Lane Powell Attorneys Scott Edwards and Dan Kittle authored an article in Seattle Business magazine’s August 2014 issue titled “Senseless (in) Seattle: Confusing Application of City’s B&O Tax Leaves Services Businesses in a Quandary.” In the article, Edwards and Kittle discussed Seattle’s business and occupation (B&O) tax, and how businesses should approach the apportionment of their service income between in-city and out-of-city activities, so that local B&O tax is only paid on receipts attributed to the taxing city.
Seattle has been inconsistent in its approach to the service income factor. Seattle has advised some businesses that the customer’s billing address is a reasonable way to show customer location. Under that approach, a Seattle consulting firm (or other service business) would treat receipts from clients located in Bellevue as out-of-city revenue based on the Bellevue billing address. This approach is consistent with the purpose of the service income factor, which is to reflect the taxpayer’s business market, i.e., where a company’s customers are located.