Article | by Andrea Potter

A recent Washington Court of Appeals decision provides important clarification on how law firms must apportion gross receipts for Washington Business and Occupation (B&O) tax purposes. The November 2025 ruling in Betts Patterson & Mines, PS v. Department of Revenue provides significant guidance that may require immediate changes to law firms’ tax compliance practices.

Washington’s B&O tax requires businesses operating across multiple jurisdictions to apportion income based on where the customer received the benefit of the taxpayer’s service. This “benefit received” standard, adopted in 2010, replaced the older method that focused on “where services were performed”. The Betts Patterson decision confirms that law firms cannot rely solely on client billing addresses as a universal apportionment method.

The Court’s Findings

In Betts Patterson, a law firm apportioned its insurance defense receipts to insurance companies’ billing addresses, arguing their legal departments received the benefit there. The Court rejected this method, ruling that “the benefit of the taxpayer’s insurance litigation services was received at the location where the litigation occurred.” The court further explained that “the helpful or useful effect of the legal services is realized in the jurisdiction where the attorneys obtain results for their clients.”

This decision requires law firms to analyze each service type separately. Litigation services must be apportioned to the jurisdiction where legal proceedings occur, settlements are reached, or court filings take place. However, advisory services may still be apportioned to where clients receive and implement legal advice. Transactional work should be evaluated based on where the transaction’s legal effects are realized.

The court also clarified that law firms cannot claim tracking difficulties without specific cost data. Vague assertions that apportionment would be “extremely time consuming and resource intensive” are insufficient to justify simplified methodologies that do not reflect where benefits are received.

Essential Action Steps

Law firms should begin by inventorying their service types and determining where clients receive the benefit for each category. Next, evaluate existing data systems to ensure they can capture the information necessary for accurate apportionment. Firms should also establish documentation procedures to record case filing jurisdictions for litigation matters and the locations where clients implement legal advice for advisory work. Finally, review historical apportionment methods to confirm they remain appropriate under the new guidance. This analysis may reveal opportunities to claim refunds for overpaid taxes or identify potential exposure from underpayments.

Moving Forward

This decision reinforces the importance of service-specific, well-documented apportionment methodologies for law firms operating in Washington. Firms should implement regular review procedures and collaborate closely with experienced tax advisors to ensure compliance.

By aligning apportionment practices with the Betts Patterson guidance, law firms can mitigate risk, strengthen audit readiness, and ensure that B&O tax reporting accurately reflects where clients receive the true benefit of legal services.

About Geffen Mesher:
Geffen Mesher, a Portland-based accounting firm, focuses on providing ongoing financial strategy, accounting and tax advisory services for businesses and individuals. We serve numerous industries and create solutions that help our diverse clientele plan and build their financial futures wisely. Learn more at gmco.com.