Manufacturer Has Nexus in Washington due to Activities that Maintain a Market In-State

An out-of-state company that designs and manufactures custom heating systems had nexus with Washington for business and occupation (B&O) tax purposes due to the presence of a third-party sales representative and company engineers who assisted in the installation of the systemswithin Washington. In order for the B&O tax to apply on sales of goods which originate outside of Washington, the goods must be received by the purchaser in Washington and the seller must have nexus with Washington. The B&O tax will not apply if either of these two conditions are missing.

The taxpayer contended that it did not have nexus and argued that its in-state activities were not related to generating sales. The court noted that the standard for establishing nexus is not whether the in-state activity directly solicits a sale, but whether the activity is significantly associated with establishing or maintaining a market within Washington. The court concluded that both the activities of the third-party sales representative and the employee engineers were significantly associated with maintaining a market for the taxpayer’s products in Washington. The presence of the employee engineers for field service engagements directly and specifically supported the sales of equipment. The fact that the field service engagement was available and that customers sometimes partook of this option was an important part of the sales process and sufficient to establish taxing nexus. (Tax Determination No. 13-0213, Washington Department of Revenue, April 30, 2014)

Posted on June 24, 2014