What’s Happening
Washington is making significant changes to its apportionment rule. Taxpayers that want to better understand these important changes should consider how the draft rule and new “benefit of the service” analysis will impact their business in 2024 (and for past periods).
Background
The Washington State Department of Revenue (“the Department”) held a series of hearings for its “Apportionment Rule” (WAC 458-20-19402), with the most recent being held on January 9, 2024. At the hearing the Department explained the intended changes to the draft rule, and then took comments from the public. The Department is currently considering which, if any, comments to incorporate. We think it’s likely the Department will publish the final rule in Q1 of 2024. However, this rule update has been in process for 7 years and predicting the date of publication can be challenging.
Taxpayers that have not reviewed the amendments to the draft rule may be interested to see how the new analysis addresses where the “benefit of the service” is received for many services. The rule allows receipt sourcing to the “market” when the service provided does one or more of the following:
- Promotes the customer’s products.
- Engages in or completes the customer’s product sales.
- Obtains or facilitates amounts owed to the customer from the sale of its products.
- Establishes or maintains the customer’s market.[1]
This change to the prior analytical framework is intended to be easier to apply for both taxpayers and the Department. The Department has spent a significant amount of time developing this new framework and we do not anticipate any changes to that part of the rule prior to publication in Q1 2024.
Next Steps
Taxpayers that want to get a jump on this important change to Washington law should consider how this draft rule and new “benefit of the service” analysis will impact their business in 2024 (and for past periods). Please call us if you’d like to discuss possible planning opportunities.
Contact:
Mike Roben, Caleb Allen, John Katsandres, or Michael Brown at KOM Consulting for more information.