Washington State Imposing B&O Tax On Out of State Businesses

A recent tax case in Washington state is starting to garner quite a bit of attention, and is raising significant questions about the extent of state taxing authority.

The case involves a processed food ingredient company that manufacturers rice byproducts and sells them as ingredients in other processed foods. The company operates out of three states, and ships it’s products to other manufacturers in all 50 states.

In 2011, the owner of the company was invited to visit the facility of a customer in Washington State, and he did so. This visit triggered an audit by the State of Washington, and resulted in a $180,000 tax bill for 7 years worth of unpaid business and occupation taxes.

While Washington does not have an income tax, it does have a tax on gross receipts of businesses. The tax rate varies based on the type of business, but as an example equals 1.8% of GROSS annual revenue for service businesses. Different product types have different taxing rates.

The manufacturer has no facilities, no sales reps, no offices, not even any registered vehicles in the state of Washington. By any legal definition, the company does not “conduct business” in the state.

However, the state of Washington has determined that, by making ONE business-related visit to the state, the manufacturer established a taxable presence in the state.

Obviously, this is complete and utter BS. However, it is apparently not an isolated case…simply the most egregious.

As state coffers are drained, they are all searching for every dime they can get their grubby hands on. In order to protect yourself, it is important to know the tax laws in regards to any location where you will be doing business.