A summary judgment in favor of the Washington Department of Revenue was reversed in a case relating to the business and occupation(B&O) tax liability of a Colorado corporation with affiliates involved in franchising dental practices in Washington. Regarding the issue of substantial nexus, the nature of the income received by the Colorado corporation from its affiliates is a disputed issue of fact. In its complaint, the taxpayer characterizes these funds as management fees, yet during discovery, it testified that these payments represented profit distributions. The Department argued that this income should be classified as royalties. If the taxpayer can prove that funds received from its affiliates was for profit distribution and that receipt of profit is not an apportionable activity attributable to Washington, it can challenge the nexus finding.

Furthermore, whether and to what extent payments can be apportioned to Washington relies on the classification of the payments, and consequently, there remains a genuine issue of material fact as to whether affiliate payments represented profit distributions, payment for services, or royalties. M'Knib Company v. Department of Revenue, The Court of Appeals of Washington, Division Three, No. 41068-4-III, September 22, 2026