What to Expect if You Don’t Pay or File and Options for Compliance

Washington State’s B&O tax is a “gross receipts tax,” which means that it is based on the entirety of a business’s revenue—not just the business’s profits. There are no deductions for business expenses, and the tax applies to the sales of both goods and services. If your business is required to pay B&O tax and does not, you could face sizable penalties and legal issues.

Unfortunately, many business owners, especially those who are new to the demands of taxation in Washington, don’t know about Washington’s business and occupation (shortened to B&O) tax. For some, their first introduction to B&O tax is an intimidating letter from the Department of Revenue (DOR). If you’re in that situation or otherwise behind on your B&O obligations, contact us at Seattle Legal Services for guidance today. 

Key Takeaways

• B&O tax – a gross receipts tax required by businesses with nexus in Washington State.
• Penalties – up to 39% of the amount due for failure to pay or file. 
• Options to get back into compliance – Penalty waivers and voluntary disclosure may help to reduce the balance due.

Who Has to File and Pay B&O Tax?

Business owners with nexus in Washington must file returns and pay B&O tax. Physical presence nexus is established when there’s any sort of physical presence in the state—even just a single employee. 

A business may have out-of-state nexus if it has more than $100,000 in in combined gross receipts in Washington. That means that service providers, online sellers, contractors, and software companies who do business in Washington State may also need to pay B&O tax. If you’re a business owner, it’s important to understand the B&O tax and what it means for you.

Potential Penalties

Failure to pay B&O tax on time may result in the same penalties charged for any other late tax payment, and in Washington, the penalties are steep. 

• 9% if the tax is not paid by the due date. 
• 19% if the tax is not paid by the last day of the month after the return’s due date.
•  29% if the tax is not paid by the last day of the second month after the due date. 

On top of that, you’ll also have to pay interest on the unpaid amount. The interest rate for 2025 is 7%. B&O tax is reported on your Washington State excise tax return.

What If You Don’t Pay or File B&O Tax

Businesses required to sign up for a business license and pay taxes can face sizable penalties for failure to file or pay taxes, especially when you consider Washington’s long lookback period. If a business does not register for an account or file returns, the DOR can hold them liable for the last seven years of taxes in addition to the current year. 

The penalty assessed in these cases is 39%, and businesses must also pay interest. For instance, if you owed $100,000 in B&O tax, the penalty may be up to $39,000, and interest goes on top of that. 

The voluntary disclosure program, which we’ll discuss later, significantly shortens this lookback period, which can help to reduce taxes and penalties due.

Should I File, Even If I Can’t Afford to Pay?

One common mistake that some business owners make is failing to register their business and file their excise tax return because they know they cannot pay the amount they owe. This is a big mistake that can cost you a significant amount of money. 

If your business is not registered and the Department of Revenue finds out, your penalties are even higher than they are if you file on time but don’t pay by your due date. When your business is registered and you file on time, you at least limit your penalties and know how much you owe. Remember that even if you have no business activity to report, you still must report to the Department of Revenue.

Your Options If You’re Unable to Pay 

If you haven’t paid your B&O tax, don’t panic. There are solutions available to you, and the sooner you begin exploring those options, the sooner you can stop worrying about penalties and collection actions against your company.

Payment Options

Of course, paying in full and on time is always the best option for businesses. It protects you from penalties and extra interest charges. You can pay via Electronic Funds Transfer, e-check, credit card, check, phone, or in-person with cash. But if that isn’t an option for you, you can look into self-service payment plans. 

Payment plans are available if you:

• Received a Notice of Balance Due,
• Owe less than $100,000. 
• Have no tax warrants and no tax liens. 
• Are willing to schedule ACH debits for the payments.
• Have no current payment plans and no payment plans in the previous 12 months.
• Can pay the full balance in 12 months or less. 

As long as you meet the Department of Revenue’s requirements, they will not pursue collection efforts against you. If you do not currently meet the Department’s requirements, your debt exceeds the limits, or you need more time to pay, you can call the Department to ask for further assistance or work with a Washington State tax attorney for personalized guidance.

Penalty Relief

Penalty relief is another option to consider. Penalty waivers are available for those who fail to pay on time because of circumstances out of their control. This includes reasons like death or natural disaster. It does not include reasons like not having enough money, not knowing that taxes are due, or not getting the bill in the mail. 

The other path to penalty relief is offered to those who have filed and paid on time for at least 24 months prior to the late payment in question. In this situation, even if you don’t have a strong reason for paying late, you may be granted a waiver.

Consequences of Failing to Pay

The Department of Revenue has a clearly outlined tax collection process for delinquent accounts. Your account is considered delinquent as soon as you miss a payment, so it’s important to plan ahead and address your missed B&O tax payments as early as possible.

First, penalties and interest continue to accrue until the amount due is paid in full. The Department of Revenue will attempt to contact you in an effort to collect what you owe, but if you do not respond, they will assign a Revenue Agent to your case. 

Should you fail to make acceptable payment arrangements, they will issue a tax warrant. You have 10 days to pay the tax warrant before they file it with the Superior Court, which places a lien on your property.

With a lien on your property, the Department of Revenue can legally seize your assets to cover your tax debt. Additionally, if a tax warrant remains unpaid after 30 days, the Department may schedule a hearing to revoke your business license. 

How Will the DOR Know If I Supposed to Pay B&O Tax?

The DOR uses registration records, federal filings, and third-party information to find and penalize non-filers. Third-party reports can come from anyone, including competitors, family members, and customers. When the DOR discovers that a business has not registered or paid B&O tax, they may follow up with enforcement actions.

It’s important to note that an audit may be triggered by irregularities with B&O tax, but the auditor’s investigation won’t stop there. Their investigation will also cover retail sales tax, use tax, and public utility tax. Errors with any of these taxes may lead to penalties, interest, and sizable tax bills once your returns are adjusted.

Fixing Missed Filings and Reducing Penalties

If you’re starting to realize that you haven’t been filing or paying B&O tax properly, know that there are ways to get caught up and get back on track with the Department of Revenue. To start, you may want to work with a tax professional to go back to your previous tax returns and make any amendments needed to ensure you pay the correct amount. 

If you have missed filings, filing your returns and paying the amount due also shows a good faith effort to become compliant with DOR requirements. The state’s Voluntary Disclosure program can also help you get back into compliance.

Voluntary Disclosure

If you have never registered your business with the state of Washington and therefore, have never paid excise taxes, you may qualify for the voluntary disclosure program. This program aims to help unregistered businesses comply with state law and catch up with prior tax obligations. This program offers the following benefits:

• Shorter lookback period – While the lookback period is generally seven years when the DOR discovers an unregistered business, the lookback period is limited to four years for businesses in the voluntary disclosure program. 
• Potential penalty waivers – The DOR may waive all of the late filing penalties, which can be up to 39% of your balance due.
• Single assessment – This program lets you address your tax liability in one tax assessment – so you don’t have to worry about setting up multiple payment plans or dealing with a stack of bills. 

This program is not accessible to those who have engaged in evasion or misrepresentation in their tax filings. It’s also not available for those who are already the subject of an audit or registration compliance investigation – you have to contact the DOR before they contact you. 

When It’s Time to Talk to a Tax Attorney

Talking to a Washington tax attorney regarding your company’s B&O tax can give you a path to state tax compliance. If you’ve received a notice from the Department of Revenue regarding an assessment or audit, you should talk to a tax professional to prepare for your audit and ensure that you have the necessary documentation on hand. 

If you’ve never registered your business or paid taxes, a tax professional can help you explore the voluntary disclosure program and other ways to get your business caught up and compliant. We’re also here to help if you are concerned about how an audit may affect your personal finances and assets, or if you have fallen behind for several years and you don’t know how to proceed without triggering legal action against you.

We understand how confusing state tax requirements can be, and we’re here to help. The team at Seattle Legal Services wants to help your business thrive and avoid unnecessary penalties by complying with Washington tax law. Let’s talk about your tax situation and what your next steps should be. Contact us online or call us today.

Frequently Asked Questions

How far back can the Department of Revenue go for unfiled B&O tax?

If a business is unregistered and has therefore never filed an excise tax return or paid B&O tax, the Department of Revenue can go back seven years plus the current year when assessing taxes.

Will I be penalized if I file late but owe nothing?

You can be. The Department of Revenue requires tax returns even if you owe nothing.

Can I get a payment plan for unpaid B&O taxes?

You may qualify for a payment plan if you owe at least $100 but less than $100,000 and can pay the full amount off within one year.

What if I didn’t know I had to file in WA?

Generally, the Department of Revenue holds businesses accountable for knowing their filing responsibilities and does not consider this a viable reason for relief.

Is it better to wait for a notice or file proactively?

It is usually better to file proactively. This shows that you are making a good-faith effort to comply with state tax regulations. It can also limit how much you pay in penalties and interest.