Washington State Taxes: Resolution Options and Consequences
The Washington Department of Revenue (WA DOR) administers and collects a range of business taxes, including sales tax. You will incur penalties and interest if you get behind on your taxes. The state can also enforce collection actions against you, including revoking your business license. This guide looks at your options and explores the consequences of unpaid state taxes.
Tax Debt Relief Options in Washington State
The WA DOR takes business taxes very seriously. However, the state is often willing to work with business owners who get behind on their taxes. In particular, you may be able to set up a payment plan, and in very rare cases, the state may settle your taxes for less than you owe. Keep reading for a look at the options.
Payment Plan on Washington Back Taxes
The WA DOR may be willing to accept a payment plan on your back taxes. To apply, you need to contact your local DOR office, or you can have a tax pro take care of the process for you. There are local offices in Bellingham, Bothell, Kent, Porta Angles, Richland, Seattle, Spokane, Tacoma, Tumwater, Vancouver, Wenatchee, and Yakima.
Typically, you can only get into a payment plan if the WA DOR has already issued a tax warrant against you. When you apply, you must submit a financial statement with details about your income, expenses, assets, and debts. The DOR uses this information to determine if you qualify and to set the number of your payments.
You can only set up a payment plan in Washington if you agree to have the payments electronically debited from your bank account. Additionally, you must stay current on your tax filing and payment obligations. If you don't, the WA DOR can rescind the payment agreement.
Offer in Compromise: Rule 100 Settlements
A settlement is when the DOR agrees to accept less than the full balance on your tax debt, and the department "settles" or eliminates the remaining amount. In Washington State, this is called a Rule 100 Settlement.
Unfortunately, you cannot get a Rule 100 Settlement if you cannot afford to pay. Your business, however, may be able to get a Rule 100 Settlement if any of the following apply:
- You received written instructions from the DOR that conflict with state statutes.
- Strictly applying the law would have harsh consequences.
- If the issue went to court, the outcome would be uncertain.
- The issue is not recurring.
You cannot get a Rule 100 tax settlement if the department is litigating the same issue or if you're dealing with an issue where relief doesn't apply, such as the cost of litigation. Additionally, you cannot use this tax settlement option if you think a tax law is unconstitutional.
Sometimes, the DOR may be willing to waive penalties on your account. You must reach out to the department and explain why you think you deserve a penalty waiver. Generally, you should apply in writing, but you may be able to make a verbal request at the department's discretion.
You must request the penalty waiver within 30 days after the notice of the amount due or by the extended due date if applicable. There are two main situations where you may be able to get penalty abatement in Washington State.
Waivers for Reasonable Cause
The DOR will only waive penalties if you incurred the penalties for situations out of your control. Waiving penalties typically applies to circumstances such as the following:
- You mailed the payment on time but to the wrong agency.
- You received incorrect written advice from a DOR agent that lead to your late payment. Incorrect information from a tax professional does not qualify you for a waiver.
- You or an immediate family member died, or your accountant or their immediate family member died.
- A fire or other casualty destroyed your place of business or your business records.
- You paid or filed late due to fraud, theft, or embezzlement from your employees.
- You requested a tax return or other form, and the department did not provide it in a reasonable amount of time. If you had received the form on time, you would have been able to file and pay on time.
You cannot get a penalty waiver due to financial hardship or because you didn't understand the tax laws. You also can't get a waiver if you relied on written advice that the WA DOR provided to another taxpayer.
Waivers of Penalties on Late Payments of Returns
Even if you don't have reasonable cause, you may be able to get a penalty waiver if you normally pay on time. To qualify, you must be dealing with taxes reported on a combined excise tax return, oil spill response taxes, enhanced food fish taxes, leasehold excise taxes, timber and forest land taxes, or tax on telephone access line use.
You also must have paid and filed on time for the last 24 months. If you haven't been in business for 24 months, you must have been on time for the entire time you have been in business.
In most cases, the department will not waive interest that accrues on your Washington State tax debt. However, you may be able to get interest waived if the failure to pay was based on direct, incorrect written advice from the department. You can also get a waiver if the majority owner of the business is on active duty in the military in armed conflict outside of the United States or its territorial boundaries, and the business's gross income in the last year was $1 million or less.
Sometimes, the WA DOR will offer you relief if your tax liability or the state's collection actions are causing financial hardship. This can apply to business taxes, property taxes, and estate taxes. The DOR publishes a very limited amount of information on hardship programs and procedures. To get help, you need to reach out to the DOR directly or contact a tax professional who has experience dealing with the WA DOR.
Taxpayer Rights Advocate in Washington
If you cannot resolve your concerns with the WA DOR, you may be able to get help from a taxpayer rights advocate. An advocate can answer your questions and help you understand your rights and obligations as a taxpayer in Washington state. They cannot, however, change the law or get you relief from taxes that you owe.
Washington State Voluntary Disclosure Program
The Washington State DOR runs a voluntary disclosure program to help businesses that have not been paying taxes. To apply, you need to submit an application online. Here are the qualification criteria:
- Your business has never registered with the DOR or reported taxes to the DOR.
- Your business has never been contacted by the DOR. This includes phone calls, written correspondence, requests to complete a Washington Business Activities Questionaire, or audit/examination notices.
- Your business is not involved in tax evasion.
If you meet these requirements, the DOR will only look back four years plus the current year. The department will also waive some or all of your penalties. In contrast, if you don't come forward voluntarily and the DOR finds you, the look-back period is seven years plus the current year, and the penalties can be up to 39% of your unpaid tax liability.
The DOR should automatically approve you if you meet the criteria. At that point, the DOR will send you a Voluntary Disclosure Agreement. You must sign and return this within 30 days, or your application will be denied. If the DOR denies you, you may be subject to all interest and penalties, and you will face a look-back period of seven years plus the current year.
After being accepted, you must register your business by completing a Business License Application. You will also need to pay the registration fee and stay current with future tax filing and payment obligations. Additionally, you will need to submit details about your gross income, a Washington Business Activities Questionnaire, a Confidential Tax/Email Authorization form, and any other information as requested. Finally, you must pay the tax and interest by the due date.
Consequences of Unpaid Taxes in Washington State
The state will send you a tax bill if you don't pay your taxes. If you don't pay by the date on the notice, the Washington Department of Revenue can enforce collection actions against you. Here is an overview of what can happen if you don't pay taxes in Washington.
Penalties for Filing and Paying WA Taxes Late
Here are the penalties assessed by the WA DOR:
- If you underreport tax by 20% or more — 5% of the underreported tax. Increases to 15% or 25% if the tax does not get paid by a certain deadline.
- Penalties for filing paying late — 9% of the tax liability. Increases to 19% if not paid by the last day of the month following the due date and increases to 29% if not paid by the last day of the second month following the due date.
- Warrant — 10% penalty if a warrant is filed.
- Disregard of specific instructions — 10% penalty.
- Intentional effort to hide underpaid tax — 50% of the tax.
- Failure to register — If the DOR discovers that you are not registered, the penalty is 5% of the unpaid tax.
- Misuse or resale certificates or reseller permits — 50% of the unpaid sales tax.
- Failure to remit sales tax to a seller — 10% of the unpaid sales tax.
- Disregarded transaction — 35% of the tax due.
In addition to penalties, you will also accrue interest on your unpaid tax debt. The longer you ignore a tax debt, the more it will grow. To protect yourself, you should deal with your tax debt as soon as possible.
Washington State Tax Warrants
The Washington Department of Revenue can issue a tax warrant if you have unpaid taxes. If you don't pay the warrant within ten days, the department will file it with the County Superior Court. The tax warrant also gives the department the right to levy (seize) your assets.
A tax lien is a legal claim to your real and personal assets. To explain, imagine that the WA DOR has filed a lien against you, and you sell a piece of property you own. By law, the proceeds from the sale (up to the balance on your tax account) will go to the DOR. If another entity such as a mortgage company, also has a lien against the property, they will also get the proceeds of the sale. Generally, priority is established by the order in which the liens were filed.
Having a lien against your property makes it nearly impossible to take a loan out against the property. A lender won't let you use your property for collateral if it knows that the DOR already has a lien against that property. However, in cases where you want to take out a loan to pay your state tax debt, the DOR may be willing to subordinate its tax lien. This just means that the DOR agrees to let the other lender take priority, with the caveat that you use the loan to pay off your state back taxes.
Property Levies for Unpaid Washington State Taxes
Once the WA DOR files a warrant against you, it has the right to levy your assets. In this situation, the word levy means to seize your assets. The DOR can garnish your paycheck, seize the funds in your bank account, and/or seize and auction off your real or personal assets. If this happens, you may be held responsible for collection costs, tax, interest, and penalties.
Business License Revocation
If you don't pay your tax bill within 30 days of a warrant being issued, the DOR will schedule a hearing to revoke your business license. If your license is revoked, you will not be able to do business legally in Washington State. This is one of the worst things that can happen if you don't pay your state taxes. When you lose your ability to earn income, it becomes even harder to pay your WA tax debt. To protect yourself, reach out for help from a WA tax pro before this happens.
Statute of Limitations on WA Tax Assessments
Normally, the WA Department of Revenue has four years after the end of the calendar year in which the tax was incurred to assess a tax. This is the Washington statute of limitations for tax assessment. There is no time limit on tax assessments if you don't register to pay taxes as required, you committed fraud, or you collected sales tax but never paid it to the DOR.
Get Help With Washington State Taxes
If you're behind on filing or paying taxes in Washington, get help today. The TaxCure search feature can help you find high-quality local tax professionals who have experience helping clients deal with the Washington DOR and the IRS. Use TaxCure to find a local WA tax pro today.