While federal extended tax deadlines are top of mind this time of year, Washington also has an annual filing deadline in October for businesses who report under apportionable B&O classifications (Service being the most common). The Department of Revenue treats this reconciliation as a required return, so read on if you want to avoid any late penalties!
Businesses who report any revenues under Service or one of the other apportionable classifications may be able to reduce the amount of revenues taxable by Washington if they are eligible to apportion. Apportionment simply is a percentage applied to the total gross receipts of a business to determine the amount taxable in Washington. If the business is paying income taxes in another state or meets another criteria, they are eligible to apportion and reduce the percentage that is taxable in Washington.
The actual calculation is done on a calendar year basis, while most businesses report revenues on a monthly or quarterly basis. Therefore this annual reconciliation is done at the end of each year to true up the reported amounts to the final calculation. As long as the annual reconciliation is filed by the following October 31st, there are no penalties on underreported amounts (interest applies).
The key to this reconciliation is correctly sourcing your business’ revenues to the various states or countries where your customers receive the benefit of your services. Once that information is known, if a business meets one of the criteria, they are eligible to apportion and need to file the annual reconciliation.
Business who are eligible to apportion should take an apportionment deduction on their monthly or quarterly returns so they are not overpaying to Washington. Then once 2024 is complete, there will be another annual apportionment filing to true up these reported amounts to the final calculation. We recommend getting these monthly reported amounts as close to the expected amount as possible, since refunds always invite additional scrutiny!
Additional information on the process can be found here. In addition, the DOR recently revised the sourcing rule for services which can be found here. This reconciliation can be filed online through the business’ e-file account and there is a simplified version if there are no changes to report. Don’t miss this deadline, or the business may be subject to additional 29% late penalties if any changes are made in an audit.