Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This rule explains the procedures relating to
refunds or credits for the overpayment of taxes, penalties, or interest. It
describes the statutory time limits for refunds and the interest rates that
apply to those refunds.
References to a "refund application" in this rule include a
request for a credit against future tax liability as well as a refund to the
taxpayer.
Examples provided in this rule should be used only as a general
guide. The tax results of other situations must be determined after a review of
all facts and circumstances.
(2)
What are the time limits for a tax
refund or credit?
(a)
Time
limits. No refund or credit may be made for taxes, penalties, or
interest paid more than four years before the beginning of the calendar year in
which a refund application is made or examination of records by the department
is completed. See
RCW
82.32.060. This is a nonclaim statute rather
than a statute of limitations. This means a valid application must be filed
within the statutory period, which may not be extended or tolled, unless a
waiver extending the time for assessment has been entered into as described in
(c) of this subsection.
For example, a refund or credit may be granted for any
overpayment made in a shaded year in the following chart:
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
Year 6
|
|
|
|
|
|
Refund application is filed no later than December
31st
|
(b)
Relation back to date paid. Because the time limits relate to the
date the taxes, penalties, or interest is paid, a refund application can be
timely even though the payment concerned liabilities for a tax year normally
outside the time limits. For example, Taxpayer P owes $1,000 in B&O tax for
activity undertaken in December 2000. In January 2001, Taxpayer P makes an
arithmetic error and submits a payment of $1,500 with its December 2000 tax
return. In December 2005, Taxpayer P requests a refund of $500 for the
overpayment of taxes for the December 2000 period. This request is timely
because the overpayment occurred within the time limits, even though the
payment concerned tax liabilities incurred (December 2000) outside the time
limits.
Fact situations can be complicated. For example, Taxpayer P
pays B&O taxes in Years 1 through 4. The department subsequently conducts
an audit of Taxpayer P that includes Years 1-4. The audit is completed in Year
5. As a result of the audit, the department issues an assessment in Year 5 for
$50,000 in additional retail sales taxes that were due from Years 1-4. Taxpayer
P pays the assessment in full in Year 6. In Year 10, Taxpayer P files an
application requesting a refund of B&O taxes. Taxpayer P's application is
timely because it relates to a payment (payment of the assessment in Year 6)
made no more than four years before the year in which the application is filed.
It does not matter that the taxes relate to years outside the time limits; the
actual payment occurred within four years before the refund application. Nor
does it matter that the refund is based on an overpayment of B&O taxes
while the assessment involved retail sales taxes, because both taxes relate to
the same tax years. However, the amount of any refund is limited to $50,000 -
the amount of the payment that occurred within the time limits.
Assume the same facts as described above. When the department
reviews Taxpayer P's refund application, it determines that the refund is
valid. After reviewing the new information, however, the department also
determines that Taxpayer P should have paid $20,000 in additional B&O taxes
during Years 1-4. Because Taxpayer P paid $30,000 more than the amount properly
due ($50,000 overpayment less $20,000 underpayment), the amount of the refund
will be $30,000.
(c)
Waiver. Under
RCW
82.32.050 or
82.32.100, a taxpayer may agree to
waive the time limits and extend the time for the assessment of taxes,
penalties and interest. If the taxpayer executes such a waiver, the time limits
for a refund or credit are extended for the same period.
(3)
How do I get a refund or
credit?
(a)
Departmental
examination of returns. If the department performs an examination of the
taxpayer's records and determines that the taxpayer has overpaid taxes,
penalties, or interest, the department will issue a refund or a credit, at the
taxpayer's option. In this situation, the taxpayer does not need to apply for a
refund.
(b)
Taxpayer
application.(i) If a taxpayer
discovers that it has overpaid taxes, penalties, or interest, it may apply for
a refund or credit. Refund application forms are available from the following
sources:
* The department's internet website at
http://dor.wa.gov
* By facsimile by calling Fast Fax at 360-705-6705
* By writing to:
Taxpayer Services
Washington State Department of Revenue
P.O. Box 47478
Olympia, WA 98504-7478.
The application form should be submitted to the department at
the following location:
Taxpayer Account Administration
P.O. Box 47476
Olympia, WA 98504-7476.
Taxpayers are encouraged to use the department's refund
application form to ensure that all necessary information is provided for a
timely valid application. However, while use of the department's application
form is encouraged, it is not mandatory and any written request for refund or
credit meeting the requirements of this rule shall constitute a valid
application. Filing an amended return showing an overpayment will also
constitute an application for refund or credit, provided that the taxpayer also
specifically identifies the basis for the refund or credit.
(ii) A taxpayer must submit a refund
application within the time limits described in subsection (2)(a) of this rule.
An application must contain the following five elements:
(A) The taxpayer's name and UBI/TRA number
must be on the application.
(B) The
amount of the claim must be stated. Where the exact amount of the claim cannot
be specifically ascertained at time of filing, the taxpayer may submit an
application containing an estimated claim amount. Taxpayers must explain why
the amount of the claim cannot be stated with specificity and how the estimated
amount of the claim was determined.
(C) The tax type and taxable period must be
on the application.
(D) The
specific basis for the claim must be on the application. Any basis for a refund
or credit not specifically identified in the initial refund application will be
considered untimely, except that an application may be refiled to add
additional bases at any time before the time limits in subsection (2) of this
rule expire.
(E) The signature of
the taxpayer or the taxpayer's representative must be on the application. If
the taxpayer is represented, the confidential taxpayer information waiver
signed by the taxpayer specifically for that refund claim must be received by
the department by the date the substantiation documents are first required,
without regard to any extensions. If the signed confidential taxpayer
information waiver for the refund claim lists the representative as an entity,
every member or employee of that entity is authorized to represent the
taxpayer. If the signed confidential taxpayer information waiver for the refund
claim lists the representative as an individual, only that individual is
authorized to represent the taxpayer.
(iii) If the nonclaim statute has run prior
to the filing of the application, the department will deny the application and
notify the taxpayer.
(iv) If the
department determines that the taxpayer is not entitled to a refund as a matter
of law, the application may be denied without requiring substantiation. The
taxpayer shall be responsible for maintaining substantiation as may eventually
be needed should taxpayer seek review.
(v) The taxpayer is encouraged to file
substantiation documents at the time of filing the application. However, once
an application is filed, the taxpayer must submit sufficient substantiation to
support the claim for refund or credit before the department can determine
whether the claim is valid. The department will notify the taxpayer if
additional substantiation is required. The taxpayer must provide the necessary
substantiation within 90 days after such notice is sent, unless the
documentation is under the control of a third party, not affiliated with or
under the control of the taxpayer, in which case the taxpayer will have 180
days to provide the documentation. The department may request any other books,
records, invoices or electronic equivalents and, where appropriate, federal and
state tax returns to determine whether to accept or deny the claimed refund and
to assess an existing deficiency.
(vi) In its discretion and upon good cause
shown, the department may extend the period for providing substantiation upon
its own or the taxpayer's request, which may not be unreasonably
denied.
(vii) If the department
does not receive the necessary substantiation within the applicable time
period, the department shall deny the claim for lack of adequate substantiation
and shall so notify the taxpayer. Any application denied for lack of adequate
substantiation may be filed again with additional substantiation at any time
before the time limits in subsection (2) of this rule expire. Once the
department determines that substantiation is sufficient, the department shall
process the refund claim within 90 days, except that the department may extend
the time of processing such claim upon notice to the taxpayer and explanation
of why the claim cannot be completed within such time.
(viii) The following examples illustrate the
refund application process:
(A) A taxpayer
discovers in January 2005 that its June 2004 excise tax return was prepared
using incorrect figures that overstated its sales, resulting in an overpayment
of tax. The taxpayer files an amended June 2004 tax return with the
department's taxpayer account administration division. The department will
treat the taxpayer's amended June 2004 tax return as an application for a
refund or credit of the amounts overpaid during that tax period, except that
the taxpayer must also specifically identify the basis for the refund or credit
and provide sufficient substantiation to support the claim for refund or
credit. The taxpayer may satisfy this obligation by submitting a completed
refund application form with its amended return or providing the additional
required substantiation by other means.
(B) On December 31, 2005, a taxpayer files an
amended return for the 2001 calendar year. The return includes changed figures
indicating that an overpayment occurred, but does not provide any supporting
substantiation. No written waiver of the time limits, under subsection (2)(c)
of this rule, for this time period exists. The department sends a letter
notifying the taxpayer that the taxpayer's application is not complete and
substantiation must be provided within 90 days or the application will be
denied. If the taxpayer does not provide the necessary substantiation by the
stated date, the claim will be denied and, if refiled, will not be granted
because it is then past the nonclaim limit of the statute.
(C) Taxpayer submits a refund application on
December 31, 2004, claiming that taxpayer overpaid use tax in 2000 on certain
machinery and equipment obtained by the taxpayer at that time. No
substantiation is provided with the application and no written waiver of the
time limit, under subsection (2)(c) of this rule, for this taxable period
exists. The department sends a letter notifying the taxpayer that the
taxpayer's application is not complete and substantiation must be provided
within 90 days or the application will be denied. The taxpayer does not respond
by the stated date. The claim will be denied and, if refiled, will not be
granted since it is then past the non-claim limit of the statute.
(D) Assume the same facts as in (b)(viii)(B)
and (C) of this subsection, except that within 90 days from the date the
department sent the letter the taxpayer submits substantiation, which the
department deems sufficient. The taxpayer's claim is valid, notwithstanding
that the substantiation was provided after the nonclaim limit
expired.
(E) Assume the same facts
as in (b)(viii)(B) and (C) of this subsection, except that before the 90-day
period expires, the taxpayer requests an additional 15 days in which to
respond, explaining why the substantiation will require the additional time to
assemble. The department agrees to the extended deadline. If the taxpayer
submits the requested substantiation within the resulting 105-day period, the
department will not deny the claim for failure to provide timely
substantiation.
(F) Assume the same
facts as in (b)(iii)(B) and (C) of this subsection, except that the taxpayer
submits substantiation within 90 days. The department reviews the
substantiation and finds that it is still insufficient. The department, in its
discretion, may extend the deadline and request additional substantiation from
the taxpayer or may deny the refund claim as not substantiated.
(4)
May
I get a refund of retail sales tax paid in error?
(a)
Refund from seller. Except
as provided for in
RCW
82.08.130 regarding deductions for tax paid
at source, if a buyer pays retail sales tax on a transaction that the buyer
later believes was not taxable, the buyer should request a refund or credit
directly from the seller from whom the purchase was made. If the seller
determines the tax was not due and issues a refund or credit to the buyer, the
seller may seek its own refund from the department. It is better for a buyer to
seek a retail sales tax refund directly from the seller. This is because the
seller has the records to know if retail sales tax was collected on the
original sale, knows the buyer, knows the circumstances surrounding the
original sale, is aware of any disputes between itself and the buyer concerning
the product, and may already be aware of the circumstances as to why a refund
of sales tax is or is not appropriate. If a seller questions whether he or she
should refund sales tax to a buyer, the seller may request advice from the
department's telephone information center at 360-705-6705.
(b)
Refund from department. In
certain situations where the buyer has not received a refund from the seller,
the department will refund retail sales tax directly to a buyer. The buyer must
file a complete refund application as described in subsection (3)(b) of this
rule and either a seller's declaration or a buyer's declaration, under penalty
of perjury, must be provided for each seller.
(i) If the buyer is able to obtain a waiver
from the seller of the seller's right to claim the refund, the buyer should
file a seller's declaration, under penalty of perjury, with the refund
application. A seller's declaration substantiates that:
(A) Retail sales tax was collected and paid
to the department on the purchase for which a refund is sought;
(B) The seller has not refunded the retail
sales tax to the buyer or claimed a refund from the department; and
(C) The seller will not seek a refund of the
sales tax from the department.
(ii) If the seller no longer exists, the
seller refuses to sign the declaration, under penalty of perjury, or the buyer
is unable to locate the seller, the buyer should file a buyer's declaration,
under penalty of perjury, with the refund application. The buyer's declaration
explains why the buyer is unable to obtain a seller's declaration and provides
information about the seller and declares that the buyer has not obtained and
will not in the future seek a refund from the seller for that claim.
(iii) Seller's declaration, under penalty of
perjury, and buyer's declaration, under penalty of perjury, forms are available
from the following sources:
* The department's internet website at
http://dor.wa.gov
* By facsimile by calling Fast Fax at 360-705-6705
* By writing to:
Taxpayer Services
Washington State Department of Revenue
P.O. Box 47478
Olympia, WA 98504-7478.
(5)
May I use statistical sampling to
substantiate a refund? Sampling will only be used when a detailed audit
is not possible. However, if your applications for refund or credit involve
voluminous documents, the preferred method for substantiating your application
is the use of statistical sampling. Alternative methods of sampling, including
but not limited to, random sampling, time period sampling, transaction
sampling, and block sampling, may be used when the department agrees that such
methods are appropriate.
When using statistical sampling or an alternative method to
substantiate an application for refund or credit, the applicant must contact
the department prior to preparing the sampling to obtain the department's
approval of the sampling plan. The sampling plan will describe the
following:
* Population and sampling frame;
* Sampling unit;
* Source of the random numbers;
* Who will physically locate the sample units and how and where
they will be presented for review;
* Any special instructions to those who were involved in
reviewing the sample units;
* Special valuation guidelines to any of the sample units
selected in the sample;
* How the sample will be evaluated, including the precision and
confidence levels; and
* The applicant must obtain a seller's declaration from those
sellers identified in the sample and separately certify, under penalty of
perjury, that applicant will not otherwise request or accept a refund or credit
for sales or deferred sales tax paid to any seller or any use tax remitted
during the taxable period covered by the audit.
Failure to contact the department before preparing the sampling
may result in the department rejecting the application on the grounds that the
results are not statistically valid.
Contact the department prior to performing a statistical
sampling at these locations:
* The department's internet website at
http://dor.wa.gov
* By facsimile by calling Fast Fax at 360-705-6705
* By writing to:
Taxpayer Services
Washington State Department of Revenue
P.O. Box 47478
Olympia, WA 98504-7478.
(6)
Is my refund final? The
department may review a refund or credit provided on the basis of a taxpayer
application without an examination by audit. If the refund or credit is granted
and the department subsequently determines that the refund or credit exceeded
the amount properly due the taxpayer, the department may issue an assessment to
recover the excess amount. This assessment must be made within the time limits
of RCW
82.32.050.
(7)
Refunds made as a result of a court
decision. The department will grant refunds or credits required by a
court or Board of Tax Appeals decision, if the decision is not under appeal.
If the court action requires the refund or credit of retail
sales taxes, the department will not require that buyers attempt to obtain a
refund directly from the seller if it would be unreasonable and an undue burden
on the buyer. In such a case, the department may refund the retail sales tax
directly to the buyer and may use the public media to notify persons that they
may be entitled to refunds or credits. The department will make available
special refund application forms that buyers must use for these situations. The
application will request the appropriate information needed to identify the
buyer, item purchased, amount of sales tax to be refunded, and the seller. The
department may, at its discretion, request additional documentation that the
buyer could reasonably be expected to retain, based on the particular
circumstances and value of the transaction. The department will approve or deny
such refund requests within 90 days after the buyer has submitted all
documentation.
(8)
What interest is due on my refund? Interest is due on a refund or
credit granted to a taxpayer as provided in this subsection.
(a)
Rate for overpayments made between
1992 through 1998. For amounts overpaid by a taxpayer between January
31, 1991 and December 31, 1998, the rate of interest on refunds and credits is:
(i) Computed the same way as the rate
provided under (b) of this subsection minus one percent, for interest allowed
through December 31, 1998; and
(ii)
Computed the same way as the rate provided under (b) of this subsection, for
interest allowed after December 31, 1998.
(b)
Rate for overpayments after
1998. For amounts overpaid by a taxpayer after December 31, 1998, the
rate of interest on refunds and credits is the average of the federal
short-term rate as defined in
26 U.S.C. Sec.
1274(d) plus two percentage
points. The rate is adjusted on the first day of January of each year by taking
an arithmetical average to the nearest percentage point of the federal
short-term rate, compounded annually, for the months of January, April and July
of the immediately preceding calendar year and October of the previous
preceding year, as published by the United States Secretary of
Treasury.
(c)
Start date for
the calculation of interest. If the taxpayer made all overpayments for
each calendar year and all reporting periods ending with the final month
included in a credit notice or refund on or before the due date of the final
return for each calendar year or the final reporting period included in the
notice or refund, interest is computed from either:
(i) January 31st following each calendar year
included in a notice or refund; or
(ii) The last day of the month following the
final month included in a notice or refund.
If the taxpayer did not make all overpayments for each calendar
year and all reporting periods ending with the final month included in the
notice or refund, interest is computed from the last day of the month following
the date on which payment in full of the liabilities was made for each calendar
year included in a notice or refund, and the last day of the month following
the date on which payment in full of the liabilities was made if the final
month included in a notice or refund is not the end of a calendar year.
(d)
Calculation of
interest on credits. The department will include interest on credit
notices with the interest computed to the date the taxpayer could reasonably be
expected to use the credit notice, generally the due date of the next tax
return. If a taxpayer requests that a credit notice be converted to a refund,
interest is recomputed to the date the refund (warrant) is issued, but not to
exceed the interest that would have been granted through the credit
notice.
(9)
May the
department apply my refund against other taxes I owe? The department may
apply overpayments against existing deficiencies and/or future assessments for
the same legal entity. However, if preliminary schedules have not been issued
regarding existing deficiencies or future assessments and the taxpayer is not
presently under audit, the refund of an overpayment may not be delayed when the
department determines a refund is due. The following examples illustrate the
application of overpayments against existing deficiencies:
(a) The taxpayer's records are audited for
the period Year 1 through Year 4. The audit disclosed underpayments in Year 2
and overpayments in Year 4. The department will apply the overpayments in Year
4 to the deficiencies in Year 2. The resulting amount will indicate whether a
refund or credit is owed the taxpayer or whether the taxpayer owes additional
tax.
(b) The department has
determined that the taxpayer has overpaid its real estate excise tax. The
department believes that the taxpayer may owe additional B&O taxes, but
this has yet to be established. The department will not delay the refund of the
real estate excise tax while it schedules and performs an audit for the B&O
taxes.
(c) The department
simultaneously performed a timber tax audit and a B&O tax audit of a
taxpayer. The audit disclosed underpayments of B&O tax and overpayments of
timber tax. Separate assessments were issued on the same date, one showing
additional taxes due and the other overpayments. The department may apply the
overpayment against the tax deficiency assessment since both the underpayment
and overpayment have been established.
(10)
How do I seek review of the
department's decision? The taxpayer may seek review of the denial of: A
refund claim (or any part thereof, including tax, penalties, or interest
overpayments), a request for an extension for providing substantiation, or a
request to use a specific sampling technique. Taxpayer may seek review to
either:
(a) The department as provided in WAC
458-20-100 (Informal
administrative reviews); or
(b)
Directly to Thurston County superior court.
(11)
Application. This rule
applies to refund applications or amended returns showing overpayments, where
the taxpayer has also specifically identified the basis for the refund or
credit, that are received by the department on or after the effective date of
this rule.
Statutory Authority:
RCW
82.01.060(2) and
82.32.300. 08-14-038, §
458-20-229, filed 6/23/08, effective 7/24/08; 07-17-065, § 458-20-229,
filed 8/13/07, effective 9/13/07. Statutory Authority:
RCW
82.32.300. 93-04-077, § 458-20-229,
filed 2/1/93, effective 3/4/93; 83-08-026 (Order ET 83-1), § 458-20-229,
filed 3/30/83; Order ET 70-3, § 458-20-229 (Rule 229), filed 5/29/70,
effective 7/1/70.