Appeals Court Hands Department of Revenue Major Win in $10.9 Million Title Insurance Tax Fight

The Washington State Court of Appeals, Division Two, has reversed a Thurston County trial court judgment ordering the state Department of Revenue to refund more than $10.9 million to Chicago Title Insurance Company, holding that the company's remotely performed title insurance and escrow services are sourced to Washington for tax purposes when purchasers make first use of them here—where the real estate is located.

In a published opinion in Chicago Title Insurance Company v. State of Washington, Department of Revenue, a unanimous three-judge panel concluded that the Thurston County Superior Court erred when it sourced Chicago Title's sales to the company's out-of-state offices for tax purposes.

Judge Bernard Veljacic authored the opinion, with Judges Linda Lee and Erik Price concurring. Because the opinion is published, it may be cited as precedent in Washington courts.

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

Chicago Title is a national title insurance and escrow company that serves buyers and lenders in real estate sales and refinances.

Historically, the company operated out of local branch offices—including offices in Washington—because the property records needed for title searches were kept at the county level, where the real estate was located.

Technology changed that. According to the opinion, electronic databases allowed companies like Chicago Title to perform title and escrow work from remote, out-of-state locations.

A growing share of Chicago Title's direct operations ran through two divisions: ServiceLink, located in Pennsylvania, and Fidelity National Agency Solutions, headquartered in Texas with offices in California and New Jersey.

Neither division had any offices in Washington, and the court noted there was no evidence in the record that any purchaser ever traveled to those out-of-state offices to meet with the company in person. Customers interacted with the services entirely remotely.

Beginning in 2010, Chicago Title transitioned its non-commercial direct operations into affiliated agencies, a change substantially completed in Washington by July 2011.

The company's reported gross income to Washington fell in the years that followed, ultimately dropping to zero in 2012.

A company vice president later testified that Chicago Title chose not to collect and remit sales tax on title insurance and escrow services sold to Washington property owners because none of the work was being prepared in Washington—while acknowledging that all of the 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.

The trial court sided with Chicago Title, concluding that the company's insurance premium and escrow fee income was properly sourced to its remote, out-of-state offices.

On July 18, 2024, the court entered a final judgment—signed by Judge Anne Egeler—ordering the Department to refund Chicago Title $10,909,764.10. The Department appealed.

The Legal Question: Where Does a Remote Sale Happen?

The appeal turned on RCW 82.32.730, the statute Washington adopted in 2007 when the Legislature conformed state law to the Streamlined Sales and Use Tax Agreement.

That change moved Washington away from its historical origin-based approach—taxing services where they were performed—toward a destination-based system focused on the purchaser.

The statute sets out a cascading series of rules. Under subsection (1)(a), if a purchaser receives a service "at a business location of the seller," the sale is sourced to that location.

Under subsection (1)(b), if the service is not received at the seller's business location, the sale is sourced to where the purchaser receives it—with "receipt" defined as making first use of the service.

Chicago Title argued that subsection (1)(a) applied and did not require the buyer's physical presence, so its sales belonged at the out-of-state closing offices where the work was done.

The Department countered that subsection (1)(a) applies only when the purchaser is physically present at the seller's location, and that under subsection (1)(b), the sales belonged in Washington, where purchasers receive and first use the services.

The Court of Appeals agreed with the Department. Looking to the ordinary meaning of the word "at," the panel held that subsection (1)(a) requires the purchaser's presence in, on, or near the seller's business location.

Reading the statute otherwise, the court reasoned, would render subsection (1)(b) meaningless, and courts must avoid interpretations that strip a portion of a statute of meaning.

Because all of the contested sales occurred remotely and no purchaser ever visited the out-of-state offices, subsection (1)(a) simply did not apply.

That moved the analysis to subsection (1)(b) and the question of where purchasers make "first use" of title insurance, abstract, and escrow services.

The panel emphasized that the statute's sourcing hierarchy turns on the location of the purchaser, not the seller—with origin-based sourcing available only as a last resort when no purchaser-focused provision applies—and that the entire focus of Chicago Title's services depends on the property itself.

Purchasers put those services into action where the property they are buying or refinancing sits—which, in this case, is Washington.

What Happens Next

The Court of Appeals reversed the summary judgment for Chicago Title and remanded the case to Thurston County Superior Court with instructions to enter summary judgment for the Department on the sourcing issue.

One piece of the dispute remains unresolved. On reconsideration, Chicago Title asserted that it preserved a computational issue in the courts below, and the Department agreed the issue was preserved.

Because the issue was not briefed before reconsideration, the appellate court declined to address it, leaving Chicago Title free to raise it with the superior court on remand.

The decision carries implications well beyond one company. As more service industries move their operations out of state while continuing to sell to Washington customers, Division Two's ruling makes clear that under Washington's destination-based sourcing rules, what matters is where the purchaser uses the service—not where a company chooses to locate its back office.

Chicago Title was represented on appeal by Scott M. Edwards, John Sterling Devlin III, and Callie Anne Castillo of Ballard Spahr LLP in Seattle. The Department of Revenue was represented by Callan Elizabeth Barrett and Charles E. Zalesky of the Washington Attorney General's Office.