On March 28, 2023, the Washington State Court of Appeals ruled in favor of a company providing meter reading services and thereby eliminated a large sales tax assessment on the company.  As a result, the company is not required to pay 17.7 million in sales tax (pending any appeal).  The Washington Court of Appeals determined that the meter reading service was not a “digital automated service,” subject to sales tax, but rather an exempt “data processing service.”  Taxpayers who have purchased similar “data processing related” services and paid sales tax in Washington may want to consider filing a protective refund claim (pending any appeal).

In 2011 Puget Sound Energy (PSE) hired Landis+GYR Midwest, Inc. (Landis) to collect data from PSE’s electric and natural gas meters located at each customer’s property, convert the data into a usable form, and transmit the usable data to PSE. In 2014, the Department of Revenue began auditing Landis. In 2019, the Department told Landis that the services Landis provided PSE were digital automated services subject to retail sales tax and no exemption applied. Landis paid the tax and then sued for a refund.

After losing in Superior Court, Landis then appealed to the Court of Appeals.  In the Court of Appeals, Landis argued that the “primary purpose” of its service was “data processing.”  The Department of Revenue argued that the “primary purpose” was not data processing but rather other activities such as collecting and transmitting data.  The Court of Appeals agreed with Landis that it meets the statutory definition of “data processing” service and is thus exempt from sales tax.  The published opinion No. 56877-2-II is located on the Courts website.

Contact: Mike Roben, John Katsandres, Michael Brown or Caleb Allen at KOM Consulting for more information and find out if there may be an opportunity for a sales tax refund for your company at this time.