Program in effect until June 30, 2018
On May 3, 2018, the Washington Department of Revenue announced the Marketplace Fairness Penalty Reduction Program, an effort to encourage unregistered remote sellers to come forward and voluntarily register for Washington State Excise taxes, including the sales and use tax and the Business & Occupation (B&O) tax.
Businesses that register through the program by June 30, 2018, may receive reduced penalties and a limited look back period. The program encourages unregistered businesses to voluntarily register and pay any prior tax obligations by waiving penalties that would be incurred if otherwise contacted by the department.
The following benefits are offered through the reduced penalty program:
- A reduced “look back” period of the prior four years plus the current year;
- A penalty waiver that includes a:
- Five percent assessment penalty for substantially underpaid tax;
- Five percent unregistered penalty; and
- 29 percent late payment of a return penalty.
Full statutory interest, currently three percent, will continue to be imposed on all amounts due. Additionally, the limited look back and 29 percent late payment penalty waiver does not apply to businesses that collected the sales or use tax but did not remit the tax.
Eligible businesses not applying for the program and later discovered through the department’s standard investigation, examination, or audit procedures will be liable for any tax liability, interest, penalties of 39 percent of the tax due, and a look back review period of seven years, plus the current year.
Program applicants should note that penalties waived do not include the $20,000 annual platform notice penalty or the penalty for failure to report and notify imposed by violation of the use tax reporting regulations for unregistered businesses exceeding $10,000 in sales delivered to Washington residents.
If a business or its affiliates have already been contacted by the department for enforcement purposes, such as nexus inquiries or even an educational letter regarding the recent marketplace fairness law and its penalties, the business may still be eligible for penalty abatement if registration is completed prior to June 30, 2018. In these scenarios, the business should discuss program eligibility with the department representative initiating the contact.
While the penalty reduction program may appear similar to the state’s voluntary disclosure program, noteworthy, businesses may still be eligible even after certain contact by the department – a normally disqualifying event under the voluntary disclosure program.
Washington recently enacted remote seller legislation that became effective on Jan. 1, 2018. That legislation enacted use tax notice and reporting and marketplace facilitator provisions. The penalty reduction program offers an opportunity for remote seller businesses that may not be in compliance with the new provisions to come into compliance. For more information on Washington use tax notice and reporting, please read our alert, Washington enacts use tax reporting and B&O changes for remote sellers.
Remote sellers that are currently not registered with Washington should speak to their tax adviser about the penalty reduction program and its advantages over the voluntary disclosure program.