June 30, 2026

Overview

The Washington State Department of Revenue (“The Department”) has issued new guidance on apportioning receipts from investment income. In that guidance, the Department states that its current understanding is that “investment income should be attributed to the taxpayer’s commercial domicile.” The Department further states that it is “not aware of any situations in which the earlier cascading steps would apply” because:

• The investment income is not received in exchange for providing a service, so steps (301)(a) through (c) do not apply.
• The investment income is not associated with an identifiable customer, so steps (301)(d) through (f) do not apply.

Those propositions may be true for the Department’s example in the new guidance involving anonymous public-market stock sales. But they arguably should not be treated as categorical rules for all investment income. It is not entirely clear from this guidance how flexible the Department will be allowing alternative conclusions. A better approach may be to apply the cascading steps receipt by receipt and move to commercial domicile only when the taxpayer is actually unable to attribute the receipt under the earlier steps.

Conclusion

The Department’s example in its guidance reaches a reasonable result. If a taxpayer realizes gains from anonymous public-market trading and cannot commercially identify a customer or attribution location, commercial domicile is likely the correct endpoint.

But the Department’s broader reasoning should be narrowed. Investment income should not automatically bypass the cascading steps. The correct approach is to identify the receipt, identify any customer or payor if commercially reasonable, apply any rule that may apply, and move down the cascade only when the taxpayer is truly unable to attribute the receipt under the earlier steps.