Washington State emergency regulations on nexus and sales factor sourcing.

September 2, 2010

On September 2, 2010, Tax Executives Institute submitted the following comments to the Washington Department of Revenue suggesting changes to regulations interpreting recently enacted nexus and sales factor sourcing legislation. The letter was submitted under the aegis of TEI's State and Local Tax Committee, whose chair is Linda H. Dickens of Texas Instruments, Inc. Howard Grindle of XO Communications contributed materially to the preparation of the submission. Daniel B. De Jong, legal staff liaison to TEI's State and Local Tax Committee, coordinated the preparation of the Institute's comments.

On behalf of Tax Executives Institute, I am pleased to submit the following comments on the Department of Revenue's Emergency Regulations adopted on June 2, 2010 interpreting provisions of Second Engrossed Substitute Senate Bill 6143, signed by the Governor on April 23, 2010, affecting nexus determinations and the sourcing of receipts for purposes of the Business and Occupation Tax. TEI supports the Department's goal of helping taxpayers understand these changes through the issuance of meaningful guidance, and to ensure that the regulations meet that goal, we suggest a number of changes be made.

Background

Tax Executives Institute was founded in 1944 to serve the professional needs of business tax professionals. Today, the organization has 54 chapters in North America, Europe, and Asia, including one in Washington. Our 7,000 members represent 3,200 of the largest companies in the world, many of which are either resident or do business in Washington. As the preeminent association of business tax professionals worldwide, TEI has a significant interest in promoting sound tax policy, encouraging the uniform and equitable enforcement of the tax laws, and reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. The Institute is committed to maintaining a system that works--one that builds upon the principle of voluntary compliance and is consistent with sound tax policy. We, along with federal, state, and local governments, have the most at stake in crafting a tax system that is administrable and efficient.

WAC 458-20-19401 (Nexus)

Effective June 1, 2010, Washington statutes provide a bright-line test for determining when an out-of-state business entity providing services or receiving royalty payments has nexus in Washington for purposes of the state's Business and Occupation Tax ("B&O tax"). (1) Pursuant to that test, taxpayers exceeding any one of the following three thresholds fall within Washington's taxing jurisdiction: (1) $50,000 worth of property in the state; (2)...