SEATTLE - Washington's Supreme Court on Thursday reaffirmed the state's authority to collect business-and-occupation taxes from out-of-state companies that do business here, even if they have no local sales force, offices or stores.
The justices ruled 6-3 Thursday against Lamtec Corp. of New Jersey, which sells insulation and vapor barriers. Lamtec was seeking a refund of nearly $72,000 in taxes, penalties and interest it paid the Revenue Department from 1997 to 2003.
The B&O tax is a tax on conducting business within the state. Under the federal Commerce Clause, states can impose such taxes on out-of-state companies when there is a “substantial nexus” between the state and the company’s activities, Justice Tom Chambers wrote for the majority.
Lamtec argued that because it didn’t have a permanent physical presence in Washington, there was no nexus. But the high court said visits to Washington customers by Lamtec workers were enough to establish one. Lamtec did more than $9 million in business in Washington during the seven years of contested tax payments, and its employees visited Washington customers 50 to 70 times during that period.
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“To the extent there is a physical presence requirement, it can be satisfied by the presence of activities within the state,” Chambers wrote. “It does not require a ‘presence’ in the sense of having a brick and mortar address within the state.”
Chambers was joined by Chief Justice Barbara Madsen and Justices Mary Fairhurst, Charles Johnson, Debra Stephens and Susan Owens.
Revenue Department spokesman Mike Gowrylow said a ruling in Lamtec’s favor would have seriously hurt the state’s ability to collect taxes from out-of-state companies. The department did not immediately have an estimate of how much money was at stake.
“A lot of what we bring in through enforcement is going after out-of-state businesses that should be reporting,” Gowrylow said.
In fact, he noted, Gov. Chris Gregoire recently authorized the Revenue Department to hire a half-dozen auditors to focus on collecting taxes from out-of-state businesses.
Leslie Pesterfield, a Seattle attorney for Lamtec, said he was disappointed in the ruling and that if a “few sporadic visits per year constitutes a nexus for purposes of imposing taxation, it’s hard to get a clear reading on what would not constitute a nexus.”
“It’s quite a surprise that if you come out to Washington state and have a meeting with customers on a Friday and stay for the weekend, all of a sudden you may be subject to Washington state taxation, even though you’re paying New Jersey income tax on the same revenue.
“It’s another indication that Washington state is not friendly to businesses.”
The company could petition the U.S. Supreme Court for review, but no decision has been made, Pesterfield said.
In his dissent, Justice Gerry Alexander wrote that he believed a permanent physical presence in the state is required for a business to be subject to the tax.
“Lamtec employees made occasional visits to this state,” Alexander wrote. “They did not, as the majority acknowledges, solicit sales during those visits.”
Justices James Johnson and Richard Sanders joined the dissent.