad debt to obtain a state tax refund under RCW 82.08.037. Appellants Reply Br. at 12, 16. The DOR asserts that under Home Depot , a retailer cannot obtain a state tax refund on bad debts arising from PLCCs it does not own and that the retailer did not initiate because such debts are not directly attributable to retail sales. 151 Wash. App. at 922, 215 P.3d 222. We agree with the DOR.
¶ 39 In Home Depot , we addressed whether a retailer, Home Depot, qualified for a sales tax refund under RCW 82.08.037 on service fees that the retailer Home Depot paid on bank-owned PLCCs. 151 Wash. App. at 912-13, 215 P.3d 222. Home Depot contracted with a bank to establish a PLCC program. Home Depot , 151 Wash. App. at 913, 215 P.3d 222. The bank was the exclusive owner of the accounts and bore the risk of all credit losses, and the bank took a federal bad debt deduction while Home Depot did not. Home Depot , 151 Wash. App. at 913, 914, 215 P.3d 222. The bank paid Home Depot the sales proceeds on PLCC transactions daily and subtracted service fees, which were calculated in part to cover the banks losses on uncollectible accounts. Home Depot , 151 Wash. App. at 914, 215 P.3d 222. Home Depot raised a similar argument to Lowes, claiming that as long as it actually bore the risk of loss from the defaulted debts by paying the service fees, it was entitled to a state tax refund under RCW 82.08.037 for debts the bank claimed as bad debts. Home Depot , 151 Wash. App. at 915, 215 P.3d 222.
¶ 40 We held that Home Depot had no debt directly attributable to a retail sales tax payment and thus was not eligible for a state tax refund under RCW 82.08.037. Home Depot , 151 Wash. App. at 922, 215 P.3d 222. We explained that at the time a PLCC cardholder purchased an item on their PLCC, Home Depot paid the sales tax due to DOR
and this created a statutory debt due from the buyer to the seller. Home Depot , 151 Wash. App. at 921-22, 215 P.3d 222. However, when the bank transmitted the purchase price to Home Depot, the debt between Home Depot and the buyer ceased to exist. Home Depot , 151 Wash. App. at 922, 215 P.3d 222. At that point, Home Depot no longer held any debt directly attributable to the retail sale and thus could not qualify for the state bad debt deduction. Home Depot , 151 Wash. App. at 922, 215 P.3d 222.
¶ 41 Contrary to Lowes and the dissents assertions, Home Depot supports the DORs position that a bad debt directly attributable to a retail sale and thus eligible for the state tax refund must be owned by the taxpayer and initiated by a seller. 151 Wash. App. at 922, 215 P.3d 222. The Home Depot court emphasized that the party seeking the [state] deduction must be the one holding the bad debt [on the retail sale] as well as the one to whom repayment on such a debt would be made. 151 Wash. App. at 922, 215 P.3d 222.
¶ 42 In addition, we stated that retailers that only extend credit to their customers and finance their own retail sales belong to the class of persons entitled to utilize Washingtons bad debt tax statutes. Home Depot , 151 Wash. App. at 927, 215 P.3d 222 (emphasis added). The defaulted PLCC accounts that Home Depots service fees helped to cover were initiated by the Bank rather than by Home Depot and therefore were not initiated by the seller. See Home Depot , 151 Wash. App. at 923, 215 P.3d 222.
¶ 43 Further, Home Depot did not own the debt, as evidenced by the fact that it had no interest in the PLCC debts, it had no right to collect any unpaid sums from the buyer, and it did not deduct bad debt on its federal tax returns. Home Depot , 151 Wash. App. at 922, 215 P.3d 222. Because Home Depot did not own or initiate the PLCC accounts and resulting losses that Home Depots service fees helped cover, Home Depots payments were not directly attributable to a retail sale. Home Depot , 151 Wash. App. at 922, 215 P.3d 222.
¶ 44 As DOR asserts, the only Supreme Court decision that has addressed RCW 82.08.037 supports Home Depot s holding that a bad debt must be owned by the taxpayer and initiated by the seller in a retail sales transaction to qualify for a tax refund under RCW 82.08.037.
¶ 45 In Puget Sound , our Supreme Court held that where a seller extends a loan to a buyer through an installment contract and later assigns the outstanding installment contract to a third party, the third party assumes the sellers rights under the contract, including the right to collect the sales contract debt from the buyer and claim any bad debt from the sales contracts on its state tax returns. Puget Sound , 123 Wash.2d at 293, 868 P.2d 127. The bank that owned the accounts in Puget Sound was allowed to claim a state bad debt refund on uncollectible sales contracts because it stepped into the [sellers] shoes and was thus entitled to the sellers tax benefits for the loans that were initiated by the seller and involved debts owed by the buyer to the seller from the retail sale. 123 Wash.2d at 293, 868 P.2d 127. Puget Sound supports that loans extended directly by the seller to a buyer in a retail sales transaction qualify for the state bad debt deduction. 123 Wash.2d at 293, 868 P.2d 127.
¶ 46 In light of Puget Sound s reasoning, we agree with the DOR that Home Depot authorizes a tax refund under RCW 82.08.037 only where the bad debt is directly attributable to a retail sale, which requires that the debt be owned by the taxpayer and originated with the seller. 151 Wash. App. at 922, 215 P.3d 222.
b. HOME DEPOT APPLICABLE HERE
¶ 47 Home Depot s reasoning is controlling in this case. Like Home Depot, Lowes contracted with the Bank and established a PLCC program. As in Home Depots agreements, Lowes agreements with the Bank provided that the Bank was the exclusive owner of all PLCC accounts. In addition, just as Home Depot paid fees to cover the banks bad debt losses from defaulted accounts, Lowes, under the profit-sharing agreements, reduced its monthly share of profit distributions to cover a portion of the Banks bad debt losses. And just as RCW 82.08.037 did not provide a retail sales tax refund for Home Depots service fees paid to the bank, Lowes is not entitled to such a deduction for its payments that covered the Banks PLCC account losses. This is because, like Home Depot, Lowes did not incur a bad debt loss directly attributable to a retail sale . Home Depot , 151 Wash. App. at 922, 215 P.3d 222 (emphasis added).
¶ 48 In Home Depots and Lowes cases, the buyers statutory debt owed to Lowes under RCW 82.08.050 as well as the underlying debt for the purchase price, was discharged when the banks transmitted payments for the PLCC transactions to the stores. Home Depot , 151 Wash. App. at 922, 215 P.3d 222. Like Home Depot, Lowes no longer held any debt ... directly attributable to its sales tax payment to DOR because Lowes did not initiate and own the PLCC accounts on which there were bad debts. Home Depot , 151 Wash. App. at 922, 215 P.3d 222.
¶ 49 The Bank, not Lowes, extended credit to the cardholders. And the profit-sharing reductions that covered some of the Banks losses on defaulted PLCCs were initiated by the Bank. Consequently, Lowes bad debts resulted from its role as a guarantor-creditor of the Banks PLCC accounts rather than from Lowes role as a seller. See Home Depot , 151 Wash. App. at 922, 215 P.3d 222. Thus, under Home Depot , Lowes guarantor bad debts under 26 C.F.R. § 1.166-9(a) are not directly attributable to a retail sale. 151 Wash. App. at 922, 215 P.3d 222.
¶ 50 In addition, Lowes profit-sharing bad debt was not owned by Lowes. The undisputed facts show that Lowes had no right, title or interest in the PLCC accounts. CP at 136. The Bank had the exclusive right to the cardholder payments. All marketing and promotional materials given to customers stated that the Bank is the owner and creditor on all accounts . All PLCC services were to be performed and controlled directly by the Bank. CP at 49. When a customer defaulted on its PLCC account, the Bank, not Lowes, wrote off the uncollectible debt on its books and records. Lowes books and records did not reflect any unpaid debt obligations owed to Lowes on the defaulted PLCC accounts. Based on these facts, Lowes was not owed repayment by cardholders for its profit-sharing reductions and did not own the PLCC debt.
¶ 51 Lowes profit-sharing bad debts, which it did not initiate or own, were attributable to its bargained-for profit-sharing agreements and not directly attributable to a retail sale. Home Depot , 151 Wash. App. at 922, 215 P.3d 222.
c. LOWES ARGUMENTS DISTINGUISHING HOME DEPOT FAIL
¶ 52 Lowes argues that its situation is distinguishable from Home Depot because, unlike Home Depot, Lowes bore the risk of loss on the credit accounts and took the federal bad debt deduction. Both arguments fail.
¶ 53 First, Lowes claims that in contrast to Home Depot, Lowes bore the risk of loss on the PLCC accounts because it ultimately held the debt and was owed repayment by cardholders. Lowes argues that because it paid the Bank the unpaid balances due on the written-off PLCC accounts, which included any related sales taxes incurred on the sale[,] Lowes, by operation of law ... became the one holding the debt and the one to whom repayment on such debt would be made. Br. of Appellant at 37 (quoting CP at 453-57, 2668). It claims that as a guarantor that paid portions of cardholders debts owed to the Bank, Lowes stepped into the shoes of the Bank and had a right to be repaid for its payments on cardholders accounts.
¶ 54 But this argument fails because, contrary to Lowes assertion that it by operation of law, became the party that held the debt and was owed repayment, the undisputed facts show that under the PLCC agreements, Lowes did not own the PLCC account debt and cardholders did not owe repayment to Lowes or provide payments directly to Lowes. Br. of Appellant at 37.
Notably, the profit-sharing agreements explicitly provided that the Bank exclusively owned the debt and had the exclusive right to be repaid. In addition, Lowes disclosures to the federal government during its IRS audit state that [the Bank] owns the receivable and does not remit cash to Lowes and Lowes does not make an entry when an account is uncollectible. CP at 945. These undisputed facts establish that the Bank and not Lowes owned the PLCC account debt and had the right to be repaid by cardholders.
¶ 55 Second, Lowes claims that it took the federal bad debt deduction because its profit-sharing reductions qualify as bad debts under 26 C.F.R. § 1.166-9. Lowes asserts-and the dissent agrees-that Home Depot was ineligible for the federal bad debt deduction because Home Depots payment of service charges did not qualify as bad debt, whereas Lowes is eligible for the state tax refund under RCW 82.08.037 for its guarantor bad debt. Dissent at 975-76. Lowes is correct that Home Depot did not take a federal bad debt deduction for the fees it paid to the bank, in contrast to Lowes that took a federal bad debt deduction for its profit-sharing reductions that satisfied its guarantor obligation. And a partys failure to take a federal bad debt deduction is relevant to its eligibility for the state bad debt deduction. Home Depot , 151 Wash. App. at 922, 215 P.3d 222. But as discussed above, a partys federal bad debt deduction is not alone sufficient to obtain a state tax refund under RCW 82.08.037. There must be a nexus between the bad debt and the sale. Here, the buyer made a purchase using a PLCC. The Bank paid Lowes in full for the sale. There is no bad debt from the sale. Instead, as discussed above, Lowes bad debts resulted from its role as a guarantor-creditor rather than a seller, and Lowes guarantor bad debts under 26 C.F.R. § 1.166-9(a) are not directly attributable to a retail sale. Home Depot , 151 Wash. App. at 922, 215 P.3d 222.
¶ 56 The Home Depot court noted a distinction between bad debts directly attributable to a retail sale and bad debts resulting from the cost of doing business, saying, Simply because someone can deduct the unpaid sales tax as a bad debt does not transform an ordinary business expense or loss into a refundable sales tax debt under former RCW 82.08.037. 151 Wash. App. at 924, 215 P.3d 222. The Home Depot court recognized that a partys federally deductible bad debt does not automatically qualify for a state tax refund under RCW 82.08.037 because a partys bad debt must be directly attributable to a debt on a retail sale to qualify for a state refund. 151 Wash. App. at 922, 215 P.3d 222. And as discussed above, Lowes federal bad debts resulted from Lowes profit-sharing reductions to cover some of the Banks PLCC account losses and not from debts Lowes owned and initiated that are directly attributable to a retail sale. Home Depot , 151 Wash. App. at 922, 215 P.3d 222.
¶ 57 Lowes also discusses cases litigated by Home Depot in other states that addressed nearly identical claims as those at issue in our States Home Depot . All other states appellate courts concluded, as did our court, that Home Depot was not entitled to a state bad debt refund based on varied reasoning. But those cases are consistent with our Home Depot decision. Although Home Depots lack of federally deductible bad debt was relevant to some of those decisions, many state courts held that Home Depot had no bad debt attributable to PLCC retail transactions because the bank paid the store in full for the purchased goods. See, e.g. , Home Depot USA, Inc. v. Arizona Dept of Revenue , 230 Ariz. 498, 502, 287 P.3d 97 (2012).
¶ 58 Because Lowes received payment on the gross proceeds for retail sale PLCC transactions and because Lowes profit-sharing bad debts were not directly attributable to a retail sale, Lowes profit-sharing bad debts are not debts on sales taxes previously paid and thus do not qualify for a tax refund under RCW 82.08.037(1). Home Depot , 151 Wash. App. at 922, 215 P.3d 222.
3. LOWES CANNOT NEGATE SALES TAX PAYMENT
¶ 59 The dissent would hold that Lowes bad debts were on sales tax previously paid because Lowes initially received reimbursement for sales taxes but that the sales tax payment was negated by Lowes profit-sharing reductions when Lowes became responsible for the amounts of the sales taxes and B&O taxes. Dissent at 976. But as discussed above, the dissent overlooks that the bad debts Lowes incurred through its profit-sharing reductions were from a guarantee of credit accounts and not directly attributable to the retail sale. Home Depot , 151 Wash. App. at 922, 215 P.3d 222. Furthermore, the dissent incorrectly assumes that sellers such as Lowes have authority to negate a buyers sales tax payment. Contrary to the dissents position, once the buyer-cardholders satisfied their sales tax obligation, Lowes did not negate their sales tax payment through its contract with the Bank.
¶ 60 Once the seller collects retail sales tax from the buyer, the collected tax,
is deemed to be held in trust by the seller until paid to the [DOR]. Any seller who appropriates or converts the tax collected to the sellers own use or to any use other than the payment of the tax to the extent that the money required to be collected is not available for payment on the due date as prescribed in this chapter is guilty of a gross misdemeanor.
RCW 82.08.050(2). In addition, if any seller fails to collect the retail sales tax from the buyer or, having collected the tax, fails to pay it to the DOR, whether such failure is the result of the sellers own acts or the result of acts or conditions beyond the sellers control, the seller is, nevertheless, personally liable to the state for the amount of the tax. RCW 82.08.050(3).
¶ 61 As discussed above, Lowes, as the seller, collected the buyer-cardholders sales tax when the Bank transmitted sale proceeds to Lowes on behalf of the buyer-cardholders. See RCW 82.08.050(2). Once Lowes received full payment for the retail transactions, the buyer-cardholders obligation to pay sales tax was satisfied, and RCW 82.08.050(2) - (3) required Lowes to provide the retail sales tax payment to the DOR. No legal authority supports the dissents position that Lowes can negate the buyer-cardholders satisfaction of the retail sales tax and circumvent the obligation to pay DOR sales taxes under RCW 82.08.050(2) - (3) after the buyers tax obligation was satisfied.
¶ 62 The bad debts Lowes incurred from its profit-sharing reductions were bad debts on a guarantee under 26 C.F.R. § 1.166-9(a) resulting not from a retail sales but instead from the Banks credit agreements with cardholders and profit-sharing agreements with Lowes. As such, Lowes was not eligible for a refund under RCW 82.08.037(1) because the profit-sharing reductions were not bad debts on sales taxes previously paid and were not directly attributable to a retail sale. Home Depot , 151 Wash. App. at 922, 215 P.3d 222.
C. WRITTEN OFF AS UNCOLLECTIBLE
¶ 63 The parties dispute whether, as a matter of law, Lowes notations in its books regarding its profit-sharing reductions satisfy the requirement under RCW 82.08.037 that the bad debt be written off as uncollectible in the taxpayers books and records. Appellants Reply Br. at 4 (quoting WAC 458-20-196(2)(a) ). We agree with the DOR that as a matter of law, Lowes did not write off its bad debts as uncollectible and thus does not qualify for a state bad debt refund. Former WAC 458-20-196(2)(a).
Under RCW 82.08.037 and 82.12.037, sellers are entitled to a credit or refund for sales and use taxes previously paid on bad debts under section 166 of the [IRC ], as amended or renumbered as of January 1, 2003. Taxpayers may claim the credit or refund for the tax reporting period in which the bad debt is written off as uncollectible in the taxpayers books and records and would be eligible for a bad debt deduction for federal income tax purposes. However, bad debts do not include:
(i) Amounts due on property that remains in the possession of the seller until the full purchase price is paid;
(ii) Expenses incurred in attempting to collect debt;
(iv) The value of repossessed property taken in payment of debt.
Former WAC 458-20-196(2)(a).
¶ 64 The dissent argues that the write-off provision merely states when a taxpayer can claim a credit or refund and does not establish a requirement for a refund. Dissent at 976-77. But that interpretation is contrary to the plain meaning of the rule. Former WAC 458-20-196(2)(a) provides the conditions under which a party may claim a retail sales tax bad debt refund or credit. The regulation states that taxpayers may claim a refund for the tax reporting period in which the bad debt is written off as uncollectible in the taxpayers books and records. Former WAC 458-20-196(2)(a). Even if, as the dissent asserts, the provision merely establishes the appropriate time to claim a bad debt refund, a party that never writes off bad debt as uncollectible in its books and records would in turn never be eligible for the bad debt refund or credit under former WAC 458-20-196(2)(a).
¶ 65 Lowes is not eligible for a refund because it never wrote off the bad debt as uncollectible in its books and records. Lowes customers who paid with PLCCs owed no debt to Lowes, so Lowes had no debt to write off. The record shows that the Bank, and not Lowes, wrote off the bad debts on the PLCC accounts in its books and records because the customers owed the Bank, not Lowes, debts on outstanding PLCC accounts. Under its PLCC agreements with the Bank, Lowes had no right, title or interest in the Accounts (including the Indebtedness). CP at 145. Lowes stated in depositions and disclosures during an IRS audit that the Bank owns the accounts receivable and that Lowes does not make an entry when an account is uncollectible nor carry customers unpaid PLCC obligations as an asset on its books and records. Lowes does not have a receivable or liability on its books and records at all relating to the unpaid credit card debts. CP at 113.
¶ 66 To support that it wrote off its bad debt as uncollectible, Lowes cites to the declaration of John Norris Aultman. The relevant portion of the declaration provides only that Lowes recorded the amounts of its profit-sharing reductions to compensate the Bank for losses on PLCC accounts and reflected in its books and records the net bad debts on PLCC accounts that were determined to be uncollectible by the Banks . CP at 455 (emphasis added). These statements are consistent with those offered by the DOR and show that the Bank, not Lowes, had uncollectible debts.
¶ 67 Lowes books and records reflected payments Lowes made to the Bank that were federally deductible bad debts as a guaranty payment. But Lowes books and records did not reflect any bad debt on a retail sales owed by customers to Lowes because no such debt existed. As such, Lowes did not satisfy the write-off requirement under former WAC 458-20-196(2)(a).
¶ 68 Lowes does not qualify for the tax refund under RCW 82.08.037 because its profit-sharing bad debt did not result from sales taxes previously paid, its bad debt was not directly attributable to a retail sale as required under Home Depot , and it did not write off the debt on its books and records. 151 Wash. App. at 922, 215 P.3d 222.
III. EQUAL PROTECTION
¶ 69 Lowes argues that the superior courts denial of its summary judgment motion on its refund claim violated its right to equal protection. Lowes asserts that the DOR arbitrarily imposed an ownership requirement that does not exist in the bad debt tax statutes and thus treated Lowes differently from other retailers within its class who remitted sales tax that they cannot collect from the buyer. Br. of Appellant at 47. The DOR argues that Lowes equal protection rights were not violated because Lowes is not in the same class as retailers who are able to claim a refund under RCW 82.08.037. We agree with the DOR.
A. PRINCIPLES OF LAW
¶ 70 We review constitutional issues de novo. City of Seattle v. Evans , 184 Wash.2d 856, 861, 366 P.3d 906 (2015), cert. denied , --- U.S. ----, 137 S.Ct. 474, 196 L.Ed.2d 384 (2016).
¶ 71 Under the Fourteenth Amendment of the United States Constitution, no state shall deny to any person within its jurisdiction the equal protection of the laws. This amendment protects a person from state action which selects him out for discriminatory treatment by subjecting him to taxes not imposed on others of the same class. Allegheny Pittsburgh Coal Co. v. County Commn of Webster County, W. Va. , 488 U.S. 336, 345, 109 S.Ct. 633, 102 L.Ed.2d 688 (1989) (quoting Hillsborough v. Cromwell , 326 U.S. 620, 623, 66 S.Ct. 445, 90 L.Ed. 358 (1946) ). A tax classification based on reasonable factual distinctions and policy preferences does not violate equal protection. See Lehnhausen v. Lake Shore Auto Parts Co. , 410 U.S. 356, 360, 93 S.Ct. 1001, 35 L.Ed.2d 351 (1973).
¶ 72 Under article I, section 12 of the Washington Constitution, [n]o law shall be passed granting to any citizen, class of citizens, or corporation ... privileges or immunities which upon the same terms shall not equally belong to all citizens, or corporations. For legislation to comply with article I, section 12 it must apply alike to all persons within the designated class and reasonable ground must exist for making a distinction between those who fall within the class and those who do not. State ex rel. N. Pac. Ry. Co. v. Henneford , 3 Wash.2d 48, 54, 99 P.2d 616 (1940) (quoting State ex rel. Bacich v. Huse , 187 Wash. 75, 80, 59 P.2d 1101 (1936), overruled on other grounds by Puget Sound Gillnetters Assn v. Moos , 92 Wash.2d 939, 603 P.2d 819 (1979) ). An equal protection challenge to disparate tax treatment fails when any state of facts can reasonably be conceived that would sustain the classification. Home Depot , 151 Wash. App. at 926, 215 P.3d 222 (quoting United Parcel Serv., Inc. v. Dept of Revenue , 102 Wash.2d 355, 368, 687 P.2d 186 (1984) ).
B. NO DISPARATE TREATMENT
¶ 73 DOR did not arbitrarily apply an ownership requirement to Lowes that treated Lowes differently than other parties within the same class as Lowes asserts. Br. of Appellant at 47. Instead, it applied the standards provided in Home Depot that withstood Home Depots equal protection challenge.
¶ 74 RCW 82.08.037 provides a tax benefit to retailers who extend credit to their customers and finance their own retail sales; RCW 82.08.037 does not extend the same tax benefits to a party who pays contractual fees to a third-party lender to finance PLCCs. Home Depot , 151 Wash. App. at 927, 215 P.3d 222. The Home Depot court concluded that the factual differences between these two methods of business amply support the distinction drawn by the legislature. 151 Wash. App. at 928, 215 P.3d 222. For example, the two types of financing arrangements include different types of risks, in that ... Home Depot receives instant (re)payment from [the bank] on all accounts, while a self-financing retailer does not. Home Depot , 151 Wash. App. at 928-29, 215 P.3d 222.
¶ 75 Home Depot s equal protection analysis controls here. Contrary to Lowes assertion, it is not in the same class as retailers who finance their own retail sales. As discussed above, Lowes collected the sales tax owed by the buyer when the Bank transmitted the sale price within days of sale. Lowes profit-sharing reductions, made as part of bargained-for agreements with the Bank, are not in the same class for taxation purposes as uncompensated losses a seller experiences when they themselves extend credit to customers. Thus, the superior court did not violate Lowes equal protection rights.
IV. DUE PROCESS
¶ 76 Lowes next provides one sentence of argument that the superior court violated Lowes due process rights by denying its summary judgment motion and granting the DORs summary judgment motion. Specifically, Lowes states, Likewise, by imposing arbitrary requirements on [Lowes] that are neither authorized by statute nor promulgated as regulations, the [DOR] has denied [Lowes] its right to a refund of overpaid sales and B&O taxes without due process of law, in violation of the state and federal due process clauses. Br. of Appellant at 48. The DOR argues that the due process argument is waived because it was not raised in Lowes complaint to the superior court. We hold that Lowes argument is waived.
¶ 77 [N]aked castings into the constitutional sea are not sufficient to command judicial consideration and discussion. Kitsap County Consol. Housing Auth. v. Henry-Levingston , 196 Wash. App. 688, 707, 385 P.3d 188 (2016) (alteration in original) (internal quotation marks omitted) (quoting Crystal Ridge Homeowners Assn v. City of Bothell , 182 Wash.2d 665, 679, 343 P.3d 746 (2015) ). In addition, we do not consider arguments raised for the first time on appeal unless the new argument raises a manifest error affecting a constitutional right. RAP 2.5(a)(3) ; Booker Auction Co. v. Dept of Revenue , 158 Wash. App. 84, 90, 241 P.3d 439 (2010). Where a party, in raising its unpreserved argument, does not claim that the trial court committed a manifest error affecting a constitutional right, we will not address it. Booker Auction Co. , 158 Wash. App. at 90, 241 P.3d 439.
¶ 78 Lowes single sentence in support of its due process argument does not warrant judicial consideration. See Henry-Levingston , 196 Wash. App. at 707, 385 P.3d 188. In addition, Lowes fails to assert that its due process argument raises a manifest error affecting a constitutional right, so we address the argument no further. Booker Auction Co. , 158 Wash. App. at 90, 241 P.3d 439.
CONCLUSION
¶ 79 As a matter of law, based on undisputed facts, Lowes does not qualify for the tax refund because its bad debt did not result from sales taxes previously paid, its bad debt was not directly attributable to a retail sale as required under Home Depot , and it did not write off the debt on its books and records. RCW 82.08.037(1) ; 151 Wash. App. at 922, 215 P.3d 222. In addition, the superior court did not violate Lowes equal protection rights, and we do not address the inadequately briefed due process issue.
¶ 80 We affirm.
I concur:
MELNICK, J.
Maxa, C.J.
¶ 81 The majority unnecessarily complicates what should be a straightforward analysis of the applicable Washington statutes, federal statute, and federal regulations. Those provisions unambiguously show that Lowes Home Centers, LLC (Lowes) is entitled to retail sales tax credits and Business and Occupation (B&O) tax deductions based on payments it made as the guarantor of debt obligations arising from Lowes credit card accounts. Accordingly, I dissent.
A. BACKGROUND
¶ 82 Lowes had agreements with GE Capital Financial Inc. and Monogram Credit Bank of Georgia (collectively the Banks) to issue Lowes credit cards. The Banks entered into credit agreements with customers, who used the credit cards to make purchases at Lowes stores. The Banks paid Lowes for the amount of the purchases, including any sales tax and related B&O tax. The Banks then collected the amounts of the purchases from the customers.
¶ 83 Some of the customers defaulted on their credit card obligations, resulting in bad debts for the Banks. The bad debts included the amounts of sales taxes and B&O taxes the Banks had paid to Lowes. Under its agreements with the Banks, Lowes acted as the guarantor of those bad debts up to a capped amount. In other words, Lowes had a contractual obligation to pay the Banks the amount of the Banks bad debt losses, which included sales taxes and B&O taxes.
¶ 84 Lowes claimed sales tax credits and B&O tax deductions for the payments it made as the guarantor of the Banks bad debts. Lowes also deducted those losses on its federal income tax returns. The Department of Revenue disallowed all credits and deductions relating to the payments Lowes made as the guarantor of the Banks bad debts.
B. CREDIT/DEDUCTION FOR GUARANTORS PAYMENT OF BAD DEBTS
¶ 85 RCW 82.08.037(1) states, A seller is entitled to a credit or a refund for sales taxes previously paid on bad debts, as that term is used in 26 U.S.C. Sec. 166. Regarding B&O taxes, RCW 82.04.4284(1) states, In computing tax there may be deducted from the measure of tax bad debts, as that term is used in 26 U.S.C. Sec. 166... on which tax was previously paid. Former WAC 458-20-196(1)(c) clarifies that Washington credits, refunds, and deductions for bad debts are based on federal standards for worthlessness under section 166 of the Internal Revenue Code. (Emphasis added.)
¶ 86 26 U.S.C. § 166(a)(1) states, There shall be allowed as a deduction any debt which becomes worthless within the taxable year. The federal standards of worthlessness are set forth in 26 C.F.R. § 1.166.
¶ 87 The controlling federal regulation here is 26 C.F.R. § 1.166-9(a), which applies to taxpayers who enter into an agreement to act as a guarantor of a debt obligation. The regulation states that a taxpayers payment in discharge of part or all of the taxpayers obligation as a guarantor ... is treated as a business debt becoming worthless. 26 C.F.R. § 1.166-9(a). Subsection (d) of that regulation states that a guarantors payment of an obligation is treated as a worthless debt only if the agreement was entered into in the course of the taxpayers business, the taxpayer had an enforceable legal duty to make the payment, and the agreement was entered into before the obligation became worthless. 26 C.F.R. § 1.166-9(d).
¶ 88 Under the plain language of these provisions, Lowes was entitled to a sales tax credit and a B&O tax deduction for the payments it made on the Banks bad debts. Lowes payments were made to discharge the obligation Lowes had as the guarantor of those bad debts, and therefore under 26 C.F.R. § 1.166-9(a) those payments are treated as worthless debts for purposes of 26 U.S.C. § 166. Lowes also met the requirements of 26 C.F.R. § 1.166-9(d). And because those guaranteed payments constitute bad debts as that term is used in 26 U.S.C. § 166, Lowes is entitled to a sales tax credit under RCW 82.08.037(1) and a B&O tax deduction under RCW 82.04.4284(1).
¶ 89 The majority believes that the plain language of these provisions does not control for three reasons. But these reasons reflect a misunderstanding of the applicable law.
¶ 90 First, the majority focuses on the statement in RCW 82.08.037(1) that a credit is allowed for sales tax previously paid on bad debts and the statement in RCW 82.04.4284(1) allowing deduction for bad debts on which tax was previously paid. The majority claims that Lowes did not previously pay any sales taxes or B&O taxes relating to the Banks credit card bad debts because Lowes received reimbursement for those taxes from the Banks.
¶ 91 However, the Banks credit card bad debts for which Lowes acted as guarantor included sales taxes and B&O taxes . Lowes initially received reimbursement for sales taxes and B&O taxes. But because of the guarantee, that reimbursement was negated and Lowes became responsible for the amounts of the sales taxes and B&O taxes relating to the bad debts.
¶ 92 Second, the majority relies on Home Depot USA, Inc. v. Department of Revenue , 151 Wash. App. 909, 215 P.3d 222 (2009), to hold that Lowes cannot obtain a sales tax credit because its guarantee payments were not directly attributable to retail sales. Id. at 914, 215 P.3d 222. In Home Depot , General Electric Capital Corporation (GECC) issued Home Depot credit cards. Id . at 913, 215 P.3d 222. When a Home Depot customer used the credit card to make a purchase, GECC would reimburse Home Depot for the amount of the purchase, including retail sales taxes. However, deducted from those reimbursement payments was what the parties characterized as a service fee, which was an amount based on a complex economic analysis that considered a number of factors, including expected losses from uncollectable debts. Id . at 914, 215 P.3d 222. Home Depot sought a sales tax refund for the sales taxes it paid on defaulted transactions made on Home Depot credit cards. Id . at 912-13, 215 P.3d 222.
¶ 93 This court affirmed the Department of Revenues denial of Home Depots sale tax refund claim. Id . at 912, 215 P.3d 222. However, the key facts in Home Depot are completely different than the facts in this case. Most significantly, there was no agreement in which Home Depot agreed to act as the guarantor of GECCs bad debts. Instead, there was no question that GECC was completely responsible for those debts, and in fact GECC - not Home Depot - took a bad debt deduction on its federal income tax returns. Id . at 913, 215 P.3d 222. Therefore, unlike here, 26 U.S.C. § 166(a)(1) and 26 C.F.R. § 1.166-9(a) were inapplicable.
¶ 94 Home Depot argued that it actually suffered the loss for GECCs bad debts because the bad debt expenses were factored into the service fee that Home Depot paid. Id . at 923, 215 P.3d 222. The court rejected that argument, stating that the existence of some economic loss relating to another partys bad debts does not allow a tax refund under RCW 82.08.037. Id . at 923-24, 215 P.3d 222. But the courts holding is inapplicable here because Lowes did not merely suffer some economic loss relating to the Banks bad debts. Unlike Home Depot, Lowes was the guarantor of the Banks bad debt losses.
¶ 95 The analysis and holding in Home Depot is inapplicable here because Home Depot did not guarantee GECCs bad debts. Lowes did guarantee the Banks bad debts, and those guarantee payments are the bad debts under 26 C.F.R. § 1.166-9(a) allowing for a sales tax credit under RCW 82.08.037(1) and a B&O tax deduction under RCW 82.04.4284(1).
¶ 96 Third, the majority contends that Lowes cannot claim a sales tax credit or a B&O tax deduction because it did not write off the bad debt as uncollectable on its books. The majority believes that writing off the bad debt as uncollectable on a taxpayers books is a requirement for the sales tax credit and B&O tax refund under WAC 458-20-196.
¶ 97 The majority misreads WAC 458-20-196, which does not contain any such requirement. Former WAC 458-20-196(2)(a) states the general rule that sellers are entitled to a sales tax credit for taxes previously paid on bad debts under 26 U.S.C. § 166. That subsection then states, Taxpayers may claim the credit or refund for the tax reporting period in which the bad debt is written off as uncollectible in the taxpayers books. Former WAC 458-20-196(2)(a). This provision simply states when a taxpayer can claim a credit or refund; it does not somehow create a new requirement for claiming the credit or refund. Neither RCW 82.08.037, 26 U.S.C. § 166(1), nor related regulations contain such a requirement.
¶ 98 In any event, WAC 458-20-196 clearly does not address the situation where the taxpayers bad debt is a payment made as the guarantor of another persons debt obligation. A guarantor would not necessarily write off the other persons bad debt as uncollectible on its books. However, Lowes presented evidence that its books and records did reflect the guarantee payments it had made, which should be sufficient to determine when Lowes could claim the credit/deduction.
C. CONCLUSION
¶ 99 Lowes made payments to the Banks as the guarantor of the Banks bad debts relating to the Lowes credit cards, and those payments included amounts for sales taxes and B&O taxes. Under federal law, those guarantee payments constituted bad debts. And under RCW 82.08.037(1) and RCW 82.04.4284(1), Lowes was entitled to a sales tax credit and a B&O tax deduction for those bad debts. I dissent from the majoritys contrary holding.
Lowes calls this clause the Bad Debt Guarantee. Br. of Appellant at 9. For clarity, we use the term profit-sharing reduction to describe the amount that Lowes profits were reduced under the profit-sharing agreements to cover a portion of Lowes losses from defaulted PLCC accounts.
Our opinion refers to Lowes bad debts from its profit-sharing reductions as profit-sharing bad debts.
Three versions of RCW 82.08.037 were in effect during the assessment period at issue here. See former RCW 82.08.037 (1982) (effective from 1982 to June 30, 2004); former RCW 82.08.037 (2004) (effective from July 1, 2004 to June 30, 2008); former RCW 82.08.037 (2007) (effective from July 1, 2008 to April 30, 2010) (The statute was also amended in 2003, but that amendment was replaced by the 2004 amendment.). The legislature amended this statute again in 2010. See Laws of 2010, ch. 23, § 1502. Because there is no relevant distinction between any of these versions of the statute, we cite to the current version of the statute.
Two versions of RCW 82.04.4284 were in effect during the assessment period at issue here. See former RCW 82.04.4284 (1980); former RCW 82.04.4284 (2004). Because there is no relevant distinction between these two versions of the statute, we cite to the current version.
151 Wash. App. 909, 215 P.3d 222 (2009).
Given the similarity between provisions governing the bad debt retail sales tax and bad debt B&O tax exemptions, Lowes does not distinguish between them in its analysis.
Lowes refers to these provisions together as the Bad Debt Statutes throughout its briefing and argues that Washington law requires uniform treatment of bad debts losses for purposes of sales tax and B&O tax. Br. of Appellant at 15. Lowes primarily cites authority regarding the retail sales tax credit under RCW 82.08.037 and argues that the authority controls Lowes B&O tax eligibility because the standards governing eligibility for the retail sales tax exemption and a retailing B&O tax deduction are substantially similar. Our analysis focuses on Lowes retail sales tax exemption claim because the parties briefing and legal authority focused almost exclusively on the retail sales tax issue. To the extent that Lowes relies on its failed retail sales tax credit claim to support its eligibility for the B&O deduction, Lowes arguments necessarily fail.
Lowes argues that under Home Depot , the party that takes the federal bad debt deduction is entitled to a tax refund under RCW 82.08.037. For the reasons discussed below, this claim fails.
See, e.g. , Home Depot USA, Inc. v. Arizona Dept of Revenue , 230 Ariz. 498, 502, 287 P.3d 97 (2012) (Because Taxpayer received the full amount it was owed, there were no debts-much less bad debts[-]that served to reduce the gross amount that it realized from its sales of goods.); Magee v. Home Depot U.S.A., Inc. , 95 So.3d 781, 793 (Ala. Civ. App. 2011) (holding that the states bad debt regulations clearly envision that the retailer must extend credit to the customer and own the account, and that if the account is not paid, the retailer must be the party that deducts the debt as uncollectible ); In the Matter of Home Depot USA, Inc. v Tax Appeals Tribunal of the State of N.Y. , 68 A.D.3d 1571, 1573, 893 N.Y.S.2d 313 (N.Y. App. Div. 2009) (Notably, inasmuch as the debts in question were owed to the finance companies and petitioner was paid in advance by the finance companies, [Home Depot] did not actually have any uncollectible receipts. Indeed, [Home Depot ] recorded accounts receivable from the finance companies, not from the individual customers.).
Lowes also cites to an Oklahoma administrative decision as persuasive authority that Lowes is entitled to a Washington State tax refund. Order, No. P-09-195-H, 2015 WL 1530422 (Okla. Tax Commn Feb. 26, 2015). The Oklahoma administrative law judge (ALJ) determined that Lowes, in a case factually similar to this case, was entitled to an Oklahoma bad debt tax refund. But as the DOR asserts, this Oklahoma case is unpersuasive for numerous reasons. Most importantly, the Oklahoma ALJ held that the Oklahoma state tax refund statute did not require that a debt be directly attributable to a retail sale to be eligible for a refund. This is contrary to our States statute and our courts decision in Home Depot , which, unlike the Oklahoma decision, has precedential value in this case.
The DOR argues that even if Lowes can establish that its profit-sharing reductions are bad debts on retail sales, Lowes is still not entitled to summary judgment because Lowes cannot meet its burden to prove the correct amount of the sales tax refund. Lowes argues that it established the correct amount of the refund and that the DORs cited authority is inapplicable. Because, as discussed above, Lowes profit-sharing reductions are not bad debts on retail sales, we need not reach whether Lowes can establish the correct amount of a hypothetical sales tax refund.
However, I agree with the majoritys equal protection and due process analysis.
The same analysis applies for a B&O tax deduction. Former WAC 458-20-196(3)(a), relating to B&O taxes, contains language nearly identical to subsection (2)(a).