United States

Washington State: Benefit of the Service Not Received at Taxpayer’s Customer’s Location

Apr 10, 2017
From KPMG TaxWatch

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Recently, the Appeals Division of the Washington State Department of Revenue held that an out-of-state mutual fund investment management services provider was subject to B&O Tax on its service income. The taxpayer had originally filed an amnesty application, but later withdrew it after it determined that it had no income attributed to Washington under the state’s market-based sourcing rules. The withdrawn amnesty application resulted in an audit. The auditor determined that the taxpayer had income attributed to Washington and issued a B&O assessment accordingly. Under Washington law, receipts from sales of services are attributed to the state where the customer receives the benefit of the taxpayer’s service. The taxpayer’s sole customer, a financial services company that sold investments, was located outside of Washington State. Hence, the taxpayer determined that it did not have any income attributable to Washington as the benefit of its services was received where its sole customer was located.

On appeal, the Division, relying on a departmental rule addressing the application of the benefit of the service provision, disagreed. An example in the rule provided that an investment manager that receives a fee for managing a fund must source those fees to the location where the investors in the fund are located. Accordingly, the Division concluded that the individual investors in the mutual funds managed by the taxpayer were the ultimate benefit recipients of the taxpayer's investment management services. Thus, the Division concluded that the taxpayer’s income should be attributed based on the locations of the individual investors and not the billing address of its customer. Please contact Michele Baisler at 206-913-4117 with questions on this ruling.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.