Taxes, taxes and more taxes

Over the course of human history, an untold number of people have commented on the frustrations of paying taxes as well as the obvious benefits.

Arthur Goddfrey, the comedian said, “I’m proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money.” I also think President Franklin D. Roosevelt was insightful when he said, “Taxes, after all, are dues that we pay for the privileges of membership in an organized society.”

Taxes are on my mind this month, because of calls I received recently from some members who were not aware of a unique tax in Washington know as the Business and Occupation Tax (B&O Tax).

Three years ago, I sent a letter to the membership about this issue and I thought it would be a good idea to again share what I know with everyone. Hopefully, this information will help you understand the B&O Tax and help you comply with the rules and regulations, thus avoiding expensive fines and penalties.

The B&O Tax was created in the 1930s. Washington State does not have a corporate or individual income tax; we rely on the sales tax, property tax and B&O Tax to fund state government.

For the last four years, tax collectors for the State of Washington have been out in force trying aggressively to collect taxes. One focus of their efforts is on out-of-state businesses that do business in the state of Washington, but have not filed and paid taxes in Washington.

Companies who reside in Washington are familiar with the B&O tax on gross receipts, but because Washington is one of only three states with a tax of this nature, many out-of-state businesses that sell into Washington or render services in Washington are not aware of their B&O tax exposure. Companies based out-of-state that ship goods into Washington are generally liable for B&O tax on such sales if:

The buyer takes “receipt” of the goods in Washington; and

The seller has sufficient activities in Washington (termed “nexus”) to allow the state to impose its tax.

The state’s interpretation of these requirements can be found in WAC 458-20-193 (sales of goods) http://apps.leg.wa.gov/WAC/
default.aspx?cite=458-20-193 and WAC 458-20-194 (rendering of services) http://apps.leg.wa.gov/WAC/default.aspx?cite=458-20-194 on the Department of Revenue’s website. However, by way of illustration, examples of nexus for out-of-state companies selling goods in Washington or rendering services in Washington include, but are not limited to:

• Soliciting sales in this state through employees or other representatives.
• Installing or assembling goods in this state, either by employees or other representatives.
• Maintaining a local stock of goods in this state.
• Renting or leasing tangible personal property.
• Providing services.
• Making repairs or providing maintenance or services to property sold, either by employees, agents or other representatives.

Generally, if the State of Washington discovers a company doing business in Washington which has not registered in the state, the Department of Revenue will assess taxes for seven-plus years, along with 35 percent in penalties, and interest. However, if an unregistered business comes forward voluntarily to register and pay back taxes before being contacted by The Department of Revenue, the amount of the exposure can be reduced. The benefits of voluntary disclosure are:

• An assessment period of 4-plus years, rather than 7-plus years.
• Penalties will be partially or fully waived.

This voluntary disclosure program applies to B&O taxes, sales and use taxes and other state excise taxes too. For further information on the Department of Revenue’s voluntary disclosure program, you can also review the Department’s website at http://dor.wa.gov/content/doingbusiness/
registermybusiness/doingbus_vod.aspx.

This may seem like an issue that does not affect members who reside in Washington State directly, but it could. If one of your key suppliers has not been paying the tax and if the Department of Revenue happens to learn about the company and if that supplier gets hit with a large and unexpected tax bill, it could decide not to continue selling products in our state or try to recoup part of its tax liability by increasing its cost to you.

Although I am familiar with these rules, I am not an expert. I would encourage you to call your accountant if you have questions. If you think you need specialized expertise on these issues or the voluntary payment program, here are two attorneys I know in Seattle who specialize in B&O Tax issues:

For many of you, this will not be an issue. However, you may want to pass this information on to your principal suppliers, particularly those who are located outside of Washington.

With warm regards,

Michael Campbell
President
michael@nmta.net