United States

B&O reconciliation due October 31 to avoid substantial penalty risk


Washington state taxpayers apportioning service income under the Business and Occupation (B&O) Tax must file an annual reconciliation form by October 31 of each year to avoid substantial penalties. Effective mid-2010, Washington apportionable income is determined by single sales factor. Activities qualifying for apportionment include “services and other activities,” in addition to over a dozen specifically numerated tax classifications such as royalties, travel agents, real estate brokers, and international investment management. 

The annual reconciliation is essentially a true-up of any estimated underpayment of the business and occupation tax paid throughout the year. However, the reconciliation must be filed by all taxpayers, even if you think you are in a no tax due or refund position. Any tax liability due must be paid by October 31 and corresponding interest will be subsequently calculated and billed by the Department of Revenue.

Taxpayers apportioning their B&O service income should consider filing the reconciliation form as it has multiple advantages:

  1. Late payment penalties are waived for any additional tax due if the reconciliation is filed by October 31, although interest will be due on additional tax liability
  2. The reconciliation must be filed in order for taxpayers to receive refunds for overpaid estimated tax
  3. Taxpayers who do not file the reconciliation and are later subject to an audit assessment may be assessed penalties up to 29 percent, in addition to interest

While the requirement of the reconciliation has been in place for several years, the substantial 29 percent penalty has recently been applied in department audits of B&O taxpayers that failed to file the annual form. It is highly recommended that all taxpayers complete the annual reconciliation by Oct. 31, 2016, regardless of whether your business is in a no tax due or refund position in order to avoid the possibility of substantial and otherwise unnecessary penalties. A copy of the reconciliation form is available on the department’s website linked here

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