Betts Patterson & Mines, PS v. State of Washington, Department of Revenue

Summary

The Washington Court of Appeals, Division One, affirmed the Board of Tax Appeals' determination that an insurance-defense law firm's receipts should be apportioned to the jurisdictions where the related litigation occurred. The court held that the insurance companies received the benefit of the litigation services where the attorneys litigated and obtained results, rather than at the insurers' legal-department billing addresses. The court also concluded that the firm's evidence was insufficient to show that the Department of Revenue's attribution method was commercially unreasonable. The court separately granted the Department's motion to publish the opinion.

Holdings

1. For purposes of Washington B&O tax apportionment, an insurance company's benefit from a law firm's insurance defense litigation services is received in the jurisdiction where the litigation is filed, conducted, or resolved, rather than at the insurance company's legal-department or billing address.
2. The Board properly rejected BPM's use of insurance-company legal-department billing addresses because those addresses did not fairly represent where the firm's litigation services benefited its customers.
3. BPM's managing shareholder's general assertions that tracking the location of litigation would be time-consuming and resource-intensive were insufficient to create a genuine issue of material fact or demonstrate that the Department's attribution method was commercially unreasonable.

Questions Presented

1. Where is the benefit of insurance defense litigation services received for purposes of apportioning a law firm's gross income under Washington's B&O tax?
2. Did the Board err by rejecting the firm's billing-address method as a reasonable method of proportionally attributing receipts?
3. Did the firm's evidence create a genuine issue of material fact regarding whether tracking the jurisdiction of litigation was commercially reasonable?

Disposition

affirmed