* Lendingtree, Llc, Appellant V. Dept. Of Revenue, Respondent

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NOTICE: SLIP OPINION
(not the court’s final written decision)
The opinion that begins on the next page is a slip opinion. Slip opinions are the
written opinions that are originally filed by the court.
A slip opinion is not necessarily the court’s final written decision. Slip opinions
can be changed by subsequent court orders. For example, a court may issue an
order making substantive changes to a slip opinion or publishing for precedential
purposes a previously “unpublished” opinion. Additionally, nonsubstantive edits
(for style, grammar, citation, format, punctuation, etc.) are made before the
opinions that have precedential value are published in the official reports of court
decisions: the Washington Reports 2d and the Washington Appellate Reports. An
opinion in the official reports replaces the slip opinion as the official opinion of
the court.
The slip opinion that begins on the next page is for a published opinion, and it
has since been revised for publication in the printed official reports. The official
text of the court’s opinion is found in the advance sheets and the bound volumes
of the official reports. Also, an electronic version (intended to mirror the
language found in the official reports) of the revised opinion can be found, free of
charge, at this website: https://www.lexisnexis.com/clients/wareports.
For more information about precedential (published) opinions, nonprecedential
(unpublished) opinions, slip opinions, and the official reports, see
https://www.courts.wa.gov/opinions and the information that is linked there.
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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION ONE
LENDINGTREE, LLC, ) No. 80637-8-I
)
Appellant, )
)
v. )
) PUBLISHED OPINION
STATE OF WASHINGTON, )
DEPARTMENT OF REVENUE, )
)
Respondent. )
BOWMAN, J. — This case is about the application of the business and
occupation (B&O) tax statute and administrative rules for apportioning income
earned in Washington. The Washington State Department of Revenue (DOR)
and LendingTree LLC disagree as to where LendingTree’s customers, lenders
located across the country, receive the benefit of LendingTree’s services. We
agree with LendingTree that the benefit is received at the lender’s place of
business. Therefore, we reverse and remand for entry of judgment in favor of
LendingTree.
FACTS
LendingTree operates an online loan marketplace that matches
prospective borrowers with potential lenders. Through this marketplace,
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No. 80637-8-I/2
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LendingTree “provides consumers a way to connect with multiple lenders for a
number of financial borrowing needs.” LendingTree allows lenders to “instantly
expand” their reach by connecting with LendingTree’s network of 30 million
borrowers and “high intent leads.”
On the LendingTree website, prospective borrowers can find educational
materials about the general loan process, varieties of loans, and tools to evaluate
the type and amount of credit they might want. Interested borrowers can
complete an online “Qualification Form” (QF) with their financial information and
the type of loan sought. Upon receipt of a completed QF, LendingTree analyzes
the data using proprietary software and refers the borrower to as many as five
potential lenders best suited to serve the borrower’s needs. The lenders
evaluate the referral and contact the borrower through LendingTree’s website.
These services are free to borrowers. Lenders pay LendingTree a “QF Match
Fee” for each referral, generally ranging from $4 to $100 depending on the type
and size of the loan involved and the borrower’s credit score. If a QF referral
results in a loan, the lender pays a “Closed Loan Fee” of $150 to $575 based on
the details of the loan.
LendingTree provides services for lenders located in the state of
Washington and reports income received from these customers for the purpose
of state B&O tax. DOR audited LendingTree for the period of January 1, 2010
through June 30, 2014. DOR concluded that LendingTree had not properly
attributed income to Washington during the audit period. Specifically, DOR
determined that LendingTree should have allocated its income based on the
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No. 80637-8-I/3
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location of potential borrowers rather than the lenders. As a result, DOR
assessed additional tax, interest, and penalties totaling $196,236.28. DOR’s
Administrative Review and Hearings Division upheld the audit findings.
LendingTree paid the assessment and filed a complaint for refund of the taxes,
interest, and penalties.
The parties filed cross motions for summary judgment. The parties
disputed the location of the benefit received by the lenders for the purpose of
apportioning B&O tax. The trial court concluded:
The service that LendingTree offers is to obtain qualification forms
from consumers to present to consumers about LendingTree’s
services and to have consumers seek loans from a pool of
LendingTree’s clients, and this all happens where the consumer is
located.
The trial court denied LendingTree’s motion, granted DOR’s motion for
summary judgment, and dismissed LendingTree’s complaint with prejudice.
LendingTree appeals.
ANALYSIS
LendingTree and DOR agree on the facts of this case. Indeed, “[b]y filing
cross motions for summary judgment, the parties concede there were no material
issues of fact.” Pleasant v. Regence BlueShield, 181 Wn. App. 252, 261, 325
P.3d 237 (2014). The appellate court reviews summary judgment decisions de
novo. Irwin Naturals v. Dep’t of Revenue, 195 Wn. App. 788, 793, 382 P.3d 689
(2016). The sole issue on appeal is the application of tax statutes to these
undisputed facts. This is an issue of law reviewed de novo. Wash. Imaging
Servs., LLC v. Dep’t of Revenue, 171 Wn.2d 548, 555, 252 P.3d 885 (2011).
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No. 80637-8-I/4
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LendingTree has the burden of proving DOR incorrectly assessed the tax and
establishing the correct amount of the tax. RCW 82.32.180.
A state cannot tax value earned outside its borders. ASARCO Inc. v.
Idaho State Tax Comm’n, 458 U.S. 307, 315, 102 S. Ct. 3103, 73 L. Ed. 2d 787
(1982). However, “by applying the principles of apportionment, states may tax
that part of an interstate transaction which takes place within the state.” Smith v.
State, 64 Wn.2d 323, 334, 391 P.2d 718 (1964). This concept of apportionment
applies to Washington’s B&O tax imposed “for the act or privilege of engaging in
business activities” in this state. RCW 82.04.220(1). Any person earning income
taxable in Washington and in another state must apportion to Washington the
income derived from business activities performed within this state. RCW
82.04.460(1).
In 2010, the Washington legislature adopted a “single factor” receipts
apportionment scheme for service income. LAWS OF 2010, 1st Spec. Sess., ch.
23; RCW 82.04.460, .462; WAC 458-20-19402. Under this method, the taxpayer
multiplies its “apportionable income,” or gross income, by the “receipts factor.”
RCW 82.04.462(1), .460(4)(a). The “receipts factor” is a fraction, calculated as
follows:
The numerator of the receipts factor is the total gross income of the
business of the taxpayer attributable to this state during the tax
year from engaging in an apportionable activity. The denominator
of the receipts factor is the total gross income of the business of the
taxpayer from engaging in an apportionable activity everywhere in
the world during the tax year.
RCW 82.04.462(2), (3)(a).
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To compute the receipts factor, gross income of the business generated
from each apportionable activity is attributed to the state “[w]here the customer
received the benefit of the taxpayer’s service.” RCW 82.04.462(3)(b)(i). For a
service-related business like LendingTree, “the benefit is received where the
customer’s related business activities occur.” WAC 458-20-19402(303)(c).1
DOR defines the “customer’s related business activity” as “the customer
business activity that most closely or directly relates to the services performed by
the taxpayer.”2 In this case, there is no dispute LendingTree is the taxpayer and
the lenders are LendingTree’s customers. Accordingly, taxes are attributed to
the state where the lenders conduct their business activity that most closely or
directly relates to the services performed by LendingTree.
Here, we must determine the services performed by LendingTree as well
as the lenders’ business activities most directly related to those services. DOR
and LendingTree differ in their analysis of LendingTree’s business model and the
resulting application of the tax statutes. LendingTree contends the lenders
receive the benefit of its services at the lenders’ business locations where they
receive and evaluate the QF referrals. In contrast, DOR argues, “The lending
institutions are receiving the benefit of LendingTree’s services based on where
1 (Boldface omitted.) WAC 458-20-19402(303)(c) provides:
If the taxpayer’s service does not relate to real or tangible personal property, the
service is provided to a customer engaged in business, and the service relates to
the customer’s business activities, then the benefit is received where the
customer’s related business activities occur.
(Boldface omitted.) The parties agree this rule governs LendingTree’s apportionment.
2 Interim Statement Regarding the Attribution of Receipts from [Research &
Development] Services, WASHINGTON STATE DEPARTMENT OF REVENUE (June 22, 2017),
https://dor.wa.gov/get-form-or-publication/publications-subject/tax-topics/interim-statement-
regarding-attribution-receipts-rd-services. DOR cites this definition in its briefing without context
or explanation for its applicability.
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No. 80637-8-I/6
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the consumer seeking the information is located.” In support of its argument,
DOR focuses on LendingTree’s marketing and outreach to borrowers. DOR
notes that LendingTree gears the promotion, marketing, and maintenance of its
website toward “attracting potential borrowers to its website in order to expand its
customer’s footprint in the consumer loan market.”
DOR’s emphasis on marketing mischaracterizes LendingTree’s business
model. LendingTree does not provide marketing services for individual lenders.
Rather, LendingTree promotes, markets, and maintains its own website to
promote its own services. LendingTree drives potential borrowers to its website
without specific mention of its individual lender customers. LendingTree, not the
prospective borrower, knows the identity of its lender customers. Borrowers and
lenders do not have contact until after LendingTree matches and sends a QF
referral to the lender, the lender evaluates the referral, and the lender contacts
the borrower through LendingTree’s website. That referral is the service
provided by LendingTree that is of value to the lenders. LendingTree’s
contractual payment structure supports this interpretation—lenders pay
LendingTree a QF fee for referrals, not marketing. Lenders receive no value
from LendingTree’s services until they receive referrals identifying potential
borrowers.
A recent case out of Division Two of this court supports our conclusion. In
ARUP Laboratories, Inc. v. Department of Revenue, ___ Wn. App. 2d ___, 457
P.3d 492 (2020), the court applied the B&O attribution rules to medical testing of
bodily fluid and tissue samples. The company’s pathology laboratory in Utah
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No. 80637-8-I/7
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receives these samples from medical providers throughout the country. ARUP,
457 P.3d at 494. Upon completion of testing, the Utah laboratory sends the
results via the Internet to the medical providers at their location but does not
return the samples. ARUP, 457 P.3d at 494. In order to attribute ARUP’s
income to Washington customers properly, the court examined “where ARUP’s
customers receive the helpful or useful effect of its services.” ARUP, 457 P.3d at
499. The court considered that ARUP’s services assist medical providers in
diagnosing patients and concluded, “The medical providers cannot diagnose their
patients until they receive the results of the tests they ordered.” ARUP, 457 P.3d
at 499. The court agreed with DOR that the benefit of services is received at the
medical provider’s location. ARUP, 457 P.3d at 499. Therefore, any income
ARUP derived from medical providers located in Washington should be attributed
to the state for assessment of B&O tax. ARUP, 457 P.3d at 499.
In ARUP, the customers accrue the benefit of ARUP’s services—the test
results—at the location where they receive and utilize the information provided by
the taxpayer. Similarly, LendingTree’s customers, the lenders, accrue the benefit
of LendingTree’s services at the location where they receive and utilize the
referrals. The origin of the information, whether the laboratory in Utah as in
ARUP or borrowers in another state as in this case, does not control attribution.
The focus must remain on the customer and where the customer benefits from
the service.
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No. 80637-8-I/8
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The trial court erred by concluding the benefit of LendingTree’s services
accrued at the location of the borrower. We reverse and remand for proceedings
consistent with this opinion.
WE CONCUR:
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