TAX NEWS - 2010

Washington Tax: Department issues notice on impact of new economic nexus law

Special Notice, Wash. Dept. of Rev. (6/30/10). The department explains new law [S.B. 6143; See previously issued Multistate Tax Alert for more details on this law] establishing minimum nexus standards for engaging in business within Washington for state business and occupation (B&O) tax purposes that deal with certain service activities and the receipt of royalty income. This new law became effective June 1, 2010, and applies to gross income generated on or after June 1, 2010.

According to the notice, this economic nexus standard may be met without a physical presence in Washington.

Under the new nexus standard, royalty income and other "apportionable" income could become subject to Washington's B&O tax on an apportioned basis. The notice explains that an out-of-state business receiving royalty/licensing income from patents will have nexus with Washington if in a tax year it has at least one of the following in Washington:

- It is commercially domiciled in Washington;
- Property (average value exceeding $50,000);
- Payroll exceeding $50,000 (including certain third-party costs);
- Sales exceeding $250,000; or
- At least 25% of its worldwide property, payroll, or sales.