A three-judge panel of Washington's Court of Appeals, Division Two, has vacated a Thurston County trial court decision that would have required the state Department of Revenue to return over $10.9 million to Chicago Title Insurance Company. The appellate ruling determines that title insurance and escrow services performed remotely are attributed to Washington for tax purposes when the purchaser first utilizes them within the state, specifically where the real estate is situated.

Judge Bernard Veljacic authored the published opinion in Chicago Title Insurance Company v. State of Washington, Department of Revenue, with Judges Linda Lee and Erik Price concurring. As a published document, the ruling may be cited as precedent in Washington courts. The panel determined that the Superior Court erred by attributing Chicago Title's sales to its out-of-state locations for taxation.

A Dispute Born From an Industry's Shift to Remote Work

Chicago Title is a national provider of title insurance and escrow services for real estate transactions and refinancings. Historically, the entity operated through local branches, including locations in Washington, because county-level property records were required for title searches. According to the court's findings, the advent of electronic databases enabled Chicago Title to conduct title and escrow operations from locations outside the state.

A significant portion of direct operations moved to two specific divisions: ServiceLink in Pennsylvania, and Fidelity National Agency Solutions in Texas, which also maintains offices in California and New Jersey. Neither division maintains a presence in Washington, and the record contained no evidence that any purchaser traveled to these out-of-state offices for in-person meetings. All customer interactions regarding these services occurred remotely.

The company began transitioning non-commercial direct operations into affiliated agencies in 2010, a process largely completed in Washington by July 2011. Consequently, reported gross income to Washington declined in subsequent years, reaching zero in 2012. A company vice president testified that Chicago Title elected not to collect and remit sales tax on title insurance and escrow services sold to Washington property owners because no work was prepared in Washington, though he acknowledged that all disputed income related to title insurance services for Washington real property.

An $8.3 Million Assessment and a Trip Through the Courts

In 2015, the Department of Revenue audited Chicago Title for the period of January 1, 2009, through December 31, 2012. During that window, the company claims to have generated $104,498,075 in gross income from its direct operations business in Washington—a figure that did not include income from its ServiceLink or Fidelity National Agency Solutions divisions.

The Department concluded that Chicago Title had underreported its Washington sales by excluding transactions handled through those remote offices, and assessed $8,310,134 in unpaid retail sales tax, business and occupation tax, and use tax, plus penalties and interest.

Chicago Title challenged the assessment through the Department's Administrative Review and Hearings Division, which trimmed the bill by $45,814 but otherwise upheld it. After the division denied reconsideration, Chicago Title paid the assessment in December 2018 and sued in Thurston County Superior Court.

A state appellate panel has ruled that a national title insurance firm must pay Washington state taxes on services performed remotely for local buyers, reversing a lower court’s decision. The court determined that the location of the customer, rather than the company’s out-of-state processing centers, dictates where the sale is sourced for tax purposes.

Statutory Interpretation

The dispute centers on RCW 82.32.730, a statute enacted in 2007 to align Washington law with the Streamlined Sales and Use Tax Agreement. This legislation shifted the state’s tax framework from an origin-based model, which taxed services where they were performed, to a destination-based model centered on the purchaser.

The law establishes a hierarchy for determining the source of a service sale. The first provision applies when a customer receives a service at the seller’s business location. If that condition is not met, the sale is sourced to the location where the purchaser receives the service, defined as the point of first use.

The title company argued that the first provision applied because it did not require the buyer to be physically present, allowing the company to source the income to its remote offices. The state Department of Revenue contended that the first provision only applies when the customer is physically at the seller’s site, meaning the sales in question should be sourced to Washington, where the customers utilized the services.

Appellate Ruling

The appellate court sided with the state department, finding that the ordinary definition of the word "at" implies physical presence. The judges reasoned that interpreting the first provision to include remote transactions would render the second provision redundant, a legal interpretation courts generally avoid.

Since no customer visited the out-of-state offices to receive the title insurance, abstract, or escrow services, the first provision did not apply. The analysis therefore shifted to the second provision, which focuses on where the purchaser makes first use of the service. The panel noted that the statute prioritizes the location of the buyer, with origin-based sourcing serving only as a last resort. Because the services are tied to real property located in Washington, and that is where the customers began using them, the sales were properly sourced to the state.

Case History and Next Steps

In July 2024, a Thurston County Superior Court judge, Anne Egeler, had issued a final judgment in favor of the title company. That ruling ordered the department to refund $10,909,764.10 in premium and escrow fee income. The department subsequently appealed that decision.

The appellate court has reversed the lower court’s summary judgment and remanded the case to Thurston County Superior Court with instructions to enter judgment for the department on the sourcing issue. One computational aspect of the dispute remains open. During the reconsideration phase, the title company claimed it had preserved a specific calculation issue in the lower courts, a position the department accepted. Because the issue was not fully briefed during the reconsideration, the appellate court left it for the superior court to address upon remand.

The ruling issued by Division Two extends its impact across the broader service sector. As an increasing number of firms relocate their administrative operations to other states while maintaining a customer base in Washington, the appellate court has clarified the application of the state’s destination-based sourcing regulations. Under these rules, the taxable nexus is determined by where the client consumes the service, rather than the geographic location of the vendor’s internal support functions.

In the appeal, Chicago Title was defended by legal counsel Scott M. Edwards, John Sterling Devlin III, and Callie Anne Castillo from the Seattle-based firm Ballard Spahr LLP. The state’s position was advanced by Callan Elizabeth Barrett and Charles E. Zalesky, attorneys with the Washington Attorney General’s Office.