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Out-of-State Company Does Not Have Nexus in Washington


The Washington Board of Tax Appeals has determined that an out-of-state manufacturer of rice products, Sage V. Foods, does not have nexus with the state of Washington, and therefore is not liable for Washington B&O wholesaling tax and litter tax.

The United States Supreme Court case Complete Auto Transit v. Brady was referenced in order to prove that the manufacturer is not liable for Washington B&O wholesaling tax. The case determines that for "a tax on an out of state company to be legal all four of these tests must be passed:

  1. Substantial Nexus. An activity with substantial nexus in the taxing state.
  2. Fair Relationship. The tax is fairly related to services provided by the State.
  3. Fair Apportionment. The tax is fairly apportioned.
  4. Non Discrimination. The tax does not discriminate against interstate commerce."

Sage argues that it does not have substantial nexus with Washington State because:

  • It does not have a physical presence in Washington.
  • It does not rely on in-state activity to establish or maintain its market in Washington.

Sage does lease PD railway cars to keep its product fresh during transport. However, the lease of cars for delivery was not proved to be significantly connected with the company's ability to maintain a market in the state. Furthermore, the president of Sage does not have a history of visiting Washington in order to establish or maintain the company's market in the state.

The Washington Board of Appeals concluded that "[t]he nexus necessary to support the imposition on Sage of the B&O wholesaling tax and litter tax has not been established." Sage is not, therefore, liable for Washington B&O wholesaling tax and litter tax.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.