RCW 82.32.160 allows taxpayers to petition for a correction of excise and business occupation taxes, interest, or penalties assessed by the Washington Department of Revenue (DOR). The Department of Revenue offers a taxpayers an internal review and/or an “informal appeal” of their audit results, if they want to challenge them. Taxpayers can take advantage of this opportunity before filing with the Washington Board of Tax Appeals (BTA) or Superior Court. Some of the regulations regarding these internal review / informal appeals are contained in WAC 458-20-100 which is reviewed in this article.
The first item a taxpayer should be aware of is, whether, this process is available to them. Certain types of Department of Revenue decisions are not able to be internally reviewed or appealed under this procedure. However, most excise tax and business & occupation tax audits are able to take advantage of the informal appeal procedure contained in WAC 458-20-100.
A taxpayer can start the internal review procedure by either sending its appeal petition to [email protected]; or mailing the appeal to Administrative Review and Hearings Division; or faxing it to 360-534-1340. The petition must be sent within thirty (30) days of the audit, assessment or order to pay that is being appealed. If this deadline is missed, the taxpayer will not be able to appeal the result of the audit/assessment. WAC 458-20-100 (3)
In the appeal petition, the taxpayer must include the following information:
(i) The taxpayer's name, address, registration/UBI number, telephone number, fax number, email address, and contact person;
(ii) If represented by an attorney, accountant or other representative then, their contact information should be provided;
(iii) Information to identify the audit, assessment or balance due notice that the taxpayer is appealing;
(iv) The amount of tax, interest, or penalties in controversy;
(v) The type of review requested (either mainstream, executive, or small claims);
(vi) Whether the taxpayer requests an in-person hearing in Olympia or Seattle, a telephone hearing, or no hearing; and
(vii) A description of each issue or area of dispute and an explanation why each issue or area of dispute should be resolved as the taxpayer requests. There are two crucial parts that the taxpayer needs address in this part of the appeal petition. The taxpayer identify statutes (i.e. Revised Code of Washington (RCW)), regulations (i.e. Washington Administrative Code, (WAC)), Department of Revenue guidance or opinions, or Court decisions by the Board of Tax Appeals or Appellate Courts which support their position. The taxpayer (if necessary) must also provide additional supporting documentation and supporting witness statements. WAC 458-20-100 (2)
As stated above, there are typically three different types of internal reviews/appeals a taxpayer can request from the Department of Revenue under WAC 458-20-100. A small claims review is for controversies that are, generally, less than fifty thousand dollars ($50,000). The Department of Revenue will issue an abbreviated review and analysis. The DOR will undertake a mainstream review, generally, for tax controversies that are larger than fifty thousand dollars ($50,000). An executive level review is rare. An executive level review is only for novel legal issues that could affect a large amount of taxpayers or industries. WAC 458-20-100 (4)
After the excise or B&O tax appeal is filed, the first act that will happen is that the DOR will either acknowledge (or deny) that the appeal was timely appealed. Assuming the petition for appeal was timely filed, then the taxpayer's case will be assigned to a tax review officer. Tax review officers are, typically, attorneys trained in the interpretation of the Revenue Act, the DOR's public guidance, and precedents established by prior rulings and court decisions. The tax review officer will then notify the taxpayer of the scheduling order and when legal arguments and documents must be submitted for review. The hearing date will also be established. It is very important that the taxpayer submit all legal analysis (i.e. RCW, WAC and Court Decisions) and supporting documents by the deadlines provided. If the taxpayer does not comply, then they may lose the opportunity to make these arguments or provide this evidence to the tax review officer. WAC 458-20-100 (5)
In most cases, the tax review officer will schedule a hearing with the taxpayer and their attorney, accountant or representative. The hearing is not open to the public and the taxpayer (and witnesses) are not placed under oath. However, the taxpayer (and their attorney/accountant if they are represented) will have to answer questions about the documents and legal arguments they are presenting. After the hearing, the tax review officer will issue a determination and the determination will be in writing. WAC 458-20-100 (5)(d) & (e) If the taxpayer does not agree with the written determination of a mainstream tax appeal or executive level tax appeal, they can ask for a reconsideration. The reconsideration option is not available for small claims tax appeals.
Instead of a reconsideration, the taxpayer can appeal the tax review officer's determination regarding an audit directly to the Board of Tax Appeals. RCW 82.32.160, RCW 82.32.170 A taxpayer filing an appeal with the BTA must pay the tax by the due date, unless arrangements are made with the department for a stay of collection under RCW 82.32.200 & WAC 458-20-228, WAC 458-20-100 (8) Another option is to pay the tax, and file the tax appeal directly with the Thurston County Superior Court. However, the taxpayer must comply with the requirements of RCW 82.32.180 to do so. WAC 458-20-100(9)
At any time during the internal review / informal appeal process, the taxpayer can ask to settle any portion of their outstanding excise tax, B&O tax, or other state tax owing. WAC 458-20-100 (7) The settlement offer must be submitted in writing. The Deparment of Revenue will consider whether a settlement is appropriate under one of four criteria. The settlement offer must comply with one of the four settlement criteria, or the DOR will not consider request to settle the outstanding tax audit. Thus, it is essential that any settlement offer for an outstanding tax audit be crafted to fit into as many of these four (4) categories as possible:
(i) The issue is nonrecurring. An issue is nonrecurring when the taxpayer's position or business activity has changed or the taxpayer agrees to a prospective change so that the issue will not occur in the future;
(ii) There is ambiguity in, or conflicting, statutes, rules, the Department of Revenue's public guidance, or specific written instructions the DOR has issued to the taxpayer;
(iii) A strict application of the law would have unduly harsh consequences;
(iv) There is uncertainty of the outcome if the matter were presented to a court. In other words, if the taxpayer would take this matter to Superior Court, the taxpayer's argument and evidence may prevail in front of a Superior Court or Appellate judge and the Department of Revenue would lose.
If a taxpayer and the department reach a settlement, then the taxpayer and DOR will sign what is called a “closing agreement.” A “closing agreement” is binding on both the taxpayer and Department of Revenue. RCW 82.32.360.
Aric Bomsztyk is an attorney who represents companies and business owners with excise tax or business & occupation tax audits, appeals and, if need be, litigation before the Board of Tax Appeals or Thurston Superior Court. Mr. Bomsztyk can also advise Washington businesses on how to structure their operations and businesses to avoid excessive taxes and audits. Mr. Bomsztyk is available to clients throughout Washington, including Seattle, Bellevue (and all King County), Tacoma (and all Pierce County) and Everett (and all Snohomish County.) Please contact him at (206) 621-1871 or [email protected] with any questions, he will provide a free consultation.