WA Legal Roundup: Division II
Lamtec, a New Jersey company engaged in the manufacturing and selling of vapor barriers and insulation facings, does business (over the phone) with several WA clients. The orders are placed via telephone and the goods are shipped F.O.B with the customers bearing the risk of loss. Lamtec employees (of which are located in New Jersey and one in Ohio) have “visited” their WA clients several times in the tax years of 1997 and 2003 (the years at issue in this case) and, while no sales were placed, admitted that the purpose was to maintain the customer relations.
The Department contacted Lamtec and determined that their sales activities were subject to the State’s taxing authority and assessed a B&O tax (business and occupation) of $71,566.12. Lamtec appealed to the Department Appeals Board who confirmed the tax assessment. After exhausting its remedies, Lamtec paid the taxes and filed suit in Thurston County who granted summary judgment in the Department’s favor. Lametec appealed to the Court of Appeals making the statutory argument that under the specific WAC, WA B&O tax should not apply to Lamtec’s wholesale sales to its Washington clients and a constitutional argument that the B&O tax violates the commerce clause.
Contrary to Lamtec’s belief, the Court ruled that under the WAC, the Department could impose a B&O tax on Lamtec because it found that Lamtec’s customers did receive their goods in Washington (because even though the products were shipped F.O.B New Jersey, the common carriers did not have authority to inspect, accept or reject the goods) and that Lamtec has a nexus with Washington.
The Court evaluated the nexus/commerce clause argument against the four part test developed by the United State Supreme Court. the first prong (that there is a nexus between WA and Lamtec is the only prong being disputed). Despite that Lamtec does not hold a physical presence in the state the Court found that there was in deed a nexus because Lamtec made several in person visits to WA for the purpose of maintaining its market in Washington. Moreover, during these visits the employees answered questions, listened to concerns, provided information on the products, and participated in telephone calls that the clients placed to New Jersey.
Finally, the Court held that the Department is not barred from imposing B&O taxes because Lamtec’s activities in Washington are not significantly associated with its sales to the state. The Court ruled that Lamtec has not met its burden to prove their disassociation argument especially in light of the fact that Lamtec sends its employees to maintain its Washington market and its activities are not “separate and independent from its Washington customers.”