Rare Washington State Tax Amnesty Opportunity – Expires November 30!

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The Washington State Department of Revenue has opened a window for more remote businesses to take advantage of its Voluntary Disclosure Program. We encourage you to share this news with your tax or finance teams to consider whether your company or any affiliated companies might benefit.

Out-of-state businesses frequently get caught unaware of Washington's business tax system, which employs a gross receipts tax (the business and occupation (B&O) tax) rather than corporate and personal income taxes, and since 2010 has imposed an economic nexus standard for tax jurisdiction instead of any kind of physical presence standard. Companies that recognize their noncompliance can get important partial relief for past periods through Voluntary Disclosure.

The most important benefits of the Voluntary Disclosure Program for unregistered companies are two. By agreeing to pay state taxes for a limited look-back period (four years plus the current year) and paying tax going forward, businesses get the following relief:

  • The State waives the extended statute of limitations for unregistered taxpayers of seven years plus the current year; and
  • The State waives penalties – which can amount to 39 percent (29 percent for late payment, 5 percent for an unregistered taxpayer, 5 percent for substantial underpayment). Interest is not forgiven, but the rate is low.

Probably not too many companies will qualify for the expanded criteria during this window, but those that do will get substantial benefits, which will not be available after November 30, 2020.

Two restrictive eligibility criteria are being relaxed:

  • Normally a business that was formerly registered as a taxpayer in Washington is ineligible, no matter how long ago the account was closed.
  • Normally a business is not eligible if it had a prior "enforcement contact" with the Department – i.e., some inquiry about whether the company should be reporting tax to Washington. And this includes not only a direct contact; the Department uses a notice formula that purports to make a direct contact with one affiliate a disqualifying contact for all other affiliates in a business group.

For example, in an audit notice to one specific company, the affiliate-notice boilerplate can look like this:

Affiliates

As to any affiliates, partners, subsidiaries, or other related entities doing business or providing services in Washington, this correspondence is considered to be an enforcement contact by the Department of Revenue. The term "affiliate" means a person that is "affiliated" with another person; and "affiliated" means under common control; and "control" means the possession, directly or indirectly, of more than 50 percent of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract, or otherwise. Under these definitions, "affiliates" would include "subsidiaries." (RCW 82.04.29005; RCW 82.04.645).

Now, beginning July 15, 2020, and continuing through November 30, 2020, a business may qualify even if it had a prior, now closed, taxpayer registration with Washington (if closed before January 1, 2020). And a business may qualify if it has not had an "enforcement contact" since July 1, 2019, and has "not been named as an affiliate of another business through an enforcement contact."

Also, businesses that continue to be registered but were placed on "Active-Nonreporting" status by the Department before January 1, 2020, can qualify for Voluntary Disclosure during this window.

One important restriction on the relaxation of the prior "enforcement contact" rule is businesses remain ineligible if they were contacted by the Department relating to the South Dakota v. Wayfare case or the Department's "Marketplace Fairness" or "Remote Seller Relief" programs.

The Department's news release concerning this temporary program is here.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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