The state of Washington recently issued guidance temporarily expanding eligibility criteria for its Voluntary Disclosure Agreement (VDA) program creating an opportunity for businesses to achieve compliance with the Washington Department of Revenue and resolve any outstanding business tax obligations, including sales and use taxes and business and occupation (B&O) tax.
Washington’s VDA program offers a limited lookback period of four years, plus the current year, and a waiver of up to 39% of potential penalties.
Historically, businesses seeking admittance to Washington’s VDA program would only be considered if they had not been previously registered in the state. Under the temporary guidance expanding eligibility, a previously registered business will now be considered for inclusion in the VDA program so long as it has closed its department account or was placed on ‘Active Non-Reporting’ status prior to Jan. 1, 2020.
In addition, under the normal rules, businesses and/or any of their related affiliates, must not have been previously contacted by the department for enforcement purposes, such as audit notices or nexus inquiries. However, a business will now be considered for inclusion in the VDA program so long as the most recent enforcement contact was prior to July 1, 2019 and the business has not been named as an affiliate of another business in an enforcement contact by the department.
The guidance temporarily expanding VDA program eligibility criteria does not apply to businesses engaging in evasion or misrepresentation in reporting tax liabilities, nor does it apply to businesses that have at any time received enforcement correspondence regarding economic sales tax nexus (South Dakota v. Wayfair), marketplace fairness or remote seller relief. Finally, the guidance does not apply to businesses that have collected but not remitted sales tax, although these businesses may still be eligible for VDA treatment for B&O tax.
Washington’s temporary guidance expanding VDA program eligibility criteria is effective July 15, 2020 through Nov. 30, 2020. All requests for voluntary disclosure must be submitted online by Nov. 30, 2020 in order to qualify under the expanded rules. The VDA process continues to require the disclosure of identity within 15 days of application.
Takeaways
Importantly, taxpayers should recall that in addition to physical presence, Washington nexus can be established for both the sales tax and the B&O tax through a $100,000 sales threshold. Furthermore, both taxes have used different nexus standards over the past few years potentially resulting in exposure for remote businesses with Washington activity in prior periods.
The temporary expansion of eligibility criteria for the VDA program in Washington presents an opportunity for business clients with Washington business activity that are not currently registered in the state. Any business with nexus in Washington that is not presently registered should review the VDA program’s temporary eligibility expansion rules with a tax advisor and determine if they should consider requesting voluntary disclosure prior to Nov. 30, 2020.
