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My Business Didn’t Collect Sales Tax in Washington—Now What?

Sales tax mistakes are much more common than many Washington business owners realize. Business owners may assume that sales tax compliance is simple, that their industry is exempt, or that their POS system takes care of everything. Others broaden their markets or build their Washington customer base without realizing they’re now obligated to pay sales tax in the state.

No matter where your business fits into this or what mistakes your business has made, the best time to act is now. The Washington Department of Revenue is fairly aggressive when it comes to enforcing sales tax rules, and the sooner you figure out what you owe and pay it off, the better position you’ll be in.

Washington does not have a personal income tax, so it relies heavily on sales and business taxes for revenue. If you didn’t collect sales tax and you’re not sure how to get back on track, let’s talk. Call Seattle Legal Services at 206-536-3152 to get started now.

Key Takeaways

Washington can hold businesses liable for sales tax even if they never collected it.
Sales tax debt quickly becomes delinquent, resulting in penalties and interest.

Nexus, growth, and industry-specific activity can trigger audits.
Personal liability is a potential risk with delinquent sales tax debt.

Common Compliance Mistakes With WA Sales Tax

Sales tax mistakes in Washington are often a result of misunderstanding the state’s complex tax rules, not a willful choice to evade a business’s tax obligations. The state relies on a destination-based sales tax system that determines the rate based on where the customer receives the product or service, rather than where the business is located.

On top of the state’s flat sales tax rate, there are hundreds of local tax jurisdictions that charge different amounts that businesses must also collect.

Common causes of noncompliance include:

Misunderstanding which products and services are taxable or exempt
Applying the wrong local tax rates
Assuming that remote and online sales are exempt
Not registering after your business has grown
Relying on outdated advice, automated systems, or DIY legal advice

When you’re building your business and just trying to reach the next stage of success, the topic of sales tax may fall to the bottom of the to-do list.

Who’s Responsible for Sales Tax?

The Washington Department of Revenue determines which businesses have sales tax responsibility. Once a business has nexus in the state, it must collect and remit sales tax.

Nexus is essentially a connection to the state of Washington, warranting sales tax collection. A business may have nexus if it:

Is located in Washington,
Is organized in Washington, or it
Has more than $100,000 in gross receipts sourced or attributed to Washington.

Physical presence may include having real property, rented or leased property, employees, or representatives in Washington State. It can also include soliciting sales, delivering goods using your own vehicles, providing services in the state, or having inventory (including inventory held by a marketplace facilitator) in the state. If you’re unsure, consult with a tax attorney

Failing to Collect vs. Failing to Remit

Both of these situations are serious, but slightly different in nature.

- Failure to collect: Even if a business never collects sales tax from customers, it still owes the money to the DOR. Businesses aren’t required to go back and recover sales tax from customers, and in fact, doing so is often impractical or even impossible. This means that payments generally come from business funds.
- Failure to remit: This means that the business charged sales tax to its customers but did not pass it to the state. This is a serious error because it’s essentially considered mismanaging or misusing funds that belong to the government.

In both scenarios, the outcome is often the same: the Washington Department of Revenue expects payment in full.

How Far Back Can Washington Assess Unpaid Sales Tax?

The amount of time the DOR has to collect sales tax depends on the situation. Here are the lookback periods:

If the DOR audits a sales tax return you filed – four years plus the current calendar year.
If the DOR discovers that you haven’t registered for a sales tax account – seven years plus the current year.
If you come forward voluntarily to register for a sales tax account – the lesser of the time you’ve had Washington State nexus or four years, plus the current year but only if you haven’t been collecting sales tax.
If you’ve been collecting but not remitting sales tax – the entire time you collected but didn’t pay the sales tax.

In all cases, if fraud or tax evasion is involved, the DOR has an unlimited amount of time to assess sales tax against you. Once the DOR assesses sales tax against you, it can start the collections process.

Penalties, Interest, and Enforcement Actions

If you don’t collect sales tax, the state will assess penalties and interest and may resort to involuntary collection methods or personal liability assessments:

- 9% late penalty: Sales tax returns are generally due on the 25th of the month after the end of the reporting period. Businesses may be expected to file returns monthly, quarterly, or annually, based on sales.

19% late penalty. Penalty increases to 19% if tax is not paid by the last day of the month following the due date.

29% late penalty: It increases to 29% if it is not paid by the end of the second month following the due date.

Interest: The DOR adjusts rates annually. In 2026, the interest rate is 6%.
Collection actions: This includes issuing a tax warrant, levying the business’s assets, seizing refunds, garnishing bank accounts, etc.
Personal liability: The DOR can even hold business owners personally liable.

Don’t let the DOR find you, assess tax, and start collections. Instead, minimize the risk by coming forward voluntarily if you haven’t been collecting sales tax.

Voluntary Disclosure Options in Washington

Washington, like many other states, has a Voluntary Disclosure Program for businesses that are behind on their taxes. If you qualify, you’ll enjoy a shorter lookback period and penalty waivers.

In order to qualify, businesses must:

Not have an active registration with the DOR or not have reported taxes for the past four years, plus the current year.
Not have been contacted by the DOR for enforcement purposes in the last four years, plus the current year.
Not be engaged in evasion or misrepresentation in reporting tax liabilities.

When a business is accepted to this program, the DOR limits the lookback period to four years plus the current year. Note, though, that there is still an unlimited lookback period for collected but unremitted sales tax.

Businesses can also get up to 39% in potential penalties waived, including the 5% assessment penalty, 5% unregistered penalty, and the 29% late payment penalty.

Businesses can apply for the Voluntary Disclosure Program for sales tax online. If the DOR decides that you qualify, they’ll send you a Voluntary Disclosure Agreement that must be signed and returned within 30 days. The tax assessment will be prepared, and you can then submit full payment per the instructions on your invoice.

Voluntary Disclosure Vs. DOR Review

If you haven’t been collecting sales tax, it’s usually best to be proactive. Then, you may be able to minimize penalties and get access to more resolution options. When businesses discover their mistakes before the Department does, they have more legal options moving forward. If the DOR contacts you first, the consequences tend to be worse.

Here’s a breakdown of what to expect if you make a proactive voluntary disclosure versus waiting for the DOR to contact you.

Consequences	Voluntary Disclosure	DOR Review
Penalties	May be waived	Up to 39%, plus interest
Lookback period	Up to 4 years	Up to 7 years
Collection actions	Reduced risk if make payment arrangements	High risk of liens and levies
Fraud risk	Usually not applicable if you provide accurate information	Risk if the DOR thinks you willfully didn’t file

Common Washington Sales Tax Audit Triggers

The Washington DOR regularly audits businesses to ensure that they are paying the correct amount of sales tax. The DOR may audit returns you filed or any tax periods where you didn’t file a return.

A number of issues may trigger an audit, including:

Random selection
Rapid growth in revenue
Reporting patterns that don’t match other businesses in your industry
Passing economic nexus thresholds, as indicated on reports from third parties or business returns
Operating in an audit-heavy industry (often those that rely on cash transactions)
Inconsistencies between reported sales and third-party data

When Personal Liability is on the Table

The Department of Revenue may hold owners, officers, and other responsible parties personally liable for Washington sales tax debt if these conditions are met:

Tax liability belongs to the corporation
Corporation is terminated, abandoned, or dissolved
Responsible party willfully failed to pay or directed someone else to pay sales tax
Responsible party had control or supervision over retail sales tax or was responsible for reporting and remitting sales tax
No reasonable means of collection from the corporation

Washington state law states that a seller can be personally liable if they collect but fail to remit sales tax or if they never collect sales tax in the first place. Generally, the longer you wait to address your sales tax debt, the more likely the DOR is to pursue personal liability.

Maintaining Sales Tax Compliance Going Forward

Addressing mounting sales tax debt can be incredibly stressful, and once you’re caught up, you’ll want to take steps to be compliant going forward. You can set your business up for long-term sales tax compliance and success with these tips:

Regularly check your POS systems for accuracy: A well-run POS system can automatically collect sales tax based on the services and goods you sell, but you have to make sure it is categorizing transactions and charging sales tax correctly.
Hire a dedicated professional for tax needs: These issues often arise when a business doesn’t have the staff needed to handle its growing operations. A tax professional who can handle returns, payments, and audits can help ensure compliance.
Schedule tax return filings and payments: Stay on top of your return schedule (based on your income level) and make sure you’re set up for on-time filings and payments every single time.
Review tax laws regularly: The Department of Revenue has the right to change tax laws, payment schedules, and protocols. This is another benefit of having a dedicated tax professional—they can inform you of any changes that may affect your business.
Set up internal audits to catch any potential issues: Internal audits are an excellent way to identify a range of business issues, including tax problems.

Why You Should Work With a Tax Resolution Firm

If you just realized that your business has not been collecting sales tax, has not been collecting sales tax correctly, or has not been remitting sales tax, it is only a matter of time until the DOR discovers the problem. While you may choose to address this issue on your own, bringing in a tax professional can help you resolve your sales tax problems much more quickly.

The team at Seattle Legal Services can:

Look over unpaid sales tax spanning multiple years
Prepare your business for an audit or enforcement actions
Determine whether or not you’re at risk for personal liability
Explain if you qualify for the Voluntary Disclosure Program
Help you set up payment arrangements
Set you up for long-term compliance

Don’t let unpaid sales tax be the end of your business. Early action can get you caught up and back on track. Call Seattle Legal Services at 206-536-3152 or reach out online to set up a time to meet with our team.