Washington Tax Decisions

An out-of-state corporation engaged in the buying and selling of . . . [tangible personal property] (Taxpayer) contests the imposition of wholesaling B&O tax on certain amounts it processed on behalf of others. Taxpayer asserts that in certain transactions it acted as purchasing agent for third-party sales between outside manufacturers and member purchasers. Taxpayer argues that, as a matter of law, it was neither a purchaser nor reseller in those transactions, that it was therefore not engaging in wholesaling, and it should be charged service and other activities B&O tax on the fees charged for its purchase agent service, not wholesaling B&O tax on the sale price. We deny Taxpayer’s petition.

A company that acts as a pharmacy benefit manager disputes the inclusion of certain items in gross income of the business and the resulting assessment of service and other activities B&O tax, along with the assessment of annual reconciliation penalties. The company asserts that payments received from customers—intended to cover certain payments the company made to pharmacies on behalf of the customers—are either not included in gross income of the business or excluded from gross income of the business as an advance or reimbursement. The company also asserts that certain rebates from pharmaceutical manufacturers constitute bona fide discounts that reduce the company’s gross income of the business, and that an annual reconciliation penalty was erroneously assessed because the company did not apportion its gross income during the period at issue. We deny the petition.

A restaurant disputes an estimated percentage of cash sales (and the resulting tax assessment) and an assessment of the evasion penalty. The restaurant asserts that the Department erred in estimating based on multiple observations of cash and credit or debit card sales entered into the point-of-sale system and should have based its estimate on industry averages. The restaurant also asserts the Department has not shown that it intended to evade paying taxes. Petition denied.

A company distributing [tangible personal property], disputes tax assessments covering a period when it was a subsidiary of a national [retailer] and a subsequent period after it merged into its parent entity. The company disputes the sufficiency of taxing nexus for pre-merger periods and disputes the taxation of internal transfers for post-merger periods. Additionally, the company asserts that a number of wholesale sales were improperly classified as retail sales. We find that the company established substantial nexus for pre-merger periods based on its relationship with and use of its parent company’s Washington retail locations. We also find that the company has not provided sufficient records to characterize disputed transactions as wholesale sales, and we sustain these portions of the assessments. However, for post-merger periods we conclude that the company ceased to exist as a separate legal entity and became part of the parent entity and, therefore, there was no longer a basis to tax accounting entries as if they were still taxable intercompany transfers. The Taxpayer’s petitions are granted in part and denied in part.