Wash. Admin. Code § 458-20-19401
(1) Introduction.
(b) This rule only applies to periods after May 31, 2010, and applies as follows:
(d) Other rules that may apply. Readers may also want to refer to other rules for additional information, including those in the following list:
(e) Examples included in this rule identify a number of facts and then state a conclusion; they should be used only as a general guide. The tax results of all situations must be determined after a review of all the facts and circumstances. For the examples in this rule, gross income received by the taxpayer is from engaging in apportionable activities or from making wholesale or retail sales. Also, unless otherwise stated, the years in the examples are time periods that occur after June 30, 2017.
The minimum nexus thresholds described in this rule and used in examples are unadjusted for consumer price index changes applicable for years after 2017.
(2) Definitions. Unless the context clearly requires otherwise, the definitions in this subsection apply throughout this rule.
(a) "Apportionable activities" includes only those activities subject to B&O tax under the following classifications:
(3) Substantial nexus.
(a) With respect to taxes on persons engaged in apportionable activities as defined in RCW 82.04.460 or making wholesale sales taxable under RCW 82.04.257(1) or 82.04.270, substantial nexus exists where, in the current or immediately preceding calendar year, a person is:
(iii) A nonresident individual or a business entity that is organized and commercially domiciled outside this state, and the person had:
(b) With respect to taxes on a person making sales at retail taxable under RCW 82.04.250(1) or 82.04.257(1), substantial nexus exists if, in the current or immediately preceding calendar year:
(c) A person who has a substantial nexus with this state in the current calendar year based solely on exceeding property, payroll, or receipts thresholds during the current calendar year, but did not exceed the thresholds in the immediately preceding year, is subject to B&O tax on business activity occurring on and after the date that the person established a substantial nexus with this state in the current calendar year. RCW 82.04.220(2). If the person exceeded any of the thresholds in the immediately preceding year, the person is subject to B&O tax on its business activity occurring throughout the current year.
Example 1. Company C is commercially domiciled in Washington and has one employee in Washington who earns $30,000 per year. Company C has substantial nexus with Washington because it is commercially domiciled in Washington. The minimum nexus thresholds for property, payroll, and receipts do not apply to a business entity commercially domiciled in this state.
(e) The minimum nexus thresholds are applied on a calendar year basis.
Example 2. Assume Corporation N, which is not commercially domiciled or organized in Washington, earns receipts attributable to Washington in 2017 that exceed the minimum nexus receipts threshold for determining substantial nexus. If Corporation N's 2018 and later payroll, property, and receipts do not exceed any of the minimum nexus thresholds for determining substantial nexus, its B&O tax reporting obligation for any gross receipts attributable to Washington continues through the calendar year 2018.
Example 3. Company Q is organized and domiciled outside of Washington. Company Q maintains an office in Washington which housed a single employee in the immediately preceding calendar year. In 2016, Company Q had $40,000 in property located in Washington, paid $45,000 in compensation to the Washington employee, and had $200,000 in apportionable receipts attributed to Washington and $0 wholesaling or retailing receipts sourced to Washington. In 2016, Company Q's total property everywhere was valued at $200,000, total payroll was $400,000, and total apportionable and wholesaling or retailing receipts were $5,000,000. In 2017, Company Q had $45,000 in property located in Washington, paid $48,000 in compensation to the Washington employee, and had $200,000 in apportionable receipts attributed to Washington and $0 wholesaling or retailing receipts sourced to Washington. In 2017, Company Q's total property everywhere was valued at $225,000, total payroll was $420,000, and total apportionable and wholesaling or retailing receipts were $6,000,000. Although Company Q has physical presence in Washington, as described in RCW 82.04.067(6), it is not treated as having substantial nexus with Washington with respect to its apportionable and wholesaling activities because (a) it is not organized or domiciled in Washington and (b) it did not have sufficient property, payroll, or receipts in the current or immediately preceding calendar year to exceed the minimum nexus thresholds identified in subsection (3)(a)(iii) of this rule.
(4) Property threshold.
(a) Location of property.
(iii) Intangible property - Intangible property is in this state based on the following:
A loan is located in this state if:
(iv) A borrower is located in this state if:
(vii) Securities:
(b) Value of property.
(i) Property the taxpayer owns and uses in this state, other than loans and credit card receivables, is valued at its original cost basis.
Examples 4 and 5 assume the businesses depicted are not engaged in retailing activity. Therefore, the businesses' mere physical presence in Washington is not used as the basis for determining whether they have nexus with Washington.
Example 4. In January 2013, ABC Corp. bought Machinery for $65,000 for use in State X. On March 1, 2018, ABC Corp. brought that Machinery into Washington for the remainder of the year. ABC Corp. has nexus with Washington beginning on March 1, 2018, based on Machinery's original cost basis value of $65,000. The value is $65,000 even though the property has depreciated prior to entering the state.
(ii) Property the taxpayer rents and uses in this state is valued at eight times the net annual rental rate.
Example 5. In 2018, out-of-state Business X rented office space in Washington for $6,000 and had $7,000 of office furniture and equipment in Washington. Business X has nexus with Washington in 2018 because the value of the rented office space ($6,000 multiplied by eight, which is $48,000) plus the value of office furniture and equipment exceeds the $53,000 property threshold.
(c) Calculating property value. To determine whether the $53,000 property threshold has been exceeded, average the value of property in this state on the first and last day of the calendar year. The department may require the averaging of monthly values during the calendar year if reasonably required to properly reflect the average value of the taxpayer's property in this state throughout the taxable period. Examples 6 through 9 assume the businesses depicted are not engaged in retailing activity. Therefore, the businesses' mere physical presence in Washington is not used as the basis for determining whether they have nexus with Washington.
Example 6. Company Y has property in Washington valued at $90,000 on January 1st and $20,000 on December 31st. The value of property in Washington is $55,000 ((90,000 + 20,000)/2). Company Y exceeds the property threshold in this calendar year because it exceeds the $53,000 property threshold.
Example 7. Company A had no property located in Washington on January 1st or on December 31st. However, it brought $100,000 in property into Washington on January 15th and removed it from Washington on November 15th of that calendar year. In this situation, the department may compute the value of Company A's property over the period of time it was in the state during the calendar year in order to properly reflect its average value ($100,000 multiplied by ten (months) divided by 12 (months), which is $83,333). Company A exceeds the $53,000 property threshold in this calendar year.
Example 8. Company B had no property located in Washington on January 1st or on December 31st of 2018. However, it brought $100,000 in property into Washington on January 15th and removed it from Washington on February 15th of that calendar year. In this situation, the department may compute the value of Company B's property over the period of time it was in the state during the calendar year to properly reflect its average value, $8,333. ($100,000 multiplied by one (month) divided by 12 (months).) Company B also had no property located in Washington on January 1st or on December 31st of 2019. However, it brought $100,000 in property into Washington on January 15th and removed it from Washington on October 15th of that calendar year. For 2019, the average value of Company A's property is $75,000 ($100,000 multiplied by nine (months) divided by 12 (months)). Company B exceeds the property threshold in 2019 based on the average value of its property in Washington during 2019, but it did not exceed the property threshold based on the average value of its property in Washington during 2018.
Example 9. IT Co. is commercially domiciled in State X with Employee located in Washington who works from a home office. In 2018, IT Co. provided to Employee $5,000 of office supplies and $50,000 of equipment owned by IT Co. In 2019, the employee returned an unneeded portion of the equipment and IT Co. provided no other equipment to the employee. The cost of returned equipment was $25,000 of the total $50,000 of equipment. IT Co. is treated as having substantial nexus with Washington in both 2018 and 2019 based on the $53,000 property threshold because the value of its property in this state in 2018 ($55,000) exceeded $53,000. For 2018, IT Co. exceeded the threshold for the current year, and in 2019, IT Co. exceeded the threshold for the immediately preceding calendar year. If IT Co. does not exceed the property threshold in 2020, beginning in 2020 it will no longer have substantial nexus unless it exceeds another threshold.
(5) Payroll threshold. "Payroll" is the total compensation defined as gross income under 26 U.S.C. Sec. 61 (section 61 of the Internal Revenue Code of 1986), as of June 1, 2010, paid during the calendar year to employees and to third-party representatives who represent the taxpayer in interactions with the taxpayer's clients and includes sales commissions.
(a) Payroll compensation is received in this state if it is properly reportable in this state for unemployment compensation tax purposes, regardless of whether it was actually reported to this state.
Examples 10 and 11 assume the businesses depicted are not engaged in retailing activity. Therefore, the businesses' physical presence in Washington is not relevant in determining whether they have nexus with Washington.
Example 10. Company D is commercially domiciled in State X and has a single Employee whose pay of $80,000 2018 and 2019 was properly reportable in Washington for unemployment compensation purposes. Company D has substantial nexus with Washington during 2018 and 2019 because the compensation paid to Employee during the current or immediately preceding calendar year exceeds the $53,000 payroll threshold in both years. Company D will also have substantial nexus in 2020 because the payroll in the immediately preceding year (2019) exceeded the $53,000 payroll threshold.
Example 11. Assume the same facts as Example 9 except only 50% of Employee's pay for 2018 and 2019 was properly reportable in Washington for unemployment compensation purposes. Employee's Washington compensation of $40,000 does not exceed the $53,000 payroll threshold to establish substantial nexus with Washington during the current or immediately preceding calendar year, unless this amount exceeds 25% of total payroll compensation in the current or immediately preceding calendar year.
(6) Receipts threshold. The receipts threshold is exceeded if a taxpayer's receipts from apportionable and selling activities attributed and sourced, respectively, to Washington totaled more than $267,000 in the current or immediately preceding calendar year.
(b) Apportionable receipts are attributed to Washington per WAC 458-20-19402 (general attribution), WAC 458-20-19403 (royalties), WAC 458-20-19404 (financial institutions, after 2015), and WAC 458-20-19404A (financial institutions, before 2016). Receipts from wholesale and retail sales are sourced to Washington in accordance with RCW 82.32.730.
Example 12. Company E is organized and commercially domiciled in State X. In a calendar year it had $50,000 in receipts from wholesale sales sourced to Washington in accordance with RCW 82.32.730, $50,000 in receipts from retail sales sourced to Washington in accordance with RCW 82.32.730, $50,000 in royalty receipts attributed to Washington per WAC 458-20-19403, and $150,000 in gross receipts from other apportionable activities attributed to Washington per WAC 458-20-19402. Company E has substantial nexus with Washington in the calendar year because its total of $300,000 in receipts from apportionable activities attributed to Washington and retail and wholesale sales sourced to Washington in a calendar year exceeded the $267,000 receipts threshold. It does not matter that a portion of the receipts were from apportionable activities that are subject to tax under different B&O tax classifications or that the receipts from apportionable activities or wholesaling or retailing activities did not separately exceed the receipts threshold. The receipts threshold is determined by the totality of the taxpayer's apportionable and selling activities in Washington.
(7) Application of 25% threshold.
(c) The twenty-five percent threshold is determined by dividing:
(iii) Apportionable, wholesaling and retailing receipts attributed and sourced to Washington by total apportionable, wholesaling and retailing receipts.
Example 13. Company G is organized and commercially domiciled in State X. In 2018 it had $45,000 in property, $45,000 in payroll, and $240,000 in gross receipts attributed to Washington. In 2018, its total property was valued at $200,000; its worldwide payroll was $150,000; and its gross receipts, all from apportionable activities, totaled $2,000,000. Company G had twenty-two and a half percent of its property, thirty percent of its payroll, and twelve percent of its receipts attributed to Washington. With respect to its apportionable activities, Company G has substantial nexus with Washington in 2018 because at least twenty-five percent of its payroll in 2018 was located in Washington. Based on its payroll in 2018, Company G will also have substantial nexus in 2019.
(9) Periods from September 1, 2015, through June 30, 2017.
(10) Periods from June 1, 2010, through August 31, 2015.
(a) Apportionable activities. From June 1, 2010, through August 31, 2015, substantial nexus with Washington of a nonresident individual or a business entity organized and commercially domiciled outside this state was established with respect to that person's apportionable activities in a particular calendar year by measuring the person's payroll, property, and receipts in that calendar year rather than by measuring the person's payroll, property, and receipts in the immediately preceding calendar year. Pursuant to RCW 82.04.220, in effect during this period, once established, substantial nexus continued through the following calendar year.
Example 14. Company E was organized and commercially domiciled in State X. In 2013 it had $275,000 in gross receipts from apportionable activities attributed to Washington per WAC 458-20-19402. Company E had substantial nexus with Washington in 2013 because its total receipts from apportionable activities attributed to Washington in that calendar year, $275,000, exceeded the receipts threshold. Therefore, Company E was subject to B&O taxes for the entire 2013 calendar year and its substantial nexus continued through at least the 2014 calendar year.
[Statutory Authority: RCW 82.32.300 and 82.01.060(2). WSR 18-06-078, § 458-20-19401, filed 3/6/18, effective 4/6/18; WSR 16-13-040, § 458-20-19401, filed 6/7/16, effective 7/8/16. Statutory Authority: RCW 82.32.300, 82.01.060(2), 82.04.067, 82.04.460, and 82.04.462. WSR 15-04-004, § 458-20-19401, filed 1/22/15, effective 2/22/15. Statutory Authority: RCW 82.04.067, 82.32.300, and 82.01.060(2). WSR 13-22-044, § 458-20-19401, filed 10/31/13, effective 12/1/13. Statutory Authority: RCW 82.32.300 and 82.01.060(2). WSR 11-19-038, § 458-20-19401, filed 9/12/11, effective 10/13/11.]