Affiliate Creates Nexus for Out-of-State Mail-Order Retailer

The Washington Department of Revenue (“Department”) determined that an out-of-state retailer (“Retailer”) is required to collect use tax based on the activities of an in-state affiliate of the retailer. [Wash. Dept. of Rev., Decision Det. No. 10–0057 (2/20/11)].

The Retailer, one of four wholly-owned subsidiaries, operates a mail-order catalog business outside Washington State and has no offices, employees, or inventory in Washington. One of the Retailer’s sister corporations (“Affiliate Corporation”) operates retail stores in Washington and carries the same type of merchandise as the Retailer.

The Affiliate Corporation purchases and distributes the Retailer’s catalogs in Washington stores. In addition, the Affiliate Corporation sells the Retailer’s gift cards and accepts returns of certain items purchased from the Retailer.

Due to the aggregate and substantial nature of the activities performed by the Affiliate Corporation, the Retailer has substantial nexus in Washington and is responsible for Business and Occupation Tax and Retail Sales and Use Tax.