Could a Washington business remain a quarterly excise-tax filer after exceeding the monthly-filing liability threshold because monthly reporting cost more?

Plain-English summary

The Washington Department of Revenue held that a business exceeding the annual-tax-liability threshold for monthly excise-tax returns could not remain a quarterly filer merely because monthly reporting increased its compliance costs.

The language-education business historically filed quarterly. In 2019, the Department reviewed its account and changed it to monthly filing because its annual tax liability exceeded $4,800. The business said the change would increase reporting expenses by 400% and that its margins had fallen even as revenue rose.

Under the rule then in effect, estimated annual liability over $4,800 generally required monthly returns; $1,050 through $4,800 used quarterly returns; and less than $1,050 used annual returns. The Department could approve another frequency when doing so assisted efficient and effective tax administration.

Examples supporting a different frequency included movement across the liability thresholds, a seasonal or temporary business with substantial inactive periods, repeated filing or payment failures, or a tax type with its own required schedule. The taxpayer identified none of those circumstances and had exceeded the monthly threshold in every full year it operated.

Ordinary filing expense did not distinguish the business from other monthly filers, and lower profit margins did not change the tax-liability threshold. The monthly assignment therefore remained in place.

The dollar thresholds quoted here are those applied in the 2020 determination. Check the current version of Rule 22801 before selecting or challenging a reporting frequency.

What this means for you

Growing businesses

Monitor annual tax liability, not only revenue or profit. Crossing a filing threshold can increase return frequency even when margins shrink.

Seasonal businesses

Document extended periods without taxable activity if requesting a different schedule; the rule specifically identified seasonality as a potentially relevant circumstance.

Accountants and tax professionals

Budget for the compliance change before the Department reassigns the account. A higher bookkeeping bill alone was not a basis for relief.

Common questions

Q: What threshold required monthly filing in this ruling?

A: The rule then assigned monthly returns when estimated or actual annual tax liability exceeded $4,800.

Q: Did being current on taxes preserve quarterly status?

A: No. Timely payment did not override the general liability-based schedule.

Q: Could the Department ever approve less frequent filing?

A: Yes, when a specific situation supports efficient and effective administration, such as qualifying seasonal activity or a material liability change.

Q: Did lower profit margins matter?

A: No. Reporting frequency was based on tax liability, and the business remained above the threshold.

Citations and references

• RCW 82.32.045(1), (2) (excise taxes due monthly unless less frequent reporting is allowed)
• WAC 458-20-22801(2) (historical thresholds and reasons for frequency changes)

Source

• Landing page: Washington Tax Decisions ZIP files
• Original source document: 39WTD188.pdf
• Source archive: Volume 39 ZIP (member Det. No. 20-0040, 39 WTD 188 (2020).pdf)

Original ruling text

Det. No. 20-0040, 39 WTD 188 (November 2, 2020)

188

Cite as Det. No. 20-0040, 39 WTD 188 (2020)

BEFORE THE ADMINISTRATIVE REVIEW AND HEARINGS DIVISION
DEPARTMENT OF REVENUE
STATE OF WASHINGTON
In the Matter of the Petition for Correction of )
Reporting Frequency of
)
)
)
. ..
)
)

D ET E R M I NA T I ON
No. 20-0040
Registration No. . . .

Rule 22801; RCW 82.32.045: TAXES – WHEN DUE AND PAYABLE –
REPORTING FREQUENCY. Under the Department’s general rule, when a taxpayer has exceeded the annual tax liability threshold, it will be assigned to report its tax liability on a monthly basis, unless it establishes that it is subject to a specific situation justifying a change to a less frequent reporting frequency. Headnotes are provided as a convenience for the reader and are not in any way a part of the decision or in any way to be used in construing or interpreting this Determination. McCormick, T.R.O. – A business that was previously assigned to report it taxes on a quarterly basis asks the Department to reconsider its recent decision requiring [the business] to now report its taxes on a monthly basis, asserting that the change in reporting frequency would present a costly burden. We deny the petition.1 ISSUES Under RCW 82.32.045 and WAC 458-20-22801, is a business that was recently assigned a monthly reporting frequency eligible to have its reporting frequency changed back to quarterly? FINDINGS OF FACT Taxpayer provides language education services. Historically, Taxpayer has been required to report its taxes on a quarterly basis. On August 2, 2019, the Department’s Taxpayer Account Administration (TAA) holistically examined Taxpayer’s account, issuing Letter ID . . . , a frequency change notification (Notification), to Taxpayer on the same day. The Notification informed Taxpayer that, due to reporting an annual tax liability in excess of $4,800, it was now assigned to report its taxes on a monthly basis, beginning October 1, 2019.

1 Identifying details regarding the taxpayer and the assessment have been redacted pursuant to RCW 82.32.410.

Det. No. 20-0040, 39 WTD 188 (November 2, 2020)

189

On August 7, 2019, Taxpayer petitioned for administrative review of the change in its assigned reporting frequency. Taxpayer asserted that having to report its taxes on a monthly basis would be a costly burden for Taxpayer. Taxpayer alleged that the increased reporting frequency would subject Taxpayer to a 400 percent increase in its reporting expenses. Taxpayer also asserted that although its reported revenue has increased over the past few years, its business margins have been lower “due to price increases required to cover the additional expenses we have experienced.” Petition at 2. Taxpayer maintained that it is current in paying its taxes and requested to have its reporting frequency changed back to a quarterly basis. A review of the Department’s records indicates that Taxpayer first registered with the Department on September 23, 2013. Taxpayer’s reported annual tax liability for each full year that it has been in business is as follows: for the year 2014, it reported $ . . . ; for the year 2015, it reported $ . . . ; for the year 2016, it reported $ . . . ; for the year 2017, it reported $ . . . ; for the year 2018, it reported $ . . . ; and for the year 2019, it reported $ . . . . ANALYSIS All excise taxes are due within 25 days after the end of the month in which the taxable activities occur. RCW 82.32.045(1). The Department may relieve a taxpayer from this monthly obligation and allow less frequent reporting up to a one-year (annual) reporting period. RCW 82.32.045(2); WAC 458-20-22801(2) (Rule 22801(2)). Rule 22801(2) sets forth the general rule establishing the reporting frequency for various taxpayers based upon their tax liability amounts, as follows: (a) General rule. Unless otherwise provided by the department, a taxpayer must report and pay taxes due according to the following schedule: IF ANNUAL ESTIMATED TAX LIABILITY IS:

REPORTING FREQUENCY

Over $4800.00 per year

Monthly returns:

Between $1050.00 & $4800.00 per year

Quarterly returns:

Less than $1050.00 per year

Annual returns:

If a taxpayer’s actual or estimated annual tax liability is over $4,800, then it will be assigned a monthly reporting frequency under the general rule. However, Rule 22801(2) also establishes the criteria that the Department will consider in determining whether a taxpayer may be relieved from a monthly reporting obligation, as follows: (b) When requested by a taxpayer or group of taxpayers, the department may approve more frequent or less frequent reporting if, in the opinion of the department, the change assists the department in the efficient and effective administration of the tax laws of this state.

Det. No. 20-0040, 39 WTD 188 (November 2, 2020)

190

Rule 22801(2)(b). Under Rule 22801(2)(d), examples of qualifying reasons to relieve a taxpayer from monthly reporting include:





The taxpayer has an increase or decrease in its estimated annual tax liability beyond the thresholds in Rule 22801(2)(a); The taxpayer has a seasonal or temporary business, which includes substantial periods of no taxable business activity; The taxpayer has repeatedly failed to comply with its tax reporting and/or payment obligations; The type of tax taxpayer reports is required to be filed on a specific frequency.

Here, Taxpayer has reported an annual tax liability above the $4,800 threshold for every full year that it has been in business. Under the general rule established in Rule 22801(2)(a), Taxpayer is required to report its excise tax returns on a monthly basis. However, if the Department determines that a change in Taxpayer’s reporting frequency will assist the Department in the efficient and effective administration of the tax laws, then the Department may relieve Taxpayer of its obligation to report its taxes monthly and may allow it to report less frequently. See Rule 22801(2)(b). Because Rule 22801(2)(a) is the general rule, Taxpayer must be able to establish that it is subject to a specific situation akin to the qualifying examples set forth in Rule 22801(2)(d), justifying such a change. Taxpayer has failed to assert any specific situation similar to those specified in Rule 22801(2)(d). Taxpayer has asserted that having to report its taxes on a monthly basis would subject it to a costly burden. However, any alleged increase in reporting expenses would be the same burden required of any other taxpayer assigned a monthly reporting frequency. Because the burden Taxpayer asserts is the same burden borne by all monthly tax filers, Taxpayer has failed to establish any situation which would justify the Department deviating from its general rule. Taxpayer also asserts that even though its reported revenue has increased over the past few years, its business margins have decreased. Taxpayer’s assertion is again unpersuasive in that Taxpayer has exceeded the tax liability threshold for every full year that it has been in business. Taxpayer should have been assigned a monthly reporting frequency even earlier than the revenue increase it experienced. Again, Taxpayer has failed to establish any basis for the Department to deviate from its general rule requiring Taxpayer to report and pay its tax liability on a monthly basis. DECISION AND DISPOSITION Taxpayer’s petition is denied. Dated this 6th day of February 2020.