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Washington Reconciliation Form due Oct. 31

RFP
Contacts:

Nicole Bryant
Seattle
T +1 206 418 6042

Patrick Shine
Seattle
T +1 206 398 2485

Jamie C. Yesnowitz
Washington, D.C.
T +1 202 521 1504

Chuck Jones
Chicago
T +1 312 602 8517

Lori Stolly
Cincinnati
T +1 513 345 4540

Patrick Skeehan
Philadelphia
T +1 215 814 1743
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 2019 calendar year is due Oct. 31, 2020.

Washington apportionment Businesses that have nexus with Washington and are engaged in apportionable business activities are required to apportion income and apply a single factor based on receipts.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; and royalties.3

A separate Reconciliation Form must be filed for each apportionable classification and separate receipts factors 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 For purposes of calculating a receipts factor, throwout income is income that is not taxable in any other state and at least part of the income producing activity is performed in Washington.

Original B&O tax returns are generally due on a monthly or quarterly basis throughout the year. The Department provides taxpayers two methods for calculating taxable income, either using the receipts factor for the most recently available calendar year or using current reporting period information.7 However, when data becomes available to determine the receipts factor for the entire calendar year, 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

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. Notably, the Reconciliation Form must be filed with the Department even if zero tax is due.

Commentary It has been our experience that taxpayers who believe they have no additional tax due often fail to file the required Reconciliation Form. The form is not listed as part of the required monthly/quarterly tax returns within the tax return section of the Department’s online filing system. Upon audit, such taxpayers are often surprised by the inclusion of the late payment penalty allowed by statute (up to 29%).10 Similarly, these taxpayers could also be subject to a 5% substantial underpayment penalty should the facts warrant its assessment.11 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.



1 WAC § 458-20-19402(602).
2 RCW § 82.04.462.
3 RCW § 82.04.460(4)(a).
4 WAC § 458-20-19402(401).
5 WAC § 458-20-19402(402)(a).
6 WAC § 458-20-19402(402)(b).
7 WAC § 458-20-19402(601).
8 WAC § 458-20-19402(602).
9 RCW § 82.04.462(4).
10 RCW § 82.32.090(1).
11 RCW § 82.32.090(2).




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