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Tax Law

Washington ALJ Rules Video Game Developer’s Attendance at Trade Show Created Substantial Nexus

On December 4, 2020, the Washington Department of Revenue Appeals Division determined that an out-of-state company’s participation in an annual three-day trade show in Washington state was sufficient to create substantial nexus with the state and subject the company to both business and occupation tax (B&O tax) and retail sales tax. The taxpayer, an out-of-state video game developer, did not maintain a permanent physical presence in Washington and did not have any employees or representatives located in the state. During the audit period, the taxpayer’s employees attended an annual three-day trade show in which the taxpayer displayed its products by hosting demonstrations, gave away free products to attendees of the trade show, and organized discussion panels attended by potential buyers.

According to the Department, the taxpayer’s online sales to Washington residents were subject to B&O tax and sales tax based on the taxpayer’s participation in the trade shows. The taxpayer argued that attending this annual trade show and engaging in these activities, without some additional activity, did not create substantial nexus because the taxpayer did not engage in retail business activity at the trade shows. However, the administrative law judge (ALJ) reviewing the taxpayer’s petition disagreed, citing a prior ruling involving trade show attendance where substantial nexus was found based on the taxpayer engaging in activities in Washington to increase familiarity with their products. The ALJ noted that substantial nexus can exist where a company’s physical presence in Washington is only “demonstrably more than a slightest presence.”

Det. No. 15-0036, 39 WTD 191 (2020).