Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This section
explains the time period during which the department of revenue may issue a tax
assessment. It also explains the circumstances under which the department may
request that a taxpayer complete a statute of limitations waiver.
(2)
Assessment period. Tax
assessments must be made within four years after the close of the tax
(calendar) year in which the tax was incurred with the following exceptions:
(a) Against a taxpayer who was not registered
as required by
chapter
82.32 RCW.
(b) Upon a showing of fraud or of
misrepresentation of a material fact by the taxpayer.
(c) Where the taxpayer has executed a written
waiver of such limitation.
(d)
Sales tax collected by a seller upon retail sales and not remitted to the
department.
(3)
Unregistered taxpayer. Except for evasion or misrepresentation, if
the department of revenue discovers any unregistered taxpayer doing business in
this state, the department will assess taxes, interest, and penalties for a
period of seven years plus the current year. If a taxpayer voluntarily
registers before being contacted by the department, assessments will not exceed
four years plus the current year, provided the taxpayer has made a good faith
attempt to report correctly and there is no evidence of intent to evade tax
under RCW
82.32.050. It will be presumed that a
taxpayer has registered with the department if the taxpayer voluntarily files
for an identification number under the Unified Business Identifier (UBI) system
prior to any contact from the department of revenue.
(4)
Evasion or
misrepresentation. There is no limitation for the period in which an
assessment or correction of an assessment can be made upon a showing of evasion
or of misrepresentation of a material fact. Evasion involves a situation where
the taxpayer knows a tax liability is due and the taxpayer attempts to escape
detection through deceit, fraud, or other intentional wrongdoing. The evasion
must be shown by clear, cogent, and convincing evidence which is objective and
creditable. However, in the case of evasion or misrepresentation, any
assessment for taxes which extends beyond four years and the current year will
be limited to taxes which were underpaid as a result of the evasion or
misrepresentation. (See
RCW
82.32.050 and
82.32.090.)
(5)
Statute of limitations
waiver. The department may request that a taxpayer complete a waiver of
the statute of limitations in those cases where the delay in timely completing
an audit or issuance of an assessment is the result of actions of the taxpayer.
If the department requests that a statute of limitations waiver be completed,
the waiver will also hold open the period during which the department may
refund taxes discovered to have been overpaid. The department may also request
that a taxpayer complete a waiver of the statute of limitations in connection
with a request from a taxpayer for a refund or credit for overpaid taxes. If
the refund or credit request relates to a year for which the statute of
limitations will expire within a short period, the department may be able to
more promptly issue a refund by delaying the verification process until it is
more convenient to the taxpayer and/or the department if the taxpayer will
execute a statute of limitations waiver. (Refer to WAC
458-20-229.)
(6)
Trust funds. Retail sales
tax which is collected by a seller must be remitted to the department of
revenue. These amounts are deemed to be held in trust by the seller until paid
to the department. The statute of limitations does not apply to retail sales
tax which was collected and not remitted to the department.
(7)
Revised assessments. The
department may issue an assessment to correct errors found in examining tax
returns or it may issue an assessment to correct errors based on a review of
the taxpayer's records. Assessments which are based on a review of the tax
returns are subject to further review and revision by future audit. Once
issued, the department may revise an audit assessment subject to the following
restrictions.
(a) The assessment generally may
not be increased from the amount originally assessed for those years for which
the statute of limitations would have expired if this were an original
assessment. For these years an assessment can be reduced, but not
increased.
(b) An assessment may be
increased upon discovery of fraud/evasion or misrepresentation of a material
fact.
(8)
Assessments following conditional refunds or credits. Taxpayers
may petition for a credit or refund of overpaid taxes by following the
procedures in WAC
458-20-229. The department at its
option may grant such credits or refunds without further immediate
verification. If it is later determined that a refund was granted in error and
that there was no fraud/evasion or misrepresentation of a material fact, the
department may issue an assessment to recover the taxes and interest which were
refunded in error, provided the assessment is issued within four years from the
close of the tax year in which the tax was incurred or within a period covered
by a statute of limitations waiver.
(9)
Examples. The following
examples identify a number of facts and then state a conclusion. These examples
should be used only as a general guide. The tax status of each situation must
be determined after a review of all of the facts and circumstances.
(a) ABC Manufacturing has manufacturing
plants in Oregon and Washington. This taxpayer properly registered with the
department of revenue when first engaging in business in Washington a number of
years ago and has remained registered. In 1987 the taxpayer transferred
equipment from its Oregon plant and used the equipment in its Washington plant.
(See RCW
82.12.010 for a definition of use.) This
transfer was recorded in the accounting records in 1987, but the taxpayer
inadvertently failed to report the use tax. The taxpayer's records were audited
in 1992 at which time this transfer and the failure to report the use tax came
to the department's attention. Since the department discovered the use tax had
not been paid more than four years after the close of 1987 and none of the
exceptions as stated in subsection (2) of this section apply, the department is
barred by the statute of limitations from now assessing the use tax. The
department can expand the statute of limitations to seven years plus the
current year if the taxpayer was required to be registered and failed to do
so.
(b) The department issued its
assessment on December 20, 1992, for use taxes owed by ABC Manufacturing
covering the period January 1, 1988, through September 30, 1992. The taxpayer
contacted the department in April 1994 and provided documentation to support
that retail sales tax had been paid on some items assessed for use tax in the
tax years 1989 and 1990. In the process of reviewing the documentation, the
department discovered that the auditor inadvertently had failed to assess use
tax on some assets purchased in the year 1988 which would have resulted in a
larger tax assessment for that year than originally assessed. The department
issued a revised assessment on June 15, 1994, covering the period January 1,
1988, through September 30, 1992 which reflected the deletion of the use tax
assessed in error for 1989 and 1990. The revised assessment did not increase
the tax assessment for taxes owed in 1988 because this would have resulted in
the assessment being increased more than four years after the close of the 1988
tax year. Any petition for refund must be made within four years of the close
of the tax year in which the tax was paid.
(c) The department contacted XYZ Distributing
on September 1, 1992, to schedule a routine audit of its records. The taxpayer
requested that the department delay the start of the audit until December 1,
1992, because its records are maintained on a fiscal year ending September 30
and the audit would be extremely disruptive to its year end closing if begun
immediately. This delay would not allow the department sufficient time to
complete the review of the records for 1988 and timely make an assessment for
any taxes found to be due. The department may request the taxpayer to complete
a statute of limitations waiver for the year 1988 in exchange for delaying the
start of the audit. The completion of the waiver by the taxpayer will also hold
open the year 1988 for refund or credit of any taxes found to have been
overpaid in this period until such time as an assessment is issued or the
waiver expires.
(d) ABC
Manufacturing was being audited by the department for the period January 1,
1988, through September 30, 1992. During the process of examining the records,
the department discovered that ABC had collected retail sales tax on sales in
1986 which had never been remitted to the department. There was no fraud or
misrepresentation involved in the taxpayer's failure to remit the tax. The
department appropriately expanded the period covered by the assessment to
include the unremitted retail sales tax in the year 1986. Retail sales tax
collected by a seller is deemed to be held in trust until paid to the
department and the statute of limitations does not apply. (See
RCW
82.08.050.)
(e) The department, through staff at its
Seattle office, was unable to find a registration for ARC Company. The
department contacted ARC by letter inquiring about its business activities in
Washington and asking ARC for its registration number. ARC had not registered
with the department of revenue, nor had it registered with any other state
agencies through the UBI system. Shortly after being contacted by the
department's Seattle staff, ARC contacted the Olympia office of the department
and completed an application for registration without disclosing the earlier
contact by the Seattle office. ARC subsequently argued that the assessment
should be restricted to four years plus the current year. The department
appropriately made its assessment for seven years plus the current year because
the taxpayer was unregistered at the time of being first contacted by the
department.
(f) John Smith lives in
Washington part of the year, votes in Washington, has a Washington driver's
license, and uses his Washington address in filing federal tax returns. He
spends the winters in Arizona. In 1986, while in Arizona, he purchased a new
motor home which he licensed in Arizona. He assumed that it was appropriate to
license the vehicle in Arizona since he spends a considerable part of the year
there and was not aware that he should pay use tax on the first use in
Washington which occurred later that year. In 1992 he traded this motor home
for a new motor home which he purchased from an Arizona dealer. Shortly
thereafter, he returned to Washington and the department became aware of Mr.
Smith's use of both of these motor homes in Washington. The department
concluded that use tax was due. However, because the department could not show
any evidence of evasion or misrepresentation and the taxpayer was not required
to be registered with the department, the statute of limitations had expired on
the 1986 purchase. Use tax was properly due and assessed on the 1992 purchase
with the value based on the total purchase price after allowing a deduction for
the trade-in value.
(g) In 1992 the
department audited the records of XYZ Hauling for the years 1988 through 1991.
The audit disclosed that some income from hauling performed in 1988 had not
been reported and issued an assessment in 1992 for additional taxes owed under
the motor transportation public utility tax. The taxpayer paid the assessment
in 1992. In 1994 the taxpayer contacted the department with additional records
which disclosed that part of the hauling for which motor transportation tax was
assessed for the year 1988 should have been assessed under the urban
transportation classification, a lower tax rate. The taxpayer requested that
all of the motor transportation tax be refunded and argued that the urban
transportation tax could not be assessed since the statute of limitations had
expired for the year 1988. The department issued a revised assessment in which
it subtracted the tax that should have been paid under urban transportation
from the motor transportation tax which was assessed. The department refunded
the difference. The revised assessment did not result in additional taxes being
assessed, but was a reduction of the original assessment.
Statutory Authority:
RCW
82.32.300. 93-03-004, § 458-20-230,
filed 1/8/93, effective 2/8/93; Order ET 70-3, § 458-20-230 (Rule 230),
filed 5/29/70, effective 7/1/70.