Primary Purpose Test Resolved in Favor of Taxpayer
Posted Thursday, March 10, 2011 by Ronald L. Bueing.
The WA Supreme Court issued Qualcomm, Inc. v. DOR today. This is a major win for Washington taxpayers. Qualcomm sold an OmniTRACS system to trucking companies to provide information about the location of vehicles on the road and other relevant management information. The DOR had asserted that because the service involved the transmission of data, the service was a telecommunications service subject to retail sales tax, as well as the retailing Washington B&O tax. The taxpayer had argued that while transmission was involved, the “primary purpose” or “true object” of the service was the information provided, not the transmission of that information. Thus, the taxpayer argued that the service and other classification should apply as opposed to the retailing classification. The court sided with the taxpayer analyzing the transaction using the “primary purpose” test.
This case could have ramifications in other areas of classification. Recently the DOR has been attempting through regulation to treat certain digital information services as digital automated services subject to retail sales tax, as opposed to digital goods exempt under the business use exemption. The application of the primary purpose test as analyzed by the court in Qualcomm could have a significant effect on that analysis.
