United States

Washington State enforces penalties on annual reconciliation nonfilers

Annual reconciliation filing due Oct. 31


Taxpayers that report under certain Washington business and occupation tax classifications could be subject to a 29 percent penalty for failing to file the annual reconciliation of apportionable income form by the Oct. 31st deadline.

Effective June 1, 2010, Washington state enacted RCW 82.04.462, adopting single sales factor apportionment for calculating apportionable income under the Washington business and occupation tax. Previously, the allowable apportionment methods for service income were either separate accounting or cost apportionment. 

The current rules impact the apportionment of a number of activities, including, but not limited to, those taxed under the following classifications:

  • Service and other activities
  • Royalties
  • Travel agents
  • Tour operators
  • Insurance producers and insurance agents
  • International Investment Management
  • Real estate brokers
  • Aerospace product development

The receipts factor is generally calculated based on the most recent full calendar year for which information is available. Accordingly, in the event the information is not readily available for the current period, the Washington Department of Revenue allows taxpayers to estimate their tax liability by using the receipts factor from the previous calendar year. Once the actual receipt factor for the current tax year is determined, businesses are required to file an annual reconciliation with the department. 

Businesses that file the annual reconciliation on or prior to Oct. 31st in the year following the calendar year will owe interest on any additional tax liability. The additional tax must also be paid by Oct. 31st. The department will not impose a penalty if the business has additional tax liability but files a timely annual reconciliation. If the reconciliation is not filed by Oct. 31st,  the department will assess a 29 percent failure to file penalty plus interest.

Conversely, the department will pay interest to taxpayers who overpaid their taxes as calculated on the annual reconciliation.


Businesses should speak to their tax advisers before choosing to forgo filing the annual reconciliation - even if  the business is in a refund or no tax due position. The Washington Department of Revenue has applied the 29 percent failure to file penalty in recent audits of businesses that  failed to file annual reconciliations.  Businesses should also be aware that the department may assess a separate 5 percent substantial underpayment of tax penalty in audits where the taxpayer has paid less than 80 percent of the amount of tax determined by the department to be due for all types of taxes covered by the audit. 

To reduce the risk of such penalties being assessed, businesses should strongly consider filing the annual reconciliation, and pay any tax due, by Oct. 31st. Accordingly, the annual reconciliation for the previous calendar year is due no later than Oct. 31 of the current year. A copy of the Washington business and occupation tax Annual Reconciliation of Apportionable Income form is available here.


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