DOR: Raiding the Seat Cushions

By Garry Fujita

Just like every state and municipality in the nation, Washington State is struggling to shore up what seems to be a dwindling revenue stream due to lower property values, fewer business transactions, fewer working people paying taxes, lower taxable revenues for businesses, etc. It all adds up to one big shortfall.

Apparently this has inspired the powers that be in the state government put to task the Department of Revenue (DOR) to seek revenue in every nook and cranny, thus resulting in a call from a gentleman last week with a crazy story.

DOR On The Move

I will relate this story to the best of my memory, but according to him, he couldn’t make his total tax payment for a number of months back in 1998.  DOR called him about the underpayments in order to get him caught-up. After the call he agreed to pay off the small amount in installments over the following months and he believes he fully complied.  He also continued to file returns, paying the amount due on the returns over the next ten years.

He didn’t hear another word about paying any more money on the underpayments until 2010 when DOR contacted him about the 1998 underpayments.  He explained that he paid it off, didn’t keep bank records that go back 12 years, and the bank he used in 1998 no longer exists. That was not sufficient to the DOR. The DOR decided to file a warrant, then went to his bank and levied on his bank account.

This action resulted in the DOR taking about $650 for tax, interest and penalties and the bank hit him up for a $125 bank fee. He was out almost $800. He called DOR to find out why it did that. They said he owed it, he knew it and he didn’t have any proof that he had paid it. The DOR representative would not waive any interest or penalties even though they never thought to ask him for the money all the many years that he did business and was filing tax returns. According to DOR, he somehow “got lost in the system.”

Fuming, the gentleman did his homework, read the applicable statutes, and called DOR, asking for a copy of the assessment. The supervisor said that “assessments” were an IRS concept and had no meaning under state tax law. (I am hoping that this was a misunderstanding between a lay person and DOR, but he is quite sure that is what she said.)   The supervisor wasn’t expecting him to be prepared. He read the statute relating to assessments to her. The more questions he asked, the more impatient she got with him. At that point he insisted on finding out when the assessment had been issued.  He knew from his research that for the tax claim to be valid, according to the rules, the assessment had to have been issued within 4 years of generating the liability for a registered taxpayer, which he was.  She told him that it became an “assessment” when the compliance officer called him in 2010.

Now, he was convinced that she was not being very candid with him, so he asked for a copy of his file.  Reluctantly, she agreed.  I don’t know if I’ll ever find out how this story ends, but if he’s telling the truth, then we all may be in for a miserable ride with DOR.

For information regarding the Washington State tax structure refer to RCW Title 82. For business owners like the example described above, specifically refer to RCW Title 82.04 – Business and Occupation Tax.

Disclaimer: I don’t know if what I heard last week is the truth, but if it is, then DOR has lost its sense of fairness.

Garry Fujita – Partner – Davis Wright Tremaine – Garry Fujita is a state and local tax lawyer who primarily practices in Washington. He counsels clients in litigation against state and local government taxing agencies, in audits with such agencies, and in tax planning to minimize state and local tax burdens.

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