The Washington Court of Appeals held that, for purposes of the Business and Occupation (B&O) Tax, a law firm’s gross income from insurance litigation services were properly sourced to the state where litigation occurred. A law firm with offices in Washington and Oregon that provides insurance defense litigation sought a refund of B&O Tax on the basis that its insurance litigation and defense service receipts were apportionable to the insurance company customers’ legal departments’ billing addresses, rather than the state where the litigation occurred. The taxpayer appealed the Washington Department of Revenue’s denial of its refund request.
To compute the B&O Tax, taxpayers must apportion their gross income such that the tax applies to only gross income apportioned to Washington. In 2010, the Washington legislature changed the method of apportioning gross income from services from where the services were performed to where the customers received the services’ benefit. The court held that the gross income related to Washington litigation was properly soured to “where the case is litigated” (i.e., Washington) because the benefit of the litigation is “immediately realized upon disposition of the case,” not “once the legal department of the insurance company is made aware of the results.”
Betts Patterson & Mines, PS v. Washington Department of Revenue, No. 86756-3-I (Wash. Ct. App. Nov. 3, 2025) (unpublished).