November 28, 2016
By: Eric J. Sachtjen
On November 23, 2016, the Washington Supreme Court held Washington’s B&O Tax Applies to National Sales and Drop-Shipped Sales.
Avnet is one of the largest distributor of electrical components and computer products. Avnet has 35 offices in the United States, including one in Redmond, Washington, where 40 employees worked. The Redmond employees performed many functions for Avnet’s Washington customers, including soliciting orders, responding to requests for quotes, receiving orders, and responding to questions, and market intelligence on Washington’s markets to Avnet’s corporate office.
Avnet earned more than $80 million of its gross receipts from “national sales” and “drop-ship sales.” Avnet didn’t pay B&O tax on its national sales or drop-ship sales.
In a “national sale” Avnet would make a wholesale sale to a customer in multiple states, including Washington. The goods would be delivered to the customer’s Washington office, but billed to the customer’s office in another state.
In a “drop-ship sale” Avnet’s out-of-state customer would place a wholesale order and direct Avnet to deliver the good to the ordering customer’s Washington customer.
The Court held the Redmond office was significantly associated with establishing and maintaining the market for its products in Washington. Therefore, Washington’s B&O Tax applied to Avnet’s Washington national sales and drop-shipped sales.
Avnet, Inc. v. Dep’t of Revenue, No 92080-0, 2016 WL 690220 (Wash. Nov. 23, 2016).