By Evan Hamme and Madison Barnett

The Washington State Department of Revenue (DOR) issued an Excise Tax Advisory (ETA) making clear that Getty Images (Seattle), Inc. v. City of Seattle, 260 P.3d 926, 163 Wash. App. 590 (Wash. Ct. App. 2011), does not represent a major departure from established law in the context of affiliate transactions for purposes of the state’s business and occupation (B&O) tax. Getty Images, a City of Seattle B&O tax case, involved a corporation (Getty Seattle) that received $1 million per year as compensation for services provided to affiliates under the group’s General and Administrative Services Agreement. Getty Seattle, however, withdrew substantial additional funds from the group’s cash management account to cover the costs of providing the services. Getty Seattle recorded an account payable for each withdrawal, but had not repaid these amounts at the time of an audit. Ignoring the group’s written agreement and the unpaid accounts payable, the City issued an assessment for the $302 million Getty Seattle withdrew from the cash management account, asserting that the withdrawals constituted taxable compensation for services. The Washington State Court of Appeals ultimately upheld the City’s assessment. Though Getty Images was decided under the City’s B&O tax, taxpayers were initially uncertain on whether the state would adopt a similar approach under the state’s B&O tax and attempt to tax a variety of intercompany transactions. In a 2012 interim statement, the DOR said that it did not consider Getty Images a major departure from established law, and that the DOR would continue its practice of excluding bona fide dividends and non-taxable cash management account distributions from the state’s B&O tax base. The DOR’s new ETA formalizes that interim policy, advises that the DOR will “not presume that a transfer of funds between affiliates is compensation for services,” and that Getty Images does not “represent a change in law for purposes of evaluating the continuing validity of any letter ruling issued by the Department.” Wash. Excise Tax Advisory, ETA 3194.2015 (Jan. 22, 2015).