Shareholders Mark D. Kimball and James P. Ware secured a significant victory for one of MDK Law’s tax clients when the Board of Tax Appeals found that the Department of Revenue erred in its calculation of a six-figure assessment against the client, a wholesale hookah and shisha tobacco distributor. The matter had been pending before the Board for nearly two years. At issue was whether MDK Law’s client was “affiliated” with the Jordanian manufacturers of the shisha tobacco it sold. If the client was affiliated with the manufacturers, as the Department argued, then the basis for the client’s OTP tax (“Other Tobacco Product Tax”) liability was the price the client sold the tobacco to retailers in Washington State. MDK Law argued that its client was unaffiliated with the manufacturers and therefore the basis for the OTP tax was the price for which the client purchased the shisha tobacco overseas.
After a full-day hearing, the Board found that MDK Law’s client met its burden of proof to show that the Department erred when it determined that the client was affiliated with the manufacturers of the shisha tobacco it sold. Accordingly, the Board of Tax Appeals remanded the assessment to the Department with instructions that the Department shall recalculate the assessment with the basis for the client’s OTP tax the price the client paid to import the tobacco, not the price it sold the tobacco to Washington retailers. The Board’s mandate will result in a significant refund for MDK Law’s client.