Washington Department of Revenue

The business and occupation tax is levied on gross receipts, without deduction for the cost of doing business. A business can owe substantial B&O tax in a year it lost money, which is the single most common surprise in a Department of Revenue audit.

Add retail sales tax collection obligations, use tax on items brought into the state, and a classification system where the applicable rate depends on the character of the activity, and there is considerably more room for dispute than most business owners expect.

What audits tend to turn on

• Classification — whether receipts fall under retailing, wholesaling, service, or another category, since the rates differ materially
• Reseller permits — wholesale treatment disallowed because documentation was incomplete, converting the sale to retail with tax and penalties
• Use tax on equipment and materials acquired without sales tax
• Nexus — whether an out-of-state business has sufficient connection to Washington to owe tax at all
• Apportionment of service income between Washington and elsewhere
• Estimated assessments where records were incomplete, which are typically built on assumptions unfavorable to the taxpayer

Appealing an assessment

A Department of Revenue assessment can be petitioned to the Administrative Review and Hearings Division, and the period for doing so is short — generally thirty days from the date of the assessment. That review is conducted on the written record and any conference, and it produces a determination. Beyond it lie the Board of Tax Appeals and, ultimately, superior court.

How this fits with the federal practice

Most of this firm’s work is federal. Washington matters are handled where they arise, and they frequently arise alongside a federal issue — a worker classification dispute, an examination of a business whose records serve both purposes, or a collection problem that spans both. Where a matter is purely a state question outside Washington, the firm is not admitted and will say so.

What to do now

Find the date on the assessment and calculate the petition deadline. Then identify which adjustments are classification questions, which are documentation questions, and which rest on estimates — because those three categories are contested in quite different ways.