Washington ~ Sales and Use, Business and Occupation Taxes: Out-of-state Retailer of Nutritional Supplements Had Substantial Nexus

CCH Tax Day Report

A California company that sold nutritional supplements in Washington was liable for retail sales tax and retailing business and occupation (B&O) tax because it had substantial nexus with Washington. The taxpayer made wholesale sales to retailers and distributors and retail sales through infomercials. Its employees traveled to Washington to participate in trade shows, sales staff training, and promotional planning. Furthermore, the taxpayer engaged several marketing firms to assist in marketing its products in Washington. The firms solicited sales from the taxpayer’s wholesale customers, received orders, and acted as intermediaries with retailers on promotional programs. Though the taxpayer asserted that the Commerce Clause prohibited the state from subjecting its retail sales to sales tax, due its substantial physical presence in Washington, the Commerce Clause did not preclude taxation.

In regards to B&O tax liability, the taxpayer had substantial nexus because its in-state activities supported its abilities to establish and maintain a market for its goods in Washington. There is no requirement that the activities that form the nexus with the taxing state be connected to specific sales. The taxpayer’s extensive wholesale sales and marketing apparatus allowed it to obtain information on Washington’s nutritional products market. Furthermore, its wholesale activities created a market for its retail sales, as its sales at grocery and drug stores resulted in phone inquiries from individuals.

Irwin Naturals v. Department of Revenue, The Court of Appeals of Washington, Division One, No. 73966-2-I, July 25, 2016, ¶204-084

Other References:

Explanations at ¶60-025

Explanations at ¶65-130

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CCHTaxGroup

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