SENATE BILL REPORT

SB 5571

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

Background: The Department of Revenue (DOR) collects the major state excise taxes, such as the retail sales tax and the business and occupation (B&O) tax. The general administrative provisions for the collection of excise taxes are provided in chapter 82.32 RCW, including payment schedules, payment types, assessments, and notice provisions. The payment schedule, in general, is for businesses to report and pay excise taxes on a monthly basis, although smaller businesses may report taxes quarterly or annually.

Taxpayers with an annual tax liability of more than $1,800,000 must make payment of their excise tax returns using electronic funds transfer (EFT). By rule, DOR requires taxpayers with annual tax liabilities above $240,000 to make payment of their excise tax returns using EFT. Taxpayers with annual tax liabilities below $240,000 may make payments using EFT, but are not required to do so.

Direct pay is a program that allows certain businesses to buy goods without payment of sales tax to the seller at the time of purchase. Businesses with a direct pay permit may pay the applicable sales and use taxes due directly to DOR. Businesses eligible to apply for direct pay permits are firms making purchases over $10,000,000 in one calendar year or are required to pay by EFT.

Summary of Bill: DOR must send all assessments, notices, or other information electronically, but may waive this requirement for any taxpayer for cause, temporarily or permanently.

All taxpayers must file returns and pay taxes electronically, but DOR may waive this requirement for any taxpayer for cause, temporarily or permanently. Payment of the tax must be by EFT or other forms of electronic payment authorized by DOR, such as credit card or e-check.

DOR may implement these requirements in phases.

The refund provisions are amended to clarify that DOR must have the necessary account information to provide refunds to taxpayers by EFT.

Businesses with an annual tax liability over $240,000 are eligible to apply for a direct pay permit.

Staff Summary of Public Testimony: PRO: The bill balances efficiency with equity. Paper tax returns have many errors and require a lot of resources to process. Currently, over half of businesses file tax returns electronically with the DOR. This bill makes electronic tax return filing the default and would raise e-filing rates to approximately 75 percent. Further, it makes electronic payments the default method of tax payments. It also provides exceptions for these requirements when there is good cause, such as when electronic filing is a hardship to the business. There are many benefits, such as increasing the efficiency of processing and improving filing for taxpayers. Electronic tax returns include information which is relevant to the individual taxpayer, rather than all information in a paper format. Filing and paying electronically will also be a quicker process, with fewer errors. Depositing payments into the General Fund through electronic means creates, in general, two days more interest on those payments. This will result in approximately $1 million additional revenue from interest income. Further, the savings on paper, postage, and labor is $2.3 million for the current biennium and $2.5 million for the next biennium.

CON: In general, the Association of Washington Business (AWB) supports electronic tax return filing because of its benefits. However, small businesses may be uncomfortable with making payments electronically. The "good case" exceptions to these requirements should be defined. There are concerns about charges for use of credit cards and government intervention. Some businesses might want to keep the interest on these payments in their own accounts. Some businesses have some fears about the unintended consequences of these changes.