In a recent decision by the Washington Supreme Court, the court found that a taxpayer had nexus in Washington for B&O tax purposes even though the taxpayer’s sole presence in the state consisted only of infrequent visits by sales employees to customers. Lamtec Corp. v. Dep’t of Revenue, Docket No. 83579-9 (Wash. Jan. 20, 2011) (en banc). In holding that Lamtec had B&O nexus in Washington, the court stated that, “to the extent there is a physical presence requirement, it can be satisfied by the presence of activities within the state” (emphasis added).
Lamtec, a manufacturer of insulation and vapor barrier in New Jersey, sold its products wholesale to customers via telephone. Lamtec had no facilities, offices, or employees located in Washington. However, several times a year, Lamtec sales employees visited customers in Washington to provide information regarding Lamtec products. The sales employees did not solicit sales. The Washington Department of Revenue (Department) asserted that Lamtec had nexus in Washington and issued an assessment to Lamtec for the period in which it was not registered. Lamtec challenged the assessment.
Lamtec argued that, under the dormant Commerce Clause, it had insufficient nexus with Washington to be subject to the Washington B&O tax because it did not have a physical presence in Washington. The Department, however, argued that Lamtec’s activities established a substantial nexus because Lamtec’s activities were “significantly associated with the taxpayer’s ability to establish and maintain a market in this state for the sales,” citing to Tyler Pipe.
The court sided with the Department and held that periodic visits are sufficient to create a substantial physical presence for Washington B&O purposes. The court stated that there is no requirement that the presence be continuous or constant. Furthermore, the court also suggested that the physical presence requirement applied by the U.S. Supreme Court in Quill may be limited to sales and use taxes and would not be applied to other types of taxes, such as the Washington B&O tax.
The decision is confusing as the court found that the taxpayer established a physical presence sufficient to create a nexus with Washington, but also said that a physical presence may not be necessary to predicate a B&O nexus finding.