Articles Posted in Washington

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SealofWashingtonStateSeal-300x300The fate of Washington’s Business & Occupation (“B&O) surtax on large financial institutions remains uncertain as the state’s highest court has not yet decided whether to grant direct review or transfer the state’s appeal to the Washington Court of Appeals.  On July 13, 2020, the State of Washington filed a direct appeal in the Washington Supreme Court seeking to overturn a trial court decision that struck down the state’s recently enacted surtax on large out-of-state financial institutions.  Wash. Bankers Ass’n v. State, No. 19-2-29262-8 SEA (Wash. Super. Ct. May 15, 2020), appeal docketed, No. 98760-2 (Wash. July 13, 2020).  On July 27, 2020, the state filed its statement of grounds for direct review with the Washington Supreme Court and on August 24, 2020, the respondents, the Washington Bankers Association and American Bankers Association (collectively, the “Associations”) filed their answer. Continue Reading ›

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SealofWashingtonStateSeal-300x300Earlier this month, a Washington state trial judge struck down the state’s recently enacted Business & Occupation Tax (“B&O) measure on large out-of-state financial institutions finding that although the tax measure was facially neutral, the purpose and effect of the tax was discriminatory against out-of-state banks.  See Washington Banker’s Ass’n. et ano. v. State of Washington et al., Docket No. 19-2-29262-8 SEA (Wa. Kings County Super. Ct. May 15, 2020).  As background, the Washington Bankers Association and American Bankers Association (collectively “Bankers Associations”) filed a challenge to invalidate state House Bill 2167, which seeks to impose a higher B&O tax on out-of-state financial institutions whose annual net income equals to or exceeds $1 billion (the measure would nearly double the B&O tax on out-of-state financial institutions from 1.5% to 2.7%).  The Bankers Associations sought to invalidate the law, which became effective January 1, 2020, on the grounds that the measure violates: (1) the state’s constitutional requirement to introduce a bill at least 10 days prior to the adjournment of a legislative session; and (2) the U.S. Constitution’s Commerce Clause because it discriminates against out-of-state financial institutions by imposing a higher tax rate on out-of-state financial institutions versus in-state institutions.  On February 13, 2020, the trial court dismissed the Bankers Associations’ state constitutional challenge, finding that the court was prohibited from looking into legislative procedures preceding the enactment of a statute that is “properly signed and appears fair on its face.”  However, the judge’s decision preserved the Bankers Associations’ federal constitutional cause of action i.e., the B&O tax measure violates the Commerce Clause because it discriminates against out-of-state financial institutions by creating a differential tax rate for in-state versus out-of-state financial institutions.  Upon further briefing, both parties moved for summary judgement and oral argument was held in the matter. Continue Reading ›

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SealofWashingtonStateSealA Washington state trial judge partially granted the state’s motion to dismiss a lawsuit challenging the validity of a recently enacted Washington tax measure that increases the state’s Business & Occupation Tax (B&O Tax) on large, out-of-state financial institutions. The Plaintiffs, the Washington Bankers Association and American Bankers Association (collectively, the “Bankers Associations”) filed a challenge to invalidate House Bill 2167, which targets large out-of-state financial institutions by increasing Washington’s B&O Tax rate if the institution’s annual net income equals to or exceeds $1 billion. The Bankers Associations sought to invalidate the law, which became effective January 1, 2020, on the grounds that the measure violates: (1) the state’s constitutional requirement to introduce a bill at least 10 days prior to the adjournment of a legislative session; and (2) the U.S. Constitution’s Commerce Clause because it discriminates against out-of-state financial institutions by imposing a higher tax rate on out-of-state financial institutions versus in-state institutions. The state moved to dismiss the complaint, focusing on the procedural issue under the state’s constitution rather than the apparent discriminatory nature of the law. Specifically, the state asserted that the “enrolled bill doctrine” enjoined the Washington trial court from reviewing evidence, other than the final enrolled bill itself, to show that a constitutional violation occurred during the enactment process.

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Washington-Court-of-AppealsThe Washington Court of Appeals held that Gartner, Inc.’s online research service was a digital automated service subject to the state’s retail sales tax and retailing Business and Occupation (B&O) Tax. Gartner, Inc. v. Washington Department of Revenue, No. 51637-3-II (Wash. App. Div. 2 Jan. 13, 2020). This decision addressed the scope of Washington’s “human effort” exclusion from the retail sales tax, the applicability of the “bundled transaction” and “true object” tests to offerings that contain taxable and nontaxable components, and the Internet Tax Freedom Act.

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(This article originally was published by Law360 on October 10, 2017.)

States historically have had one major impediment to their ability to collect sales tax—the decision in Quill Corporation v. North Dakota to uphold a physical presence test standard for determining nexus.[1] Since the Quill decision, states have applied various approaches to limit or even eliminate Quill’s physical presence nexus standard. These approaches included lobbying Congress to provide federal legislation that would redefine nexus, enacting state “click-through” nexus statutes, and taking aggressive audit positions that limit the applicability of physical presence nexus.

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