Weekly Round-Up: Gifts Cards Lie at Heart of Washington Nexus Finding

An out-of-state mail-order retailer has substantial nexus with Washington based on its relationship with an in-state affiliate that sold gift cards to customers, distributed the out-of-state company's catalogs, and assisted the out-of-state company's customers, the Appeals Division of the Washington Department of Revenue finds.

The division explained in its decision, Det. No. 10-0057, dated Dec. 20, 2011, that because the activities are significantly associated with the retailer's ability to establish or maintain a market in the state, nexus was established.

The taxpayer, one of four wholly-owned subsidiaries of a parent corporation, is an out-of-state corporation that sells supplies by mail order catalog but has no employees or inventory in Washington. One of the taxpayer's sister companies, which owns and manages the retail stores, operates two retail stores in Washington.

Most significant to the nexus determination, the department stated, is the fact that the sister company's retail stores sell gift cards that customers may redeem at the taxpayer's mail order store.

Under the taxpayer's gift card program, which is managed by the parent corporation, proceeds from the subsidiaries' sales of gift cards are passed through to the parent, and when redeemed, the sale is recorded in the appropriate subsidiary's financial records.

Thereby, the department reasoned, the taxpayer's sister company actually facilitates or makes sales on behalf of the taxpayer. Therefore, the activity of selling gift cards that can be redeemed by mail order is significantly associated with the taxpayer's ability to establish or maintain a market in Washington, the department concluded.

For a complete look at the Appeals Division of the Washington Department of Revenue’s analysis, check out the article by BNA state tax law editor Christine Boeckel, found in this week’s issue of the Weekly State Tax Report. The article can be read in its entirety here.

In other developments…

Sutherland SALT reports that a California court rejects the FTB's retroactive imposition of the tax shelter promoter penalty.

The Center on Budget and Policy Priorities takes a look at state taxes on inherited wealth.

I. Harry David, at the Tax Foundation, reviews recent changes to Michigan’s movie production incentives program.

Compiled by Priya D. Nair
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