By Samantha Trencs and Amy Nogid

A Washington State administrative law judge (ALJ) denied a business and occupation (B&O) tax protest from a German pharmaceutical corporation with no physical presence in the state after finding that the royalty income from products sold in Washington far exceeded Washington’s economic nexus threshold. The double taxation relief available in the treaty between the U.S. and Germany did not prevent Washington from imposing the B&O tax since the corporation could exclude income taxed by Washington in its German tax base. Additionally, the ALJ found that if the treaty’s non-discrimination provision applied to state and local taxes, the B&O tax did not discriminate against foreign businesses, because the tax applies equally to both U.S. and non-U.S. businesses that derive royalty income in the state. Det. No. 15-0251, 35 WTD 230 (05/31/2016).