An out-of-state bank that serviced credit cards in Washington had business and occupation (B&O) tax nexus with the state. Specifically, the bank was liable for the service and other activities B&O tax.
Substantial Nexus for B&O Tax
Nexus exists for service and other activities B&O tax when a taxpayer uses a representative to perform business activities on its behalf in Washington. In the present case, the taxpayer sent representatives, through an affiliate, to Washington to perform site visits at merchant locations. The affiliate’s activities created substantial nexus for the taxpayer, as they helped establish and maintain a market for the taxpayer in Washington.
In addition, Washington requires taxpayers to apportion income when calculating tax liability. Here, a three factor apportionment percentage applied. However, the department did not have a chance to examine the taxpayer’s records to review its assignments of payroll and property to locations outside of Washington. Thus, this issue was remanded for further examination.
Waiver of Penalties
The department did not waive penalties on the taxpayer’s assessment could. Its failure to pay taxes did not derive from circumstances beyond its control.
The taxpayer claimed that it misunderstood Washington’s nexus rules due to statements made by department employees to the legislature while nexus legislation was being passed. Its belief that it did not have substantial nexus with Washington is consistent with a misunderstanding or lack of knowledge. However, the taxpayer did not assert that it relied on such statements when deciding not to pay B&O tax.
Determination No. 17-0277, Washington Department of Revenue, June 5, 2018, ¶204-374