Washington: Out-of-State Sellers Caught in Nexus Trap
Are you selling goods into Washington State, but do not have a permanent physical presence in Washington?If yes, do you send employees into Washington State to maintain your market in Washington State?
If yes, you could have nexus in Washington State for B&O tax purposes.
Are your goods shipped F.O.B.?
If yes, does the freight consolidator, freight forwarder or for-hire carrier have express written authority to accept or reject the goods for the purchaser with the right of inspection?
If not, the goods could be considered to be received in Washington State.
The above conclusions are what the Court of Appeals for the State of Washington Division II reached in Lamtec Corporation, Appellant, v. Department of Revenue of the State of Washington, Respondent; No. 37516-8-11.Important Notes
Washington's B&O tax is an excise tax imposed for the privilege of doing business. Therefore, virtually all business activities carried on within Washington are taxable.
Washington's rules for interstate sales of tangible property state when goods originating outside of Washington are received by a purchaser in Washington, and the out-of-state seller has nexus with Washington, the B&O tax applies to the seller.Facts:
- Lamtec is a company based in New Jersey with no permanent physical location in Washington State.
- Lamtec sent employees into Washington State to maintain Lamtec's market in Washington State, but not to solicit or accept individual orders.
- All goods were shipped F.O.B. (from New Jersey)
Lamtec Had Nexus
First, the Court held that Lamtec's activities within Washington were "significantly associated with Lamtec's ability to establish and maintain a market in Washington."
Given Lamtec's business strategy of maintaining long-term relationships with a small number of customers; its in-person customer visits were critical to maintaining its existing Washington customers.
Lamtec sent employees into Washington to provide information, listen to concerns about Lamtec products, participate in telephone calls that customers placed to Lamtec's technical and customer service departments in New Jersey, field questions concerning potential price increases and new products, and maintain general client relations.
The Goods Were Received in Washington State
The Court also held that the goods Lamtec sold to Washington State customers were received by the purchasers within Washington State despite the goods being shipped F.O.B.
According to Washington tax code (WAC 458-20-193(7)(a): Delivery of the goods to a freight consolidator, freight forwarder or for-hire carrier located outside this state merely utilized to arrange for and/or transport the goods into this state is not receipt of the goods by the purchaser or its agent unless the consolidator, forwarder or for-hire carrier has express written authority to accept or reject the goods for the purchaser with the right of inspection.
Because the for-hire carriers in Lamtec's case did not have express written authority to accept or reject the goods for the purchasers with the right of inspection, the Court held the goods were received in Washington.
Takeaway - Mitigate Exposure
If you are selling into Washington State without a permanent physical presence in Washington, you should review your activities in Washington and your shipping practices to determine your exposure to B&O tax.
Takeaway - Opportunity
After reviewing your activities in Washington and your shipping practices, you may be able to change your business practices to reduce your exposure to B&O tax going forward.
Please contact me at firstname.lastname@example.org to discuss your facts, and potential exposure, or opportunity.
Click on the following link to access the case:http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=375168MAJ
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
You can reach Brian at email@example.com.
Because state and local taxes are deceptively simple and endlessly complicated.