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Taxpayers engaging in apportionable activities for Washington Business & Occupation (B&O) tax purposes are required to complete and file an Annual Reconciliation of Apportionable Income form (Reconciliation Form) by Oct. 31 of each year with the Washington Department of Revenue.1 The Reconciliation Form for the 2017 calendar year is due Oct. 31, 2018
Annual report and/or survey requirement
To compute Washington B&O tax liability for periods after May 31, 2010, businesses that have nexus and are engaged in apportionable business activities are required to apportion income.2
Apportionable activities include, but are not limited to, revenue taxed under the following B&O tax classifications:
- Service and other activities
- Real estate broker
- Travel agent
- International investment management services
- Royalties 3
A separate Reconciliation Form must be filed for each year and for each apportionable B&O tax classification. A separate receipts factor must be calculated for each apportionable activity or B&O tax classification.4
The numerator of the receipts factor is the total apportionable receipts attributable to Washington during the calendar year.5
The denominator is the total worldwide apportionable receipts during the calendar year excluding throwout income.6
Original B&O tax returns are generally due on a monthly basis throughout the year. In recognition of the fact that taxpayers are unable to produce current calendar year apportionment information in time to compute the measure of tax on the monthly returns, the Revenue Department allows taxpayers the option to originally report taxable income using the receipts factor for the most recently available calendar year or the current reporting period.7
However, when information to determine the receipts factor for the entire calendar year becomes available, taxpayers must file the Reconciliation Form to reconcile their apportionable income and obtain a refund or pay any additional tax due.8
The form must be filed regardless of which method the taxpayer uses to compute apportionment on the original returns. Interest will apply to both refunds and additional amounts due.9
If additional tax is due, the RevenueDepartment will notify taxpayers of the amount of interest due.
To avoid any potential penalties, the Reconciliation Form must be filed and any additional tax due as a result of the reconciliation must be paid by Oct. 31 of the following year.10 Notably, the Reconciliation Form must be filed with the Revenue Department even if zero tax is due
The B&O tax method of reporting apportionment is distinctive from the apportionment methods used in most other states in that taxpayers effectively are permitted to file their original B&O tax returns based on the best apportionment information that they have available at the time of filing. Taxpayers must utilize a prior year or current reporting apportionment percentage. However, when the apportionment information is refined to the point where the receipts factor for an entire year can be determined, taxpayers then have an additional responsibility to file the Reconciliation Form by Oct. 31 of the following tax year.
It has been our experience that taxpayers who believe they have no additional tax due often fail to file the required Reconciliation Form. Upon audit, they have been surprised by the inclusion in the tax assessment of the 29% late payment penalty allowed by statute.11
Similarly, these taxpayers could also be subject to a 5% substantial underpayment penalty should the facts warrant its assessment.12
We strongly advise taxpayers to file the required Reconciliation Form, even if they believe they have no tax due, in order to protect themselves from potential penalties upon audit.
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