Riot Games, Inc. (“Riot”) is the developer and publisher of League of Legends (“LoL”), a popular multiplayer online battle arena game.[1]  In LoL, two teams of five players each battle to destroy each other’s Nexus, or base.  Players control characters that have various different attacks and abilities.  Each team also has minions that stream towards the other team’s base, and each team attempts to protect their base by attacking other characters and pushing their own minions forward and stopping the other team’s minions from advancing.  In 2018, Riot had a version of the game called Nexus Blitz.  Although Riot hasn’t brought back Nexus Blitz since 2018, it has had to deal with another nexus attack from Washington State.

In a recent case, the Washington State Board of Tax Appeals (“Board”) upheld the Department of Revenue’s determination that Riot had to pay Washington Business and Occupation Tax (“B&O”) arising from purported substantial nexus in Washington in 2010, 2011 and 2012.  The Board found Riot had substantial nexus due to the presence of Riot employees at a convention in Seattle called the Penny Arcade Expo (“PAX”), an annual video game convention.  Riot Games, Inc. v. Washington, BTA Dkt. No. 15-118 (Feb. 11, 2020).  Riot did not have any employees or offices located in the state during the applicable years, but did have between 9 and 17 employees in the state attending PAX each year.  During the years at issue, Riot had a booth at the convention where employees played the game against visitors to the booth, gave away merchandise and t-shirts, and in 2012 sold merchandise and facilitated an esports tournament and cosplay contest.

The Board upheld the nexus determination, concluding that the activities of the employees at PAX were significantly associated with Riot’s ability to establish and maintain a market in Washington State, thus creating substantial nexus.  The Board also concluded that a trade show exemption, which exempted companies if their sole presence in the state was attendance at a single trade show, did not apply because PAX was marketed to the general public and thus not a trade show (as specific Washington guidance defines trade shows to exclude events marketed to the general public).  The Board also rejected Riot’s argument that the state was estopped from enforcing a full tax requirement on Riot because of a temporary license issued in 2012 for the merchandise sales.

The case reflects a number of different overlapping trends that are occurring in state and local tax at the moment.   Although Wayfair is the standard for nexus for sales and use taxes, the Board seems to  acknowledge that physical presence still plays a role in determining substantial nexus (at least in these tax years).

The second trend is the rise of gross receipts taxes.  Although the B&O is a long-standing tax, with the recent enactment of the Oregon gross receipts tax and other states and localities considering gross receipts-style taxes (such as the New York and Maryland digital taxes discussed in our earlier coverage), companies should be aware that more states may be turning to these types of taxes.

Third is the implication for foreign companies.  Although Riot is based in the U.S., many video game developers and publishers who attend PAX in Seattle (and there are other PAX conventions in other jurisdictions) are not.  It bears repeating that even if a country has a treaty with the U.S. that respects a company’s permanent establishment, states are in almost all cases not bound by those treaties.

LoL, and other esports, appear to be set for further popularity during quarantine as traditional sports are on hiatus.  Once quarantine ends and conventions re-open, publishers should be careful to review whether attendance at these shows creates a tax risk.  Although many states have a trade show exemption, as this case shows, those exemptions are not always reliable.

[1] One website estimates that around 115 million people played LoL in 2019.


Mark regularly counsels clients on state and local tax matters, including state tax controversy, multistate planning and federal and multistate legislative monitoring and analysis. His practice focuses on corporate/franchise tax, sales tax, withholding taxes and unclaimed property.

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