Washington State Tax Protest — B&O Tax and Capital Gains Excise Tax

WASHINGTON STATE TAX PROTEST — BUSINESS & OCCUPATION TAX / CAPITAL GAINS EXCISE TAX

TABLE OF CONTENTS

1. Caption and Identification
2. Introduction and Procedural Posture
3. Jurisdiction and Timeliness
4. Statement of Facts
5. Issues Presented
6. Argument
7. Relief Requested
8. Verification
9. Certificate of Service
10. Washington Practice Notes
11. Sources and References

1. CAPTION AND IDENTIFICATION

STATE OF WASHINGTON

[☐ DEPARTMENT OF REVENUE — ADMINISTRATIVE REVIEW DIVISION] [☐ BOARD OF TAX APPEALS]

Docket / Determination No.: [________________________________]

[☐ PETITION FOR ADMINISTRATIVE REVIEW (Rule 100)]
[☐ NOTICE OF APPEAL TO BOARD OF TAX APPEALS (RCW 82.03.190)]

Tax Type at Issue (select one):

• ☐ Business & Occupation (B&O) Tax — RCW Ch. 82.04
• ☐ Capital Gains Excise Tax — RCW Ch. 82.87
• ☐ Other Excise Tax: [___________________________]

Period(s) at Issue: [__/__/____] through [__/__/____]

Amount in Dispute: $[________________________________] (tax) + $[__________] (penalty) + $[__________] (interest)

2. INTRODUCTION AND PROCEDURAL POSTURE

2.1. Taxpayer [TAXPAYER NAME] ("Taxpayer") submits this [Petition for Review / Notice of Appeal] challenging the Department of Revenue's (the "Department" or "DOR") [Notice of Balance Due / Tax Assessment / Determination] issued [__/__/____], assigned No. [_________________] (the "Assessment").

2.2. The Assessment imposes additional [B&O tax / capital gains excise tax / penalties / interest] in the aggregate amount of $[__________] for the audit period [__/__/____] to [__/__/____].

2.3. Taxpayer respectfully requests [reconsideration of the Determination / a formal/informal hearing / cancellation of the Assessment in whole or in part].

3. JURISDICTION AND TIMELINESS

3.1. [For DOR Rule 100 review] This Petition is filed pursuant to WAC 458-20-100 within thirty (30) days of the postmark date of the Assessment ([__/__/____]) and is therefore timely.

3.2. [For BTA appeal] This Notice of Appeal is filed pursuant to RCW 82.03.190 within thirty (30) days of the mailing date of the Department's [Determination / Final Action Letter] dated [__/__/____] and is therefore timely. The thirty-day period is jurisdictional and may not be extended by the Department.

3.3. The Board of Tax Appeals has subject-matter jurisdiction over excise-tax determinations of the Department of Revenue under RCW 82.03.130(1)(a) and 82.03.190.

3.4. Taxpayer [elects / does not elect] a [☐ formal hearing under RCW 82.03.140 (preserving APA judicial review under RCW 82.03.180) / ☐ informal hearing (final, no appeal of right)].

3.5. Taxpayer [has paid / has not paid] the contested Assessment. [For tax already paid, this proceeding is also a refund claim under RCW 82.32.060 / For unpaid tax, payment under protest is reserved pursuant to RCW 82.32.180.]

4. STATEMENT OF FACTS

4.1. Taxpayer Background

4.1.1. Taxpayer is a [sole proprietorship / LLC / corporation / individual] organized under the laws of [STATE] with its principal place of business at [ADDRESS].

4.1.2. Taxpayer is registered with the Department under UBI No. [_________________] and engages in [describe business activity].

4.1.3. Taxpayer reports under the following B&O tax classification(s): [Retailing / Wholesaling / Manufacturing / Service & Other Activities / Other: ___].

4.2. Audit and Assessment

4.2.1. The Department commenced an audit of Taxpayer on [__/__/____] covering tax periods [__/__/____] through [__/__/____].

4.2.2. The auditor's findings, communicated by [Audit Report / Notice of Balance Due / Determination No. _____] dated [__/__/____], made the following adjustments:

4.3. Procedural History

4.3.1. Taxpayer [did / did not] request informal review with the auditor's supervisor under WAC 458-20-100(2) on [__/__/____].

4.3.2. The Department issued its [Determination / Final Letter] on [__/__/____], [denying / partially granting] the petition.

4.3.3. This appeal followed.

5. ISSUES PRESENTED

5.1. Whether the Department erred in classifying Taxpayer's gross income under the [Service and Other Activities / Retailing / Wholesaling] classification rather than under the [alternative classification claimed] for B&O tax purposes.

5.2. Whether the Department erred in disallowing Taxpayer's claimed deduction under [RCW 82.04.4287 / RCW 82.04.4282 / other] for [describe transaction].

5.3. [For capital gains tax disputes] Whether the Department erred in including $[_______] of long-term capital gain in Taxpayer's Washington-source taxable gain under RCW 82.87.040, and whether the [standard deduction / charitable deduction / qualified family-owned small business deduction (RCW 82.87.070) / real-estate exclusion (RCW 82.87.050)] was properly applied.

5.4. Whether the substantial-understatement / late-payment / failure-to-file penalty under RCW 82.32.090 should be waived for [reasonable cause / circumstances beyond Taxpayer's control / reliance on written advice (RCW 82.32A.020(2))].

5.5. Whether interest under RCW 82.32.050 was correctly computed from the original due date.

6. ARGUMENT

6.1. Standard of Review

6.1.1. The Department bears the burden of establishing the correctness of the Assessment when the Taxpayer has timely petitioned for review and produced contrary evidence. See RCW 82.32A.030; WAC 458-20-100.

6.1.2. Tax statutes imposing tax are construed strictly against the State and in favor of the taxpayer; statutes granting exemptions are construed in the State's favor. See Group Health Coop. v. Dep't of Revenue, 106 Wn.2d 391 (1986).

6.2. Issue 1 — B&O Classification

6.2.1. RCW 82.04.220 imposes B&O tax measured by "gross proceeds of sales," "gross income," or "value of products." Activities are taxed at differing rates depending on classification:

6.2.2. Taxpayer's activities consist of [describe], which constitute [retail sales under RCW 82.04.050 / wholesale sales under RCW 82.04.060 / a sale of digital goods under RCW 82.04.192] and properly fall under the [claimed] classification.

6.2.3. The Department's reclassification disregards [controlling RCW provision / WAC interpretive rule / a published Determination] and is therefore erroneous.

6.3. Issue 2 — Disallowed Deduction or Exemption

6.3.1. RCW 82.04.4282 (and parallel deduction provisions) authorizes a deduction from gross income for [describe] when [statutory criteria] are met.

6.3.2. Taxpayer satisfies each statutory element: [recite].

6.3.3. The Department's contrary position is unsupported by any binding authority and conflicts with [Det. No. ___ / WAC provision].

6.4. Issue 3 — Capital Gains Excise Tax (RCW Ch. 82.87)

6.4.1. The Washington capital gains excise tax took effect January 1, 2022, and was sustained as a constitutional excise (not income) tax in Quinn v. State, 200 Wn.2d 967 (2023).

6.4.2. The tax is imposed at 7% on long-term capital gains exceeding the standard deduction (currently $[indexed amount], originally $250,000), with an additional 2.9% surtax on gains exceeding $1,000,000 effective for tax year 2025 (total 9.9%).

6.4.3. The tax does NOT apply to: (a) real estate sales (RCW 82.87.050(1)); (b) retirement account distributions (RCW 82.87.050(3)); (c) interests in qualified family-owned small businesses meeting the conditions of RCW 82.87.070; or (d) sales of livestock, depreciable trade or business property, certain timber, and goodwill in qualifying small-business sales.

6.4.4. Taxpayer's gain at issue is exempt because [recite specific statutory exclusion and supporting facts].

6.5. Issue 4 — Penalty Waiver

6.5.1. RCW 82.32.105 authorizes the Department to waive penalties where the failure to pay was due to circumstances beyond the taxpayer's control. WAC 458-20-228(9) lists qualifying circumstances.

6.5.2. The taxpayer's circumstances satisfy the standard because [describe — e.g., good-faith reliance on written DOR advice under RCW 82.32A.020(2); first-time penalty waiver eligibility under WAC 458-20-228(9)(a)(ii); natural disaster; serious illness].

6.6. Reservation of Constitutional and Statutory Arguments

6.6.1. To the extent that the Department asserts nexus over an out-of-state taxpayer, Taxpayer reserves Commerce Clause and Due Process challenges, including challenges premised on South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), and the substantial-nexus requirements of RCW 82.04.067.

7. RELIEF REQUESTED

WHEREFORE, Taxpayer respectfully requests that the [Department / Board of Tax Appeals] enter an order:

• A. Cancelling the Assessment in whole, or in the alternative, reducing the Assessment to $[__________];
• B. Reclassifying Taxpayer's gross receipts under the [claimed] B&O classification for the audit period;
• C. Allowing all claimed deductions and exemptions;
• D. Waiving all penalties asserted under RCW 82.32.090 for reasonable cause;
• E. Refunding any overpaid tax with interest under RCW 82.32.060; and
• F. Granting such other and further relief as is just and proper.

8. VERIFICATION

I, [NAME, TITLE], declare under penalty of perjury under the laws of the State of Washington that I am authorized to make this verification on behalf of Taxpayer; that I have read the foregoing [Petition / Notice of Appeal]; and that the factual statements herein are true and correct to the best of my knowledge.

Executed at [CITY], Washington, on [__/__/____].

[________________________________]

[NAME, TITLE]

9. CERTIFICATE OF SERVICE

I certify that on [__/__/____] I caused a copy of this [Petition / Notice of Appeal] to be served on the following parties by [U.S. Mail / hand delivery / electronic filing where authorized]:

Washington Department of Revenue
Administrative Review and Hearings Division
PO Box 47460
Olympia, WA 98504-7460

Washington Board of Tax Appeals (if appeal stage)
PO Box 40915
Olympia, WA 98504-0915

[________________________________]

[NAME OF PREPARER], [TITLE]

10. WASHINGTON PRACTICE NOTES

• No personal income tax. Washington's Constitution (art. VII, § 1) and Culliton v. Chase, 174 Wash. 363 (1933), foreclose a graduated personal income tax. Practitioners encountering "income tax protest" requests in WA should redirect the matter to the applicable excise tax (B&O) or to the capital gains excise tax (RCW Ch. 82.87).
• B&O is a gross-receipts tax. B&O is imposed on gross receipts without deduction for cost of goods, labor, or other expenses, except for specifically enumerated statutory deductions. Misclassification disputes are the most common B&O controversy.
• Capital gains tax is an excise. Quinn v. State, 200 Wn.2d 967 (2023) (7-2) sustained the tax as an excise on the privilege of selling capital assets, surviving challenge under art. VII, § 1. Tiered rates begin tax year 2025.
• Two appeal tracks. A Rule 100 petition to DOR's Administrative Review and Hearings Division is the typical first step (30 days from Notice of Balance Due). After an adverse Determination, a 30-day window opens for BTA appeal under RCW 82.03.190. Both deadlines run from mailing/postmark and are jurisdictional.
• Formal vs. informal BTA hearings. Formal hearings (RCW 82.03.140) are conducted under the APA and are appealable to Thurston County Superior Court under RCW 82.03.180. Informal hearings are final and not subject to judicial review on the merits.
• Refund alternative. RCW 82.32.180 permits a taxpayer who has paid disputed tax to file an original action in superior court for refund — bypassing BTA — provided the action is filed within four years of payment (consistent with RCW 82.32.060's nonclaim period).
• Pay-to-play not required. Unlike federal Tax Court vs. district court, a WA taxpayer need not pay the contested tax to obtain BTA review. Interest continues to accrue, however, on any unpaid balance during pendency.
• Taxpayer Bill of Rights. RCW Ch. 82.32A guarantees, among other rights, written explanations of assessments, reliance protection for written DOR advice, and the right to a Taxpayer Rights Advocate (RCW 82.32A.040).
• Penalty waiver. "Circumstances beyond the taxpayer's control" (WAC 458-20-228) is a recognized basis. A one-time discretionary waiver may also be available for taxpayers with a clean compliance history.

11. SOURCES AND REFERENCES

• RCW Ch. 82.04 (Business and Occupation Tax) — https://app.leg.wa.gov/RCW/default.aspx?cite=82.04
• RCW Ch. 82.87 (Capital Gains Tax) — https://app.leg.wa.gov/RCW/default.aspx?cite=82.87
• RCW 82.03.190 (Appeal to BTA) — https://app.leg.wa.gov/RCW/default.aspx?cite=82.03.190
• RCW 82.03.180 (Judicial review) — https://app.leg.wa.gov/RCW/default.aspx?cite=82.03.180
• RCW Ch. 82.32 (General Administrative Provisions) — https://app.leg.wa.gov/RCW/default.aspx?cite=82.32
• RCW Ch. 82.32A (Taxpayer Bill of Rights) — https://app.leg.wa.gov/RCW/default.aspx?cite=82.32A
• WAC 458-20-100 (Rule 100 — DOR review procedures) — https://app.leg.wa.gov/WAC/default.aspx?cite=458-20-100
• DOR Reviews and Appeals — https://dor.wa.gov/file-pay-taxes/reviews-and-appeals
• DOR Capital Gains Tax — https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax
• DOR B&O classifications — https://dor.wa.gov/taxes-rates/business-occupation-tax/business-occupation-tax-classifications
• WA Board of Tax Appeals — https://bta.wa.gov
• Quinn v. State, 200 Wn.2d 967 (2023)
• Culliton v. Chase, 174 Wash. 363 (1933)
• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)

Disclaimer: This template is provided for informational purposes only and does not constitute legal or tax advice. A qualified Washington attorney or CPA must review and customize this document before filing. Laws, rates, deduction thresholds, and procedural rules change frequently; verify all citations and dollar amounts at app.leg.wa.gov and dor.wa.gov before use.