Washington State Taxpayer Rights and Responsibilities

Overview Problems statement Current law – Taxpayer Rights – Taxpayer Responsibilities Current law General information Recommendations and Reforms Conclusion

Problem Statement Over the last decade, major changes to and interpretations of tax laws have been made that have resulted in a lack of clear statement of application, procedures and certainty, consistency and equitable treatment of taxpayers Taxpayers deserve fair treatment, regardless of the pressures placed on our economy and out tax collection system

Current Law – Taxpayer Rights RCW 82.32A.020 (1)Witten explanation of the basis for any tax deficiency assessment, interest, and penalties at the time the assessments are issued. (2)Reliable written advice and written tax reporting instructions from the department of revenue to that taxpayer, and to have interest, penalties, and in some instances, tax deficiency assessments waived where the taxpayer. (3)Prompt administrative remedies when tax laws or rules are found to be unconstitutional by the finial decision of a court of record.

Current Law – Taxpayer Rights – cont. (4) Confidentiality and protection from public inquiry regarding financial and business information in the possession of the Department of Revenue in accordance with the requirements of RCW ; (5) Clear and current tax instructions, rules, procedures, forms, and other tax information received upon request. (6) Prompt and independent administrative review by the department of revenue of a decision to revoke a tax registration, and to a written determination that either sustains the revocation or reinstates the registration.

Taxpayer Responsibilities Register with Department of Revenue Know their tax reporting obligations, and to ask the Department for instructions when the taxpayer is uncertain Keep accurate and complete business records File returns and pay taxes on time Provide accurate information on tax returns Substantiate claims for refunds Pay taxes on time after closing business and request cancellation of registration number Respond to communications

Taxpayer Rights Reform Recommendations

Stakeholdering and Transparency Department issues ETA/B (Excise Tax Advisories/Bulletins) with no Taxpayer stakeholdering – Operate much the same as WAC’s but are not adopted in accordance with Administrative Procedures Act. – Must open the ETA/B’s development and issuance process to include: Stakeholdering of ETA/B’s before they are adopted Public comments of ETA/B’s before they are adopted. – ETA/B’s must be reference with WAC or RCW that they apply to. – ETA/B’s shall not have the same force and effect as WACs and shall be advisory but not mandatory. – ETA/B’s shall not be given deference by the courts and shall be challengeable in court.

Stakeholdering and Transparency – cont. Department issues TARs (Technical Advice Requests) for a specific taxpayer with a specific set of facts but tends to apply those TARs to other taxpayers in without Taxpayer awareness – Operate much the same as WAC’s but are not adopted in accordance with Administrative Procedures Act. – Must open TARs to transparency Provide public access to TARs with Taxpayer identification and financial detail redacted Allow Taxpayers to challenge a TARs and move through Stakeholdering and public before they are adopted

General Taxpayers are entitled to timely written explanations, with specific citations of the RCW, the WAC or other legally recognized written authority for any DOR assessment, refund, or adverse response. Taxpayers are entitled to written explanations with for any question related to the application of the Washington State tax laws to the taxpayer and the taxpayer does not need to identify him/herself in order to receive the DOR response

Documentation Document requests for any purpose must be reasonable and based on generally accepted business/public accounting methods and standards Document requests - beyond basic Taxpayer financial records - must be in writing and based on a specific articulated need.

Appeals Burden of proof Pay to play Independence Expertise Non – acquiescence Easy access to publication of decisions

Audits Audits are a negotiable process. All audit processes and procedures will e discussed and agreed to in advance. A written Audit Plan - including specific sampling procedures - must be agreed to an signed by both the Taxpayer and DOR prior to commencement of audit activities Any timeline or deadlines established during an audit must be agreed to in writing by both the Taxpayer and DOR. Any such deadlines must be extended at Taxpayer’s request unless DOR articulates, in writing, a specific basis to deny extension request

Audits – cont. In response to written questions from Taxpayers regarding any substantive, procedural or administrative issue in the audit the Taxpayer is entitled to a written explanation from the Auditor supported by specific citation of RCW, WAC, court decision.

Audit – cont. No requirement for Taxpayer to provide proof of payments from vendor. No seller or buyer declarations Policies, process and procedures are consistent regardless of the audit net result (i.e./ debit or credit) Taxpayer has the right to receive sanitized information or documents related to another Taxpayer if that information or documentation has a material effect on the Taxpayer’s audit

Refunds Two types of refund claims – Specific identified issues with documentation – Non-specific based on Taxpayer’s initiated self- directed audit. Taxpayer may base the refund claims on a statistical random sample using a pre- approved statistically sampling methodology identified by DOR. Taxpayer may use any reasonable basis for estimation of a refund so long as the Taxpayer can demonstrate the estimation is based on Taxpayer’s actual business practices or cycles.

Refunds – cont. Taxpayers may obtain refunds directly from DOR. No sell or buyer declarations are required. Documentation deadlines must be agrees to in writing in advance. Any such deadlines must be extended at the Taxpayer’s request unless the DOR articulates, in writing, a specific basis to deny the request. Refund requests are subject to DOR review but may not otherwise be he basis for a full DOR audit

Statute of Limitations Statute of limitations rules are the same regardless of whether tax was a debt or credit or was netted out as such.

Auditor Training, Performance, & Evaluation Auditors are required to complete as least 20 hours of continuing education per year Auditors will be evaluated by Taxpayer at the conclusion of each audit, credit review or other significant Taxpayer interaction. The results of Auditor evaluations will be posed online and be readily accessible to any Washington Taxpayer

Auditor Training, Performance, & Evaluation – cont. Auditors evaluations will be used ass part of an Auditor’s annual job performance review. Auditors who consistently receive poor evaluations may not receive satisfactory job performance review. Taxpayers who are assigned to Auditors who have consistently receive poor evaluations may have heir audit reassigned.

Summary of Reforms Proposed Stakeholdering and public process in adoption of ETA/B’s Transparency of TARs Appeal and stakeholdering of TARs Access to timely written tax advice from DOR Clear written explanation of basis of DOR decisions Audits – Pre audit agreement to audit process – Auditor provides written basis of findings

Summary of Reforms Proposed Audits - continued – Taxpayer not required to provide proof of payments from vendor. No seller or buyer declarations – Policies, process and procedures are consistent regardless of the audit net result (i.e./ debit or credit) – Taxpayer has the right to receive sanitized information or documents related to another Taxpayer if that information or documentation has a material effect on the Taxpayer’s audit – Taxpayer may base the refund claims on a statistical random sample using a pre-approved statistically sampling methodology identified by DOR. – Taxpayer may use any reasonable basis for estimation of a refund so long as the Taxpayer can demonstrate the estimation is based on Taxpayer’s actual business practices or cycles.

Summary of Reforms Proposed Appeals - continued – Allow the DOR Appeals process to be independent of Audit process and not under the same Division of DOR – Other Appeals Reforms In Separate Presentation

Conclusion ….taxes are one of the taxes are one of the most sensitive points of contact between citizens and their government, and that there is a delicate balance between revenue collection and taxpayers' rights and responsibilities. The rights, privacy, and property of Washington taxpayers should be protected adequately during the process of the assessment and collection of taxes.” RCW 82.32A.005 Legislative Finding