from Gowrylow, Mike (DOR)

<MikeG@dor.wa.gov>
to Jeff Reifman
date Fri, Nov 13, 2009 at 10:55 AM

Jeff,  

Many  of  your  questions  obviously  relate  to  the  operations  of  a  specific  company  in  
the  software  industry.      While  we  could  attempt  to  provide  general  answers  to  these  
questions,  you  have  been  applying  our  answers  to  a  specific  company  in  your  blog  
postings.      Your  apparent  goal  is  to  narrow  the  line  of  questioning  down  to  a  single  
company.    We  regret  that  we  cannot  answer  such  specific  questions  because  of  the  
need  to  protect  confidential  taxpayer  information.  We  also  cannot  comment  on  what  
we  do  with  any  information  you  provide  to  us  that  may  bear  on  the  taxability  of  a  
business.    We  do  act  on  any  information  we  receive.  

We  can  assure  you  that  the  Department  regularly  audits  large  taxpayers  in  the  state  
to  ensure  full  compliance  with  applicable  tax  laws.    This  includes  examining  
transactions  between  affiliate  corporations.    Any  such  activity  would  be  taxable  as  
provided  under  the  appropriate  classification  of  the  B&O  tax.    To  go  into  further  
detail  about  the  taxability  of  such  transactions  would  risk  violation  of  the  
confidentiality  laws.  

The  Department  can  only  enforce  taxes  where  they  are  legally  enforceable.    It  
cannot  impose  taxes  on  a  company  if  it  reasonably  believes  that  such  enforcement  
would  be  overruled  by  the  courts.    This  would  be  a  waste  of  state  resources.  

Regarding  legal  protections,  the  parties'  choice  of  which  jurisdiction's  law  will  
govern  interpretation  of  a  contract  are  standard  choice-­‐of-­‐law  clauses.    It  does  not  
impact  tax  results,  which  are  determined  according  to  applicable  statutes  and  
agency  rules.  

Regarding  the  use  of  the  Estep  decision,  The  Department  follows  its  published  
determination  in  3  WTD  259.    This  determination  applies  the  Estep  decision's  
analysis  on  step  transactions  to  excise  taxes.    We  believe  this  is  an  appropriate  use  
of  this  decision.  

Mike