Can a Washington taxpayer obtain a penalty waiver by recalling oral Department advice or relying on a CPA's nexus advice?

Plain-English summary

The Washington Department of Revenue refused to waive delinquent B&O-tax penalties for a mortgage broker that said both Department staff and its CPA had told it that it lacked Washington nexus. The taxpayer's recollection of routine phone conversations was not written Department guidance, and a mistake by a contracted tax advisor was not a circumstance beyond the taxpayer's control.

The out-of-state broker served customers in Washington and had two Washington-resident employees who sometimes worked from home. After requesting a binding ruling in August 2022, it was told that its mortgage-broker fees generally were subject to service-and-other-activities B&O tax above the yearly threshold. It then amended returns back to March 2020 and paid the reported tax, but the Department assessed delinquent penalties and interest.

ETA 3065 says the Department cannot waive tax, interest, or penalties based on a taxpayer's recollection of oral instructions because there is no reliable record of the facts presented, the advice given, or whether it was understood and followed. WAC 458-20-228 also lists mistakes by employees or contracted persons among circumstances generally not beyond the taxpayer's control. The Department therefore denied the waiver request even though the taxpayer sought a ruling and amended its returns proactively.

What this means for you

Businesses entering Washington

Do not treat a routine phone conversation as protection from penalties. When nexus or classification is uncertain, obtain specific written guidance and revisit the issue as the business's employees, customers, and Washington law change.

Accountants and advisers

A professional adviser's mistake generally remains the taxpayer's responsibility for Washington penalty-waiver purposes. Document the facts and advice, but do not assume that professional reliance alone meets the "circumstances beyond the taxpayer's control" standard.

Tax departments

Voluntary correction helps resolve the underlying tax, but it does not itself authorize a penalty waiver. The Department's waiver power is limited to the statutory and regulatory grounds in RCW 82.32.105, RCW 82.32A.020, and WAC 458-20-228.

Common questions

Q: Is oral advice from a Department employee enough for a penalty waiver?

A: No. ETA 3065 says a taxpayer's recollection of oral instructions is not a basis to waive tax, interest, or penalties.

Q: What if a CPA said the business had no Washington nexus?

A: That did not qualify here. WAC 458-20-228 treats mistakes by employees or contracted persons as circumstances generally not beyond the taxpayer's control.

Q: Did filing amended returns voluntarily eliminate the penalties?

A: No. The taxpayer's proactive ruling request and amended filings did not create an independent waiver ground. The decision notes that one January 2020 penalty was separately waived under the statute's 24-month waiver, but the disputed penalties remained.

Q: Did the determination decide whether every earlier CPA statement was wrong when made?

A: No. The taxpayer did not provide the date of the CPA's advice, and Washington's nexus law had changed. The determination said that even correct advice at an earlier time would not remove the taxpayer's responsibility to monitor later obligations.

Citations and references

• RCW 82.32.045, .050, .090, and .105 (due dates, assessments, penalties, and waiver authority)
• RCW 82.32A.005 and .020 (voluntary compliance and written Department instructions)
• WAC 458-20-228(9) (circumstances within and beyond a taxpayer's control)
• ETA 3065.2009, Oral Instructions Relating to Tax Liability
• Det. No. 14-0197, 33 WTD 551 (2014) (third-party tax advice)

Source

• Landing page: Washington Tax Decisions ZIP files
• Original PDF: 45WTD005.pdf
• Source archive: Volume 45 ZIP (member wtdvol45/45WTD005.pdf)

Original ruling text

Det. No. 22-0223, 45 WTD 005 (March 6, 2026)

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Cite as Det. No. 22-0223, 45 WTD 005 (2026)
BEFORE THE ADMINISTRATIVE REVIEW AND HEARINGS DIVISION
DEPARTMENT OF REVENUE
STATE OF WASHINGTON
In the Matter of the Petition for Correction of )
Assessments of
)
)
)
...
)
)

DETERMINATION
No. 22-0223
Registration No. . . .

WAC 458-20-228; RCW 82.32.105; ETA 3065: PENALTIES –WAIVER –ORAL INSTRUCTIONS –MISTAKES BY THIRD PARTIES. When a taxpayer claims that the Department gave it certain advice, but the advice was only through a routine phone call, such advice is not grounds for a waiver of penalties. Further, erroneous advice from a third-party tax advisor is also not grounds for a waiver of penalties. 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. Sattelberg, T.R.O. – An out-of-state mortgage brokerage protests the Department’s assessment of penalties imposed. The mortgage brokerage argues that the Department should waive the penalties assessed claiming the Department and an outside CPA told the brokerage that it did not have nexus with Washington. We deny the petition. 1 ISSUE Whether an out-of-state mortgage brokerage qualifies for a waiver of penalties, under RCW 82.32.105 and WAC 458-20-228, when it claims the Department previously told it by phone that it did not have nexus with Washington and therefore did not have any business and occupation (B&O) tax liability with Washington. FINDINGS OF FACT
. . . (Taxpayer) is a mortgage brokerage based in . . . , [another state]. Taxpayer exclusively serves customers in [another state] and Washington. Taxpayer’s business model is not to act as the agent of a lender or directly lend funds itself, but instead is to gather financial information from its customers and present it to numerous lenders interested in lending money. 2 Taxpayer earns sales commissions when its customers close on real estate transactions. Prior to August of 2022, Taxpayer had regularly filed no business activity on its monthly excise tax returns dating back to 2018. 1

Identifying details regarding the taxpayer and the assessment have been redacted pursuant to RCW 82.32.410. Different mortgage brokerage business models are discussed in the Department’s mortgage brokers guide. https://dor.wa.gov/education/industry-guides/mortgage-brokers (last visited October 13, 2022).

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Det. No. 22-0223, 45 WTD 005 (March 6, 2026)

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On August 3, 2022, Taxpayer wrote to the Department seeking a binding tax ruling regarding its taxability in Washington. Taxpayer stated that it had two Washington-resident employees that sometimes work from home. Taxpayer also stated that it had had prior conversations with Departmental staff, as well as its CPA, and was told that if it doesn’t have a branch office in Washington, then it is not subject to Washington taxes. On August 12, 2022, the Department issued a tax ruling to Taxpayer informing it that fees from acting as a mortgage broker are generally subject to B&O tax under the service and other activities classification if their amount is above the current yearly threshold. Shortly after receiving the tax ruling, Taxpayer amended its tax returns back to March of 2020, and paid the amounts of B&O tax it showed as owing. 3 On August 26, 2022, the Department’s Taxpayer Account Administration Division (TAA) issued assessments for each of the amended returns that Taxpayer had filed, totaling $. . . .[footnote omitted]. The assessments included delinquent penalties for the late payment of these tax returns, as well as interest. The assessments gave credit for the amount of tax that Taxpayer had paid with the amended tax returns, leaving amounts outstanding essentially equal to the delinquent penalties and interest assessed. Taxpayer did not pay the tax assessments and timely petitioned for review. Taxpayer argues that the Department should waive the delinquent penalties assessed because it states it called the Department multiple times in the past and was told that it did not have nexus. Taxpayer also states that it was also told that it did not have nexus by its CPA. ANALYSIS The Washington tax system is based largely on voluntary compliance. RCW 82.32A.005. The Revenue Act imposes on taxpayers the responsibility to inform themselves about applicable tax laws, register with the Department, and accurately and timely pay taxes. Ch. 82.32A RCW. If the Department obtains information from which it appears a person has not paid the amount of tax properly due, then the Department is required to assess any additional amounts found due against that person and is also required to add interest to the tax due. RCW 82.32.050. The Department is also required to assess any applicable penalties under RCW 82.32.090. Det. No. 01-193, 21 WTD 264 (2002); Det. No. 99-279, 20 WTD 149 (2001). The delinquent penalty applies if the amount of tax properly due is not paid to the Department by its due date. RCW 82.32.045; RCW 82.32.090(1). The amount of the penalty varies depending on how long payment is delinquent. RCW 82.32.090(1). In this case, since the amount of tax properly due was not filed and paid when due, the Department correctly applied the delinquent penalties to the balances owing.

Taxpayer also amended its January 2020 tax return, but not February 2020. The Department waived the delinquent penalty assessed on the January 2020 tax return under RCW 82.32.105(2)’s 24-month waiver.

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Det. No. 22-0223, 45 WTD 005 (March 6, 2026)

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The Department has limited authority to waive or cancel penalties, set out in RCW 82.32.105 and RCW 82.32A.020. 4 Generally, the Department will not cancel penalties unless the failure that triggered the penalty was due to reliance on written instructions given to the taxpayer by the Department, or was the result of “circumstances beyond the control of the taxpayer.” RCW 82.32A.020; RCW 82.32.105(1). Taxpayer, here, claims it was given oral instructions from the Department on several occasions after calling in for guidance regarding nexus with Washington. The Department does not record routine phone calls such as the ones Taxpayer describes. Under Excise Tax Advisory 3065.2009 (ETA 3065), Oral Instructions Relating to Tax Liability, the Department has advised taxpayers that: RCW 82.32A.020 does not authorize, nor does any other law permit, the Department to waive tax, interest, or penalties on the basis of a taxpayer’s recollection of oral instructions by an agent of the Department.
...

There are three reasons for this [ ]:
(1) There is no record of the facts which might have been presented to the employee for consideration. (2) There is no record of instructions or information imparted by the employee, which may have been erroneous or incomplete. (3) There is no evidence that such instructions were completely understood or followed by the taxpayer.

Because the Department will not waive penalties based on a taxpayer’s recollection of oral instructions by an agent of the Department under ETA 3065, we cannot grant a penalty waiver on those grounds. There were no written instructions given to Taxpayer by the Department that Taxpayer relied on in this case, so RCW 82.32A.020 does not apply either. The Department’s administrative rule, WAC 458-20-228 (Rule 228), explains that “[c]ircumstances beyond the control of the taxpayer are generally those which are immediate, unexpected, or in the nature of an emergency. Such circumstances result in the taxpayer not having reasonable time or opportunity to obtain an extension of the due date or otherwise timely file and pay.” Rule 228(9)(a)(ii). The same rule section gives examples of circumstances that are generally considered beyond the control of the taxpayer, including: A. The payment was mailed on time but [inadvertently sent] to the wrong governmental agency; B. Erroneous written information from the Department; C. Death or serious illness of the taxpayer or a family member; D. Unplanned unavoidable absence of the taxpayer or key employee; The Department, as an administrative agency, does not have equitable powers like courts in the judicial branch. See, e.g., Det. No. 89-16, 7 WTD 131 (1989).

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Det. No. 22-0223, 45 WTD 005 (March 6, 2026)

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E. Destruction of the business or records by fire or other casualty; and F. An act of fraud or conversion by the taxpayer’s employee or contract helper which the taxpayer could not immediately detect or prevent. Rule 228(9)(a)(ii). Here, none of the examples listed in Rule 228(9)(a)(ii) apply, nor does the general proposition that the payments were late because the circumstances were “immediate, unexpected, or in the nature of an emergency.” Rule 228 also provides examples of circumstances that are generally not considered beyond the control of the taxpayer, including: A. Financial hardship; B. A misunderstanding or lack of knowledge of a tax liability; C. The failure of the taxpayer to receive a tax return form; D. Registration of an account that is not considered a voluntary registration; E. Mistakes or misconduct on the part of employees or other persons contracted with the taxpayer; and F. Reliance upon unpublished, written information from the Department that was issued to and specifically addresses the circumstances of some other taxpayer. Rule 228(9)(a)(iii) (emphasis added). Taxpayer states that its CPA previously told it that it did not have nexus with Washington. This is not a circumstance beyond Taxpayer’s control, as it falls squarely into Rule 228(9)(a)(iii)(E), which lists “mistakes . . . on the part of . . . other persons contracted with the taxpayer” as a circumstance that is not beyond a taxpayer’s control. 5 See also Det. No. 14-0197, 33 WTD 551 (2014) (upholding taxes and penalties even though the taxpayer had been advised by a third party that it would not incur a tax liability in Washington). Accordingly, we deny Taxpayer’s petition on this issue. DECISION AND DISPOSITION We deny Taxpayer’s petition. Dated this 23rd day of November 2022.

We note that nexus in Washington has changed several times since the shift to single-factor sales apportionment in 2010. See Laws of 2010, ch. 23 § 104; RCW 82.04.067. As Taxpayer did not provide the date its CPA advised it that it did not have nexus with Washington, we cannot say for sure if the CPA’s advice was mistaken. However, even if it was correct at the time, Taxpayers are responsible to know their tax reporting obligations, and when they are uncertain about their obligations, seek instructions from the Department. RCW 82.32A030(2). While Taxpayer did proactively seek a tax ruling from the Department here, and proactively amend its tax returns, we cannot waive the penalties TAA assessed it on those grounds alone. See RCW 82.32.105. 5