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Does Your Washington Tax Return Need a Tune-Up?

Posted by Rachel Roberson, CPA on Jul 7, 2022 1:12:01 PM

AdobeStock_348136622The only constant is change. Each year the legislature makes changes to the Washington tax codes, the Department of Revenue (DOR) updates rules and publishes guidance, and the courts issue decisions interpreting the tax laws. And this doesn’t even consider changes businesses make to their operations. If your business hasn’t revisited its filing procedures and recordkeeping recently, it may be time for a tune-up!

Washington taxes are complex and contain tax traps for the unwary. Below are some questions to ask and resources to help determine if updates are needed or if your processes are in good working order.

  • How do the gross receipts reported on the business’ WA returns compare to other sources such as Federal returns or Income Statements?
    • While these sources may not measure the same thing, they are used in audits to identify discrepancies. Understanding if differences exist and why will help determine if the current filings are sound.
  • Are revenues reported under the correct Business and Occupation (B&O) classification?
    • Businesses frequently change their product and service offerings which can change their B&O classification and/or sales tax requirements. For example, if an electrical contractor wins a project for the federal government, their bidding and tax reporting requirements have just changed even if the project scope is similar to what they have done in the past.
    • In addition the DOR can change their interpretations and policies over time. Many businesses that provide what they consider to be services are surprised to discover they are making retail sales once these services are automated and provided via websites or apps.
    • You can find a summary of recent tax legislation
  • What is the business’ policy for documenting any wholesale sales and how often is documentation reviewed to determine it is still valid?
    • Valid resale documentation accepted in the relevant state is like a get out of jail free card in an audit. It’s often the only thing standing between you and a sales tax assessment. Collecting this for all the states where your business makes sales is an easy way to manage this risk.
  • How are exemptions, deductions and credits determined and what documentation exists to support them?
    • There can be tax deductions available for businesses selling in multiple states, but the sourcing and documentation requirements vary by B&O classification.
    • Similarly some tax incentives require Annual Tax Performance Reports be filed or the business forfeits the incentive. You can find a list of these tax incentives and report requirements here.
  • What is the business’ policy for reviewing purchases and determining if use tax is due?
    • Don’t know what use tax is? You can find information here. The DOR periodically sends out notices to businesses who don’t report use tax as part of their compliance initiatives.
    • If sales tax has been properly paid to another state, it can be taken as a credit against any WA use tax due.

Still have questions? We can help you analyze your filing processes and discuss any recommended changes. We’re here to help!

Topics: State and Local Tax

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