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Washington Court of Appeals gives no credit to bank’s physical presence and apportionment arguments

By Ted Friedman & Sebastian Iagrossi on November 22, 2023
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The Washington Court of Appeals affirmed a Board of Tax Appeals decision that found an out-of-state bank had a sufficient physical presence in the state to be subject to Washington’s Business & Occupation (B&O) tax. The bank did not have any employees or property in Washington, but issued credit cards, including private label credits cards, to customers in Washington. The Court of Appeals concluded that the bank had a physical presence in Washington because in-state retailers promoted the bank’s private label credit cards, accepted card applications and payments on the cards on the bank’s behalf, and the bank used Washington attorneys to file collection-related lawsuits against Washington residents.

The court also rejected the bank’s argument that even if it was subject to the B&O tax, no income could be apportioned to Washington because the bank did not engage in business activities in the state. The Court of Appeals stated that the ordinary meaning of the term “business activities” in the context of a credit card issuer included issuing credit cards in Washington and earning substantial income from those cards, and that the bank engaged in those activities in the state. Thus, the Court found that apportioning the bank’s income to Washington based on the billing address of Washington cardholders fairly represented the bank’s business activity in the state.

Citibank (South Dakota) National Association v. Dep’t of Revenue, No. 57127-7-II (Wash. Ct. App. Nov. 14, 2023).

Photo of Ted Friedman Ted Friedman
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Photo of Sebastian Iagrossi Sebastian Iagrossi
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  • Posted in:
    Tax
  • Blog:
    SALT Shaker
  • Organization:
    Eversheds Sutherland LLP
  • Article: View Original Source

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