Background
Chicago Title is a national title insurance company that provides title insurance, abstract, and escrow services for real property transactions. Historically, Chicago Title operated local branch offices throughout the United States where services were performed in person. As technology advanced, Chicago Title transitioned to remote operations, using ServiceLink (Pennsylvania) and Fidelity National Agency Solutions (headquartered in Texas with offices in California and New Jersey) to conduct services entirely outside Washington, regardless of the property location.
From 2009–2012, Chicago Title provided title insurance, abstract, and escrow services for Washington real property through these remote, out-of-state offices. Chicago Title reported $0 in Washington sales tax liability for these services, taking the position that the work was performed outside Washington. The Department of Revenue audited Chicago Title and assessed $8.3 million in unpaid retail sales, B&O, and use taxes plus penalties and interest. The trial court granted summary judgment in Chicago Title’s favor, concluding sales were properly sourced to the out-of-state offices, ordering a refund of approximately $10.9 million. The Department appealed.
The Court’s Holding
The Court of Appeals reversed and remanded with instructions to enter summary judgment for the Department. The court held that Chicago Title’s remote sales must be sourced to Washington, not to out-of-state offices, under Washington’s sales tax sourcing statute, RCW 82.32.730(1).
The statute establishes a hierarchy for sourcing retail services. Subsection (a) sources a sale to a business location of the seller only if “the service is received by the purchaser at a business location of the seller.” Subsection (b) applies when the service “is not received by the purchaser at a business location of the seller” and sources the sale to “the location where receipt by the purchaser occurs.” The court interpreted “at” in subsection (a) as requiring the purchaser’s physical presence “in, on, or near” the seller’s business location. Since no evidence showed purchasers physically visited the out-of-state offices—all services were provided remotely—subsection (a) did not apply.
The court then held that subsection (b) applied. The statute defines “receipt” as “making first use of” a service. The purchaser makes first use of title insurance, abstract, and escrow services where the property is located, not where the services are administratively performed. Because the property at issue was located in Washington, the services were received (first used) in Washington under subsection (b). Sourcing to out-of-state offices would render subsection (b) meaningless and contradict the statute’s purchaser-focused design.
Key Takeaways
- Remote service providers cannot avoid Washington tax liability by conducting services outside the state if the service is used by the customer in Washington.
- Statutory sourcing rules require purchaser physical presence “at” the seller’s business location under RCW 82.32.730(1)(a); virtual or remote delivery does not satisfy this requirement.
- Washington’s sourcing statute emphasizes the purchaser’s location and use, not where the seller performs administrative work, and applies destination-based sourcing except as a last resort.
- For title insurance, abstract, and escrow services, the purchaser makes first use of the service where the underlying real property is located, regardless of where service delivery infrastructure exists.
Why It Matters
This decision clarifies that Washington’s sales tax sourcing rules apply destination-based principles for remote services. Companies providing intangible services such as title insurance, abstracts, and escrow cannot structure their operations to avoid state tax liability by relocating administrative functions to other states. The ruling has significant implications for any remote service provider serving Washington customers, establishing that the jurisdiction where the customer uses or benefits from the service controls tax sourcing, not the jurisdiction where the provider operates.
The decision reinforces the legislature’s 2007 shift to destination-based sourcing aligned with the Streamlined Sales and Use Tax Agreement. It prevents an obvious tax avoidance strategy and ensures that Washington captures tax revenue from services benefiting Washington property and customers, even when delivery infrastructure is located elsewhere. For title insurance companies and similar remote service providers, the ruling requires sourcing decisions be made based on where customers receive (first use) services, not where back-office operations are located.