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Washington: Ruling Says Out-of-State Company Has Nexus Based on In-State Activities of Contracted Service Providers

Determination No. 20-0171; 44 WTD 001 (2025), Wash. Dept. of Rev. (5/19/25). In a ruling involving an out-of-state business providing insurance companies with water mitigation services via in-state local service providers, the Administrative Review and Hearings Division of the Washington Department of Revenue (Division) held that such contracted service provider activities are significantly associated with the business’s ability to establish or maintain an in-state market for its products and represent substantial nexus with Washington for state business and occupation (B&O) tax purposes under both applicable constitutional and statutory nexus thresholds. Under the facts, the business contracts with Washington water mitigation service providers and refers those providers to insureds making claims; the Division reasoned that without this referral network, regardless of how frequently an insured chooses a different provider, the business’s insurer customers could not effectively respond to insureds’ claims for water mitigation services. In this respect, the Division concluded, the business needs those referral providers available in Washington to provide its services of managing water mitigation claims to its clients, and the existence of this referral network – which was created and maintained by the business – allows it to have a market for its products in Washington. Please contact us with any questions.