Filed under: State Local & Multistate Tax
By Bob Heller, JD, LLM
Taxpayers earning revenue from performing services or from licensing intangibles, and doing business both inside and outside of the State of Washington are required to complete an “Annual Reconciliation of Apportionable Income.”
The form must be submitted to the Department of Revenue by October 31st of each year; failing to file the reconciliation may result in penalties.
The Department of Revenue allows businesses to use the prior year’s apportionment factor for reporting current year liabilities. This simplifies the businesses reporting method but then requires the business to do a true-up at the end of the year to determine the current year’s factor based on actual data.
The purpose of the annual reconciliation is to report any differences in tax to the Department. If additional B&O tax is due as a result of the reconciliation, late payment penalties are automatically waived provided the form is filed by the October 31 deadline.
We recommend that businesses conducting apportionable activities file the form regardless of whether there are any differences to report. If the Department discovers in a future examination that additional taxes are due, say in the case of an audit, the Department will impose up to a 25% penalty in cases where the reconciliation was not filed.
In addition to the late payment/late filing penalty, the Department may also impose an additional 5% substantial underpayment penalty if the taxpayer has paid less than 80% of the tax determined to be due as calculated by the Department.
The form is available online on the Department’s website.
Background
As of June 1, 2010, businesses earning revenue from “apportionable activities” (which includes most services, intangible licensing, and certain other specified businesses such as travel agents, tour operators, and real estate or insurance brokers) are required to calculate B&O tax using a single sales factor apportionment method.
The numerator of the factor is the apportionable revenue attributable to Washington State. The denominator of the apportionment factor is the apportionable revenue attributable to those states (including Washington) in which the business files business tax returns or is deemed to have created nexus under Washington’s “economic” nexus standards. The business’s total gross income from apportionable activities is multiplied by the apportionment factor to determine the amount of receipts that are subject to B&O tax.
Taxpayers are statutorily permitted to apportion revenue for B&O tax purposes using a receipts factor based on the most recent completed calendar year’s data (for example, using the 2013 apportionment factor to calculate B&O tax on the company’s 2014 monthly or quarterly B&O tax returns)) or using year-to-date data on each return. Regardless of the method chosen, taxpayers are required to complete an “Annual Reconciliation of Apportionable Income” once actual data for the year has been compiled, but no later than October 31 of the following year.
Contact a member of our SALT team if you have further questions.
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