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PHILOSOPHY: Formed in 2014, Issaquah Law Group is a law firm with one focus: providing businesses and insurers with high quality legal representation with the responsiveness of a smaller firm. ILG was founded on the principle that strong client relationships are the key to successful legal representation and strong relationships are built upon clear and consistent communication. 

LITIGATION: We work closely with our clients to fully and accurately understand their goals, work collaboratively to formulate specific legal strategies, and execute the agreed plan of action utilizing methods most likely to result in the efficient and effective resolution of the matter. ILG attorneys have a broad base of litigation experience to draw on in all Federal and State courts from on-the-ground investigations to Supreme Court appeals in the areas of personal injury and wrongful death, product liability, commercial general liability, labor & employment, construction litigation, and catastrophic losses due to fire and explosion.

BUSINESS LAW: Rarely is the path from point A to point B a straight line, so our role in a business law practice is to find alternatives, devise workable strategies, and keep your business ideas, goals and objectives moving toward realization. ILG’s business attorneys help clients achieve their goals with respect to business formation, intellectual property, labor and employment, CAN-SPAM, copyright and trademark

COMMUNITY: In addition, the Lawyers at Issaquah Law Group remain active in the legal and civic community. A core commitment of our Issaquah Attorneys is community service. Our attorneys' civic involvement includes the King County Civil Rights Commission; the City of Issaquah Planning Policy Commission; the Northwest Screenwriters Guild, service as a pro tem judge. We live and work in the Pacific Northwest, and we aim to make it a better place.

In addition, through The Amateur Law Professor Blog and LinkedIn postings, we share pertinent opinions and decisions of the Washington State Supreme Court, as well as the pertinent opinions and decisions of the Washington State Courts of Appeal so that our clients can be as update to date on cutting legal issues as we are.

Division I: Phone Contacts are Not Contacts for B&O Tax Purposes

Wedbush Securities, Inc. v. City of Seattle

Wedbush is based in Los Angeles. However, it has an office in Seattle with about 30 employees. Those employees take phone sales and orders from customers across the U.S. In reporting its taxes, Wedbush reported only those revenues derived from clients that actually lived within the city. In Seattle, the B&O tax formula is based on a formula utilizing both gross receipts and payroll.

At first glance, looks like Wedbush may have been complying:

The service income factor is a fraction, the numerator of which is the total service income of the taxpayer in the city during the tax period, and the denominator of which is the total service income of the taxpayer everywhere during the tax period. Service income is in the city if:

(i) The customer location is in the city; or

(ii) The income-producing activity is performed in more than one location and a greater proportion of the service-income producing activity is performed in the city than in any other location, based on costs of performance, and the taxpayer is not taxable at the customer location; or

(iii) The service-income-producing activity is performed within the city, and the taxpayer is not taxable in the customer location.

However, under subsection (i), the customer location is defined as "(d) "Customer location" means the city or unincorporated area of a county where the majority of the contacts between the taxpayer and the customer take place." The City determines customer location based on where the physical customer contact occurred. Here, there was no physical contact, which then places you under the formula for subsection (ii). The services were performed in Seattle. 

Now, Wedbush wanted this interpreted as any contact, physical or via phone, as falling under section (i). Why? Well, then they would only pay on those contacts in Seattle, as opposed to its overall gross revenue for the entire company.

Oddly enough, the Court, without explanation, determines these are cascading clauses. While this is likely from prior case law, it definitely bares explaining. At first glance,  it seems to me that clauses (i) through (iii) could very well be interpreted as non-exclusive, meaning you could invoke all. However, if you do not limit contacts, you may still be able to invoke section (i) and other provisions of section (ii), if the majority of services occur in the City. While there may be a case where you are taxing under section (i) and not taxing all income, there is never a case where you are taxing under section (ii) and not taxing all income. As such, you can't interpret these clause as being separate things that you can invoke together. Rather, you have to interpret them as separate provisions. Likewise, you cannot give the city a blanket option as to which one to choose, as they would always choose (ii) over (i) to capture all income. Thus, you have to determine that these are cascading. If these are cascading, you have to interpret contacts as "physical contacts", otherwise there would never be a time when (ii) was invoked over (i) in a service economy.

If that doesn't make sense, that's fine. Its all very complex legal argument. The thing you need to know is this: If you have a service business in a city, and your customers are not physical contacts, you will need to report based on the two factor formula for your entire income, lest you get nailed on an audit, as what happened to Wedbush.


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