On December 11, 2010, in a one-day special session, the Washington state legislature passed its first ever amnesty program, which the Governor is expected to sign.  Under certain circumstances, taxpayers paying past tax liabilities will have their interest and penalties waived.

Taxes Falling Under the Amnesty Program

  • The program applies to the state business and occupation tax, state public utility tax, state and local sales taxes, and state and local use taxes, whether assessed or currently under appeal.

Requirements

  • The taxes must be unpaid as of February 1, 2011.
  • The taxpayer must submit a waiver application to the Department of Revenue no later than April 18, 2011.
  • The taxpayer must also file all outstanding tax returns and any amended returns for which the waiver of penalty and interest is requested by April 18, 2011.
  • The taxpayer must remit full payment of all tax liabilities for which a waiver of penalties and interest is sought before May 1, 2011.  If the taxes for which a waiver is sought are included in an invoice that also includes other taxes, such other taxes must still be paid in full.  Thus, unless the Department breaks an assessment into contested and uncontested parts, a taxpayer would not be able to seek a waiver of interest and penalties for part of an assessment while proceeding to contest other taxes.  The taxpayer may not seek a refund of any of these taxes that have been paid.
  • The taxpayer must file and pay all taxes administered by the Department that become due after January 31, 2011 and before May 1, 2011.

Observations and Caveats

  • The periods and amounts paid are still subject to verification and further assessment by the Department.  This could create a problem for taxpayers that report amounts under the amnesty program in error as refunds cannot be claimed.  For example, a taxpayer that reports income under one tax, only to find out that the income was taxable under a different tax, could technically be required to pay again without the right to a refund or offset from the payment of the first tax that was made in error.
  • Taxpayers with unpaid taxes should not rush to pay such taxes until the Department determines how it will administer this program.  Technically, the waiver only applies with respect to taxes that are unpaid as of February 1, 2011.
  • For taxpayers that are in a position to negotiate the amount of tax due because of the hazards of litigation or otherwise, this program reduces the amount that such taxpayers have at stake in total because there should be no interest or penalties due.  The program should not necessarily deny taxpayers the same opportunity to negotiate the amount of tax that is due.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.