As president of a national food company, I thought I had seen it all. Until, that is, the state of Washington decided to send me a $180,000 tax bill for simply visiting the the state. I understand that states are starved for revenue these days, but Washington has gone too far. Based on one visit over a seven-year period, it decided that my company, Sage V Foods, should be required to pay business and occupation taxes. Washington made that determination even though Sage V Foods has no employees, no property, no sales offices and no inventory in the state - nothing.
We are a relatively small business based in Los Angeles with fewer than 250 employees. We have production facilities in Arkansas and Texas. Our only real connection to Washington is the handful of customers to whom we sell our rice-based products. Our largest customer in Washington blends our products to create a special coating for french fries that keep them crisp under heat lamps. Almost all of those fries are shipped to fast food chains outside the state.
Washington has a sneaky way of catching companies in its tax trap. A few weeks after one of our trucks stopped at a weigh station during a routine delivery, we received a questionnaire in the mail from the Department of Revenue. The letter seemed innocuous enough, but it absolutely wasn’t.
It asked whether one of our employees visited the state once a year for business purposes. We answered yes, that was possible, and Washington pounced. It audited us and imposed seven years’ worth of taxes, interest and penalties. Washington claims Sage V Foods has a substantial connection to the state because we, on very rare occasions, cross its borders to do business. That’s outrageous.
I could have opted to pay the tax bill and move on as so many other small-business victims do. But I didn’t. The stakes are too high not only for my company but for hundreds if not thousands of other businesses. Each time a company is forced to pay up - or fight a baseless tax bill in court - it is reallocating resources that could be better used to hire new employees, expand operations or increase salaries.
I continue to appeal Washington’s tax assessment; I lost the first round so I decided to appeal my case to the Washington State Board of Tax Appeals. I know it’s an uphill battle. No one has won a similar appeal in years. But I am going to keep fighting because the assessment is blatantly unfair.
My war against Washington’s tax practices sometimes feels like a solo mission but it isn’t. Congress is considering bipartisan legislation that would make clear that a state can only tax an out-of-state business if that business has a “substantial” physical connection to that state. The proposal would set a uniform, bright-line standard for all states so companies would no longer have to wonder what the rules are.
The Business Activity Tax Simplification Act, sponsored by Rep. Bob Goodlatte, a Republican, and Rep. Robert C. “Bobby” Scott, a Democrat, passed the House Judiciary Committee last summer and awaits a vote in the full House. Support for the bill has been growing.
Sage V Foods began as a subsidiary of Comet Rice in 1992. Today, our ingredients can be found in every major grocery store in products from granola bars to baby cereal. We do $100 million in sales a year. We’ve always paid the appropriate taxes and played by the rules.
What Washington is doing to out-of-state companies such as mine is just plain wrong and has to stop. If tax collectors there are going after companies simply for crossing state lines, what’s next? Tax assessments for dialing the area code?
Pete Vegas is president of Sage V Foods.