Washington and Michigan State Tax Amnesties
Washington: Full tax amnesty, waiver of penalties and interest
The State of Washington is implementing a very favorable tax amnesty program, effective February 1 through April 30, 2011. Online applications are expected to be available February 1st. This temporary tax amnesty program waives penalties and interest on certain unpaid taxes, including the Business & Occupation (B&O) Tax.
There are a number of tax payers who may be eligible for this tax amnesty. It is not an “income tax” and is therefore normally handled in-house and not by their outside tax advisors in the course of normal corporate, pass-through, and personal income tax preparation. For this reason, the B&O Tax is frequently overlooked.
Since the B&O Tax is not an income tax, federal P.L. 86-272 does not immunize against its imposition. Briefly, P.L. 86-272 provides that a State cannot impose an income tax on any person if that person's sole business activity within the State consists of the solicitation of orders for sales of tangible personal property. Additionally, the State of Washington takes an aggressive position as to in-state presence. An affiliate or even a mere agent operating within Washington State as an independent contractor can trigger B&O Tax nexus.
As for penalties, Washington State has no “reasonable cause” provision providing for abatement of penalties in the circumstance where the taxpayer was not willfully neglectful. This results in – for all intents and purposes – an automatic 25% penalty on tax due.
For further details, please review the Washington State Department of Revenue’s information regarding the Tax Amnesty.
Michigan: Full tax amnesty
Michigan has an upcoming 2011 tax amnesty period from May 15 through June 30, 2011.
All state taxes are eligible for return periods that ended on or before December 31, 2009. This includes the Michigan Business Tax, the Single Business Tax, the state personal income tax, and the sales and use tax.
All penalties will be waived, but interest will not be waived. To take advantage of the tax amnesty, a taxpayer must make a written request for a waiver on a form prescribed by the Department, submit any unfiled returns or amended returns, and make full payment of the tax and interest due for any prior period not later than the last day of the amnesty period. Note that P.L. 86-272 applies solely to the business income tax portion of the Michigan Business Tax (MBT), and not to the modified gross receipts portion of the MBT or to the old Michigan Single Business Tax. More information can be found in the Michigan Public Act 198 of 2010 (PA 2010-198), or in the Michigan Department of Treasury Notice.