(WASHINGTON STATE) — A Washington appellate ruling denies a roughly $404,000 B&O tax refund to Valente Solutions, driving home how IT service providers must prove that the benefit of services was received outside Washington, especially when delivering localization/IT work to a Washington client like Microsoft.
Washington Court Ruling: Valente Solutions, LLC v. Department of Revenue
Valente Solutions, LLC, an IT services provider, asked Washington for a refund of Washington business and occupation tax, commonly called the B&O tax. The Washington Department of Revenue disagreed. So did the Washington Court of Appeals, Division One, in Valente Solutions, LLC v. Department of Revenue, No. 87280-0-I.
At a high level, the dispute turned on apportionment. In Washington, many service businesses pay B&O tax based on where the customer “received the benefit” of the services. That “benefit received” standard can feel abstract for modern IT work.
Think of it like this: you may build a feature for global users, but the tax question is often where your customer’s decision-makers and receiving team actually take delivery of the work. Valente performed localization and related IT services for Microsoft.
Localization work often supports global releases. The company argued that the real benefit was received outside Washington, where Microsoft’s end customers or markets were located. The appellate court affirmed the Board of Tax Appeals and held that Valente did not carry its burden.
The problem was not that localization can never be sourced outside Washington. The problem was proof. The record did not persuade the tribunal that the benefit of Valente’s services was received outside Washington, as required to apportion receipts away from Washington for B&O tax purposes.
For IT consulting firms, the message is plain. If the client receiving team sits in Washington and your documentation does not clearly tie receipt of the benefit to other locations, Washington may treat the receipts as Washington-taxable.
| Element | Details from Valente case | Implication for IT firms |
|---|---|---|
| Case and forum | Valente Solutions, LLC v. Department of Revenue, No. 87280-0-I, Washington Court of Appeals, Division One | Appellate review signals that documentation failures can survive multiple levels of challenge. |
| Tax type | Washington B&O tax on service income with apportionment | Service providers must treat sourcing as an evidence project, not an assumptions project. |
| Client context | Localization/IT services for Microsoft, a Washington-based enterprise client | Working for a Washington-based client increases exposure if “benefit received” proof is thin. |
| Time period | 2011–2015 service years | Multi-year projects require consistent records, not one-off explanations. |
| Refund claim | $404,000 | Refund requests can draw close review, especially when tied to a Washington client team. |
| Core legal test | Where the customer “received the benefit” of the services | “End users are elsewhere” is often not enough without clear tie-back to customer receipt locations. |
| Why the taxpayer lost | Evidence did not persuasively show benefit received outside Washington; SOW and location linkage issues | Weak SOW language and missing location-to-benefit links can sink both apportionment and refunds. |
Key data points—and what they signal for Washington B&O sourcing
Scale matters in audit reality. Valente’s refund request was $404,000, covering 2011–2015. That kind of multi-year claim pushes a basic question: can you prove, year after year, where the customer received the benefit?
Many IT firms can describe where their work “helps.” Fewer can show where the customer received it in a way a tax agency will accept. In this dispute, the court’s reasoning shows how documentation gaps can become outcome-determinative.
- SOW clarity: A Statement of Work (SOW) is not just a scope and price document. In tax disputes, it can become the “map” for who receives deliverables, where acceptance happens, and which team is the recipient.
- Nexus and benefit location proof: “Nexus” generally refers to connections that create tax obligations in a place. If you claim receipts should be sourced outside Washington, you typically need persuasive evidence tying receipt of the benefit to those other locations.
- Modern delivery makes benefit harder to pin down: Cloud deployments, distributed engineering, and global user bases can blur the line between “used worldwide” and “received by the customer in Washington.” Washington’s approach can push firms to document where the client’s receiving function sits.
A useful analogy is shipping versus streaming. If you ship hardware, delivery location is concrete. If you stream a service, “delivery” can mean where the customer team accepts work, directs changes, or integrates outputs.
For vendors serving Washington-based enterprise clients, that acceptance and management function may sit in Washington unless the paper trail shows otherwise.
⚠️ High burden of proof for apportionment outside Washington; ensure robust SOWs, nexus documentation, and multi-jurisdictional benefit analysis to support refunds
Federal USCIS/DHS updates (late 2025–January 2026) that intersect with IT staffing and compliance
State tax sourcing and federal immigration policy are different systems. Still, they can collide inside the same IT consultancy. The Valente ruling concerns Washington tax law and B&O tax apportionment. USCIS and DHS actions shape immigration compliance and workforce governance, which affects who delivers services and how work is documented.
Several late-2025 and early-2026 federal actions signaled tighter scrutiny and shifting rules. These developments can change hiring, oversight, and evidentiary expectations for consultancies that rely on cross-border or visa-dependent staffing models.
- Operation PARRIS, announced January 9, 2026, involved DHS and USCIS and focused on fraud enforcement activity in Minnesota. A DHS spokesperson said: “Minnesota is ground zero for the war on fraud. This operation demonstrates that the Trump administration will not stand idly by as the U.S. immigration system is weaponized by those seeking to defraud the American people,” on January 9, 2026. The subject matter is not IT. The signal is broader: enforcement posture can raise expectations for clean records and consistent narratives.
- Religious Worker interim final rule, issued January 14, 2026, eliminated a one-year foreign residency requirement for certain religious workers. A DHS spokesperson said: “Under the leadership of Secretary Noem, DHS is committed to protecting and preserving freedom and expression of religion. We are taking the necessary steps to ensure religious organizations can continue delivering the services that Americans depend on,” on January 14, 2026. IT employers may not use that category much, but it shows eligibility rules can change quickly.
- H-1B selection proposal, December 23, 2025: DHS proposed prioritizing higher-skilled/higher-paid selections and discouraging models viewed as low-cost outsourcing. That direction matters for consultancies whose delivery model depends on scaling headcount quickly; a wage-driven selection model can affect planning, offers, and bid pricing.
- USCIS communications and fee changes: USCIS spokesperson statements and fee-related changes (including updates effective around January 1, 2026) can affect filing readiness, evidence expectations, adjudication posture, and the economics of hiring and transfers.
Context and impact for IT firms: Washington revenue sourcing meets federal workforce tightening
Washington’s ruling and federal workforce tightening can hit the same company at the same time. One set of rules asks, “Where did the client receive the benefit?” Another asks, “Where is the worker located, who supervises them, and what worksite facts are true?”
Consultancies often operate across many jurisdictions. Teams can be spread across states, with some staff on visas and others remote. End clients may demand onshore delivery, rapid change cycles, and detailed security controls. That combination can create a recordkeeping stress test.
- Tax positions depend on project facts: If you claim services were received outside Washington, your project documents should show where acceptance and benefit receipt occurred.
- Immigration compliance depends on employment facts: Worksite location, duties, supervision, payroll, and client placement arrangements must match filings and internal records.
- One inconsistent record set can create two problems: A tax narrative that says work was effectively delivered to a non-Washington location can conflict with immigration paperwork that anchors supervision and client receipt in Washington.
Coordination is not about “doing more paperwork.” It is about keeping one consistent story across contracting, project management, HR, and tax.
Documentation strategy: building defensible records for both Washington B&O sourcing and H-1B compliance
Start with contract hygiene. An SOW should do more than describe tasks. It should describe the relationship in operational terms that match reality: deliverables, acceptance criteria, and who the receiving stakeholders are.
For distributed client teams, the SOW can also clarify which location is the receiving business unit, when appropriate. Next comes operational evidence. IT work leaves trails that can support or contradict your tax position.
Timekeeping can show where work was performed, but B&O sourcing often turns on where the customer received the benefit. Pair time records with project repositories, deployment logs, ticketing systems, and change approvals.
A simple example helps. If a Microsoft team in Washington approves localized builds, directs fixes, and accepts releases, that can look like receipt in Washington. If acceptance is handled by a non-Washington team with clear sign-off authority, the records should show it.
Customer location and benefit evidence needs special care. Claims about end users abroad are not always enough. Many cases turn on where the customer’s receiving function sits. Useful support may include documentation of where the client stakeholders are located, where the deliverables are integrated, and where the receiving team signs off.
Cross-function alignment reduces self-inflicted risk. Immigration compliance records often include worksite addresses, supervision details, and client placement facts for H-1B visa holders. Tax teams may be describing customer receipt locations for apportionment. Those narratives should not collide.
✅ IT firms should review current Washington-based client projects, verify benefit localization evidence, and align tax and immigration record-keeping to reduce audit risk
Official government sources (court opinion and agency updates)
Primary sources help teams confirm the current text of rules, opinions, and announcements. For this section, do not rely on a summary: follow the primary documents and agency pages listed below to confirm current language.
- Washington Courts opinion PDF for Valente Solutions, LLC v. Dept. of Revenue (No. 87280-0-I)
- USCIS Newsroom: https://www.uscis.gov/newsroom
- DHS News
- USCIS fee-related notice landing page: https://www.uscis.gov/newsroom/alerts/uscis-announces-fy-2026-inflation-increase-for-certain-immigration-related-fees
This article provides information and analysis for IT firms and is not legal or tax advice. Consult licensed professionals for specific circumstances. Guidance may change with new court rulings or agency updates; verify current guidance on USCIS and DHS sites.
