In the last month, I’ve written two posts about Washington State and what does and doesn’t create a sales tax obligation there. Together, these two posts perfectly illustrate some of the complexities associated with sales and use tax compliance.
The first, from mid-July, explains that attendance at a single trade convention in Washington per year by representatives of an out-of-state company does not in and of itself establish a physical presence (and a tax obligation) for the company. This is due to a policy change that took effect on July 1, 2016. Prior to that date, businesses were likely to trigger sales and use tax nexus simply by attending a trade show. The legislature determined that this did more harm than good, causing businesses to stay away rather than flirt with nexus. Under the new policy:
“The department may not consider the attendance or participation of one or more representatives of a person at a single trade convention per year in Washington State in determining if such person is physically present in this state for the purposes of establishing substantial nexus with this state.”
It’s important to note that, in spite of the new policy, the department “may” find a business to have nexus, particularly if wholesale orders were taken or retail sales made during the trade show.
The second post, from early August, explains why out-of-state businesses making sales in Washington may have nexus in the state and be required to collect and remit sales tax. It highlights a case heard by the Washington Court of Appeals, in which a California-based business was found liable for Washington sales and use tax based on the presence in Washington of “senior company employees.” The court found that the company had enough of a presence at trade shows, where it solicited and received wholesale product orders, for the state to tax all of its taxable Washington transactions.
One of the reasons the court found in favor of the state was the opinion that there are benefits to having “a clear rule.” The clear rule here: the physical presence standard.
The long arm of the tax man
Then there’s the fact that, in Washington, any person or business found to have substantial nexus in a given year may also be have substantial nexus the following year. With respect to sales and use tax, this trailing nexus applies to any business that has physical presence in Washington under RCW 82.04.067(6), “which need only be demonstrably more than a slightest presence.”
In other words, a business may be able to get away with sending employees to a trade show one time, provided they don’t do anything to “establish or maintain a market” in Washington for the company’s products. But attend more than one show, or meet with someone who becomes a future client, and nexus is likely.
To their credit, state legislators and policy-makers do try to have clear rules around sales and use tax. Problem is, the world is a great big messy place, and there are exceptions to every rule. Furthermore, rules, no matter how clear, can quickly become outdated.
So there it is. Washington State taxes certain sales made by out-of-state businesses because they have a physical presence in the state. And Washington State exempts certain sales made by out-of-state businesses with a physical presence in the state.
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