Washington Taxing Information
Washington state is an aggressive state when it comes to enforced collections on delinquent taxes. The department of Labor and Industry (L"I) is particularly aggressive in the speed and measures used to collect delinquent or unfiled taxes. Below you will find much information on taxes in Washington state. However, each taxpayer's circumstance is unique, so please call Larson Financial for free evaluation of your situation.
The state of Washington may levy your bank account in their effort to collect past due taxes. Banks are required by tax code to comply with a bank levy request issued by the state. There is, however, a holding period during which time you can get professional help. If you have had a bank levy, or anticipate that one is likely, act immediately. It is easier to avoid a bank levy than to get it released or returned.
Prior to taking aggressive collection actions, the state of Washington will notify you of the pending action. If you fail to pay the tax after receiving notice, tax liens and collections may be issued.
Evasion of Taxes
If the Department of Revenue finds that all or any part of the deficiency resulted from an intent to evade the tax due, a penalty of fifty percent of the additional tax found to be due will be added. The evasion penalty is imposed when a taxpayer knows a tax liability is due but attempts to escape detection or payment of the tax liability through deceit, fraud, or other intentional wrongdoing. An intent to evade does not exist where a deficiency is the result of an honest mistake, miscommunication, or the lack of knowledge regarding proper accounting methods. The Department of Revenue has the burden of showing the existence of an intent to evade a tax liability through clear, cogent and convincing evidence.
Evasion penalty only applies to the specific taxes that a taxpayer intended to evade. To the extent that the evasion involved only specific taxes, the evasion penalty will be added only to those taxes. The evasion penalty will not be applied to those taxes which were inadvertently underpaid. For example, if the Department of Revenue finds that the taxpayer intentionally understated the purchase price of equipment in reporting use tax and also inadvertently failed to collect or remit the sales tax at the correct rate on retail sales of merchandise, the evasion penalty will be added only to the use tax deficiency and not the sales tax.
The following is a nonexclusive list of actions that are generally considered to establish an intent to evade a tax liability. This list should only be used as a general guide. A determination of whether an intent to evade exists may be ascertained only after a review of all the facts and circumstances:
- The use of an out-of-state address by a Washington resident to register property to avoid a Washington excise or use tax, when at the time of registration the taxpayer does not reside at the out-of-state address on a more than temporary basis. Examples of such an address include, but are not limited to, the residence of a relative, mail forwarding or post office box location, motel, campground, or vacation property;
- The willful failure of a seller to remit retail sales taxes collected from customers to the Department of Revenue; and
- The alteration of a purchase invoice or misrepresentation of the price paid for property (e.g., a used vehicle) to reduce the amount of tax owing.
- Misuse of Resale Certificates: Any buyer who uses a resale certificate to purchase items or retail services without payment of sales tax, and who is not entitled to use the certificate for the purchase, will be assessed a penalty of fifty percent of the tax due. The penalty can apply even if there was no intent to evade the payment of the tax.
- Failure to remit sales tax to seller. The Department of Revenue may assert an additional ten percent penalty against a buyer who has failed to pay the seller the retail sales tax on taxable purchases, if the Department of Revenue proceeds directly against the buyer for the payment of the tax. This penalty is in addition to any other penalties or interest prescribed by law.
- Failure to obtain the contractor's unified business identifier (UBI) number.
Statutory restrictions on imposing penalties: Depending on the circumstances, the tax code may impose more than one type of penalty on the same tax liability. However, those penalties are subject to the following restrictions:
The penalties imposed for the late payment of a return, unregistered taxpayer, assessment, and issuance of a warrant may be applied against the same tax concurrently, each unaffected by the others, up to their combined maximum rates. Application of one or any combination of these penalties does not prohibit or restrict full application of other penalties authorized by tax code, even when they are applied against the same tax.
The Department of Revenue may impose either the evasion penalty or the penalty for disregarding specific written instructions, but may not impose both penalties on the same tax. The Department of Revenue also will not impose the penalty for the misuse of a resale certificate in combination with either the evasion penalty or the penalty for disregarding specific written instructions on the same tax.
The Department of Revenue is required by tax code to add interest to assessments for tax deficiencies and overpayments. Interest applies to taxes only.
How each year's interest rate is determined:
The annual variable interest rate will be an average of the federal short-term rate as defined in 26 U.S.C. Sec. 1274(d) plus two percentage points. The rate for each new year will be computed by taking an arithmetical average to the nearest percentage point of the federal short-term rate, compounded annually. The average is calculated using the federal short-term rates from January, April, July of the calendar year immediately preceding the new year, and October of the previous preceding year, as published by the United States Secretary of the Treasury. The interest rate will be adjusted on the first day of January of each year.
If the assessment contains tax deficiencies in some years and overpayments in other years with the net difference being a tax deficiency, the interest rate for tax deficiencies will also be applied to the overpayments.
Various and numerous tax penalties may apply as a result of the failure to correctly or accurately compute the proper tax liability, or to timely pay the tax. Separate penalties may apply and be cumulative for the same tax. Interest may also apply if any tax has not been paid when it is due.
Late payment of a return: There is a five percent penalty if the tax due on a taxpayer's return is not paid by the due date. A total penalty of fifteen percent is imposed if the tax due is not paid on or before the last day of the month following the due date, and a total penalty of twenty-five percent is imposed if the tax due is still not paid on or before the last day of the second month following the due date. The minimum penalty for late payment is five dollars.
The Department of Revenue may refuse to accept any return which is not accompanied by payment of the tax shown to be due on the return. If the return is not accepted, the taxpayer is considered to have failed or refused to file the return. Failure to file the return can result in the issuance of an assessment for the actual, or an estimated, amount of unpaid tax. Any assessment issued may include an assessment penalty. If the tax return is accepted without payment and payment is not made by the due date, the late payment of return penalty will apply.
New Business registration: You should fill out and send in a Master Application to get your business registered. It is important for you to register before the Department of Revenue identifies you as an unregistered taxpayer and contacts you about your business activities. (WAC 458-20-101 provides information about registering your business.) Except as noted below, if a person engages in taxable activities while unregistered, but then registers prior to being contacted by the state, the registration is considered voluntary. When a person voluntarily registers, the late payment of return penalty does not apply to those specific tax-reporting periods representing the time during which the person was unregistered.
Even if the person has voluntarily registered as explained above, the late payment of return penalty will apply if the person:
- Collected retail sales tax from customers and failed to remit it to the state; or
- Engaged in evasion or misrepresentation with respect to reporting tax liabilities or other tax requirements; or
- Engaged in taxable business activities during a period of time in which the person's previously open tax reporting account had been closed.
Unregistered taxpayer. A five percent penalty on the tax due for any period of time where a person engages in a taxable activity and does not voluntarily register prior to being contacted by the state. For example, if a person properly completes and submits a master application to the Department of Labor and Industries (L&I) for the purpose of obtaining a UBI number, and this is done prior to any contact from the department of revenue, the department considers that person to have voluntarily registered. A person has not voluntarily registered if a UBI number is obtained by any means other than submitting a properly completed master application.
Assessment. If the Department of Revenue issues an assessment for substantially underpaid tax, a five percent penalty will be added to the assessment when it is issued. If any tax included in the assessment is not paid by the due date, or by any extended due date, the penalty will increase to a total of fifteen percent against the amount of tax that remains unpaid. If any tax included in the assessment is not paid within thirty days of the original or extended due date, the penalty will further increase to a total of twenty-five percent against the amount of tax that remains unpaid. The minimum for this penalty is five dollars.
Substantially underpaid means that:
- The taxpayer has paid less than eighty percent of the amount of tax determined by the Department of Revenue to be due for all of the types of taxes included in, and for the entire period of time covered by, the Department of Revenue's examination; and
- The amount of underpayment is at least one thousand dollars. If both of these conditions are true when an assessment is issued, it will include the initial five percent assessment penalty. If factual adjustments are made after issuance of an assessment, and those adjustments change whether a taxpayer paid less than eighty percent of the tax due, the Department of Revenue will reevaluate imposition of the original five percent penalty.
If the initial five percent assessment penalty is included with an assessment when it is issued, the penalty is calculated against the total amount of tax that was not paid when originally due and payable. Audit payments made prior to issuance of an assessment will be applied to the assessment after calculation of the initial five percent assessment penalty. At the discretion of the Department of Revenue, preexisting credits or amendments paid prior to an audit or unrelated to the scope of the assessment may be applied before the five percent assessment penalty is calculated, reducing the amount of the penalty. Additional assessment penalty is assessed against the amount of tax that remains unpaid at that particular time, after payments are applied to the assessment.
Issuance of a warrant. If the Department of Revenue issues a tax warrant for the collection of any fee, tax, increase, or penalty, an additional penalty will immediately be added in the amount of ten percent of the amount of the tax due, but not less than ten dollars.
The following are examples of circumstances that are generally not considered to be beyond the control of the taxpayer and will not qualify for a waiver or cancellation of penalty:
- Financial hardship;
- A misunderstanding or lack of knowledge of a tax liability
- The failure of the taxpayer to receive a tax return form, except where the taxpayer timely requested the form and it was still not furnished in reasonable time to mail the return and payment by the due date
- Registration of an account that is not considered a voluntary registration
- Mistakes or misconduct on the part of employees or other persons contracted with the taxpayer
- Reliance upon unpublished, written information from the Department of Revenue that was issued to and specifically addresses the circumstances of some other taxpayer
The late payment of return penalty may be waived either as a result of circumstances beyond the control of the taxpayer or after a twenty-four month review of the taxpayer's reporting history, as described below. If the late payment of return penalty is assessed on a return but is not the result of circumstances beyond the control of the taxpayer, the penalty will still be waived or canceled if the following two circumstances are satisfied:
- The taxpayer requests the penalty waiver for a tax return which was required to be filed;
- The taxpayer has timely filed and paid all tax returns due for that specific tax program for a period of twenty-four months immediately preceding the period covered by the return for which the waiver is being requested.
Power of Attorney
You may have a qualified professional represent you. This requires that you have a Power of Attorney form completed and signed before any tax matter can be discussed with your representative. The state of Washington accepts the WA Tax Information Authorization form for this purpose.
A tax wage garnishment my be issued by the state of Washington if you owe back taxes. An employer is legally obligated to comply with a garnishment request made by the state or IRS. The state may garnish a delinquent taxpayer's wages until the back-tax liability is paid. If your wages are being garnished, or you have been warned that a garnishment is possible, act immediately. Also, the state may intercept any refunds that you have due from the IRS.