Washington state expands eligibility requirements for voluntary disclosure

The Washington Department of Revenue (Washington DOR) announced in July 2020 a limited time expansion of the eligibility requirements for applicants seeking tax amnesty through Washington DOR’s Voluntary Disclosure Agreement Program (VDA).

From July 15, 2020, through Nov. 30, 2020, previously noneligible businesses may now qualify for the benefits of the program.

Benefits of voluntary disclosure

The Washington DOR may impose tax, interest, and penalties of 39% of the tax due — and a look-back period of seven years plus the current year — if a business is discovered through the department’s investigation, examination, or audit procedures.

However, the following benefits are offered through the VDA program:

• A limited look-back period of the prior four years plus the current year
• A penalty waiver up to 39%

The 39% penalty waiver includes the following:

• 5% assessment penalty for substantially underpaid tax
• 5% unregistered taxpayer penalty
• 29% late payment of a tax return penalty

Traditional criteria

Traditionally, the Washington DOR will partially or fully waive penalties during the look-back period — typically four years plus the current year — for businesses that established nexus in Washington and meet the following eligibility requirements:

• Never registered with or reported taxes to the Washington DOR
• Never contacted by the Washington DOR for enforcement purposes (e.g., audit or compliance contacts regarding registration or reporting requirements)
• Aren’t engaged in evasion or misrepresentation in reporting tax liabilities

What changed?

For applications received July 15, 2020, through Nov. 30, 2020, the Washington DOR is temporarily expanding the eligibility pool. It includes businesses that:

• Closed their tax registration prior to Jan. 1, 2020 (including businesses that previously filed tax returns)
• Were placed on active non-reporting status prior to Jan. 1, 2020
• Have had their most recent enforcement contact prior to July 1, 2019
• Haven’t been addressed specifically by name as an affiliate of another business through an enforcement contact or by the business in a response to enforcement contact by the Washington DOR

The VDA program isn’t available for businesses contacted at any time by the department regarding Wayfair, marketplace fairness, or remote seller relief. The VDA program also doesn’t extend to businesses that collected but didn’t submit sales tax.

Application process and anonymity

All requests for voluntary disclosure are submitted through the Washington DOR’s online application. Businesses have the option of applying anonymously and/or through the use of a third-party representative.

If the Washington DOR approves the application, it will prepare a formal VDA and tax assessment. Once a business is approved and payment is made, the business will be considered a compliant taxpayer for Washington DOR tax purposes.