Washington Voids Tax on Intercompany Sales Made Out of State

The Administrative Review and Hearings Division (Division) of the Washington Department of Revenue (Department) recently determined that an out-of-state wholesaler was not subject to Washington’s wholesaling business and occupation (B&O) tax on sales completed outside the state.¹ The sales were made to an affiliate that subsequently transported the goods to its customers in Washington. This decision should prompt wholesalers to examine the precise nature of their sales, particularly when and where the transfer of their products occurs to determine whether they are, in fact, subject to tax.  

In this case, the taxpayer sold raw materials used in electronics to an affiliate for resale. In this instance, a) title and risk of loss transferred to the affiliate before its final sale to customers; b) the taxpayer loaded the materials at an out-of-state location onto trucks for delivery to the affiliate’s Washington customers; c) the affiliate did not instruct the taxpayer to deliver the material directly to these customers; and d) the affiliate arranged shipment directly with these customers (via common carrier).  

The Department assessed the taxpayer for B&O tax on these sales; the taxpayer paid the assessment and then appealed to the Division. Under WAC 458-20-193(2), a seller is subject to the B&O tax if 1) it has nexus with Washington and 2) the sale occurs in, or is sourced to, the state.  

Under the state’s sourcing rules, when tangible personal property is received by a purchaser at the business location of the seller, the sale is sourced to that location, and when tangible personal property is not received by a purchaser at the seller’s business location, the sale is sourced to where receipt by the purchaser occurs. Receipt refers to where a purchaser takes possession or has dominion and control of the property.  

In ruling that the taxpayer was not subject to the B&O tax, the Division noted that the affiliate/purchaser took title to and exercised dominion and control of the property and the shipping arrangements before a common carrier took possession. All of this occurred outside the state. Thus, the Division ruled in favor of the taxpayer.  

Ryan’s Take and Action Steps  

Given the nature of the transactions at issue, the Department issued an assessment. The taxpayer did, in fact, report and pay tax on its sales made directly to in-state customers for which it effectuated delivery. This decision should prompt wholesalers to properly structure their transactions to ensure they are not improperly assessed, like the wholesaler here. For questions about the B&O tax, please reach out to a technical expert.  

¹ Administrative Review and Hearings Division of Department of Revenue, State of Washington, Determination No. 23-0210 (released October 16, 2026, dated 2023). 

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals.