WA State B&O Tax Penalties

| 10/13/2016

To avoid potential penalties, taxpayers that reported apportionable income on their Washington business and occupation tax (B&O tax) returns should file an “Annual Reconciliation of Apportionable Income” (the Annual Reconciliation) by Oct. 31, 2016. The Annual Reconciliation should cover calendar year 2015 even if the filer uses a fiscal year. If the business pays B&O tax in more than one tax category, a separate Annual Reconciliation must be filed for each. The Annual Reconciliation must be filed even if no adjustment is required.

The B&O tax is imposed on any person deemed to have a substantial nexus with Washington for the act or privilege of engaging in business activities. A nonresident individual or out-of-state business is subject to the B&O tax if, in the immediately preceding tax year, the taxpayer had one of these situations:

  • More than $53,000 of property or more than 25 percent of its total property in the state
  • More than $53,000 of payroll or more than 25 percent of its total payroll in the state
  • More than $267,000 of receipts or more than 25 percent of its total receipts in the state

Apportionable activities are detailed in the instructions to the Annual Reconciliation and encompass most business activities.

Taxable income is determined by multiplying apportionable income by the receipts factor for each apportionable activity. Taxpayers may calculate the receipts factor for the current year based on prior-year or current-year information. In either case, taxpayers should file a reconciliation when complete information is available to calculate the current-year receipts factor, but no later than Oct. 31 of the following tax year.

Interest will apply to any additional tax due on a corrected tax return. The state also may impose penalties if the Annual Reconciliation is not filed or the additional tax is not paid by Oct. 31.

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Robert Johnson
Robert J. Johnson
Managing Director