Doing Business in Washington? You might be!

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It seems like almost every day we get notice that another state is looking at adopting the economic substance nexus test for sales and, possible, corporate income tax. This test basically says “Did you make $XXX or more from state residents? Then you owe us some tax.” It’s not dependent on whether you have a physical location in the state, send people into the state, or have workers living in the state. It’s purely an income-based test.

I read the proposed legislation for Washington State this morning. Like California, Washington is looking at claiming economic nexus for taxes for businesses or individuals that aren’t resident in the state if:

1. You own or rent more than fifty thousand dollars of property in WA;
2. You have more than fifty thousand dollars of payroll in this state;
3. You earn more than five hundred thousand dollars of receipts from this state; or
4. At least twenty-five percent of your total property, total payroll, or total receipts are made in Washington.

There’s also a clause in the proposed legislation that says a substantial nexus determination in one year automatically carries forward for the next four years.

If you’re a business owner today, you can’t afford to ignore nexus laws. States can and will come after your business, whether or not you’re business is an in-state resident. Audits are increasing, especially at the state level.

Want to learn more? Why not join our coaching program? We do bi-monthly sessions on the topics that matter most to business owners. Our February 23rd session is going to be all about nexus. Bring your questions, comments and concerns and join us to find out how the economic substance doctrine is changing the rules of interstate taxation.

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  1. We’ve had several cases in the past couple of years where clients were either faced with 1) conservatively filing within the state or 2) risking pursuit by an agressive department of revenue down the road. Where economic nexus in the form of vague “facts and circumstances” tests comes into play many choose to file in the state and mitigate the effect with apportionment. We are seeing states get more agressive on every level (income, gross receipts, sales tax, franchise and capital taxes) as they try to cover budget shortfalls. Good post.

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