BILL REQ. #:  S-3001.2 

     AN ACT Relating to enhancing tax collection tools for the department of revenue in order to promote fairness and administrative efficiency; amending RCW 82.32.145 and 82.32.235; creating new sections; and prescribing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 101   RCW 82.32.145 and 1995 c 318 s 2 are each amended to read as follows:
     (1) ((Upon termination, dissolution, or abandonment of a corporate or limited liability company business, any officer, member, manager, or other person having control or supervision of retail sales tax funds collected and held in trust under RCW 82.08.050, or who is charged with the responsibility for the filing of returns or the payment of retail sales tax funds collected and held in trust under RCW 82.08.050, shall be personally liable for any unpaid taxes and interest and penalties on those taxes, if such officer or other person wilfully fails to pay or to cause to be paid any taxes due from the corporation pursuant to chapter 82.08 RCW. For the purposes of this section, any retail sales taxes that have been paid but not collected shall be deductible from the retail sales taxes collected but not paid.
     For purposes of this subsection "wilfully fails to pay or to cause to be paid" means that the failure was the result of an intentional, conscious, and voluntary course of action.
     (2) The officer, member or manager, or other person shall be)) Whenever the department has issued a warrant under RCW 82.32.210 for the collection of unpaid taxes from a limited liability business entity and that business entity has been terminated, dissolved, or abandoned, or is insolvent, the department may pursue collection of the entity's unpaid taxes, including penalties and interest on those taxes, against any or all of the responsible individuals. For purposes of this subsection, "insolvent" means the condition that results when the sum of the entity's debts exceeds the fair market value of its assets. The department may presume that an entity is insolvent if the entity refuses to disclose to the department the nature of its assets and liabilities.
     (2) Personal liability under this section may be imposed for state and local sales and use taxes, state business and occupation taxes, and any other state and local taxes collected by the department in respect to which the provisions of this chapter apply, regardless of whether the tax is denominated a tax, fee, charge, or some other term.
     (3)(a) For a responsible individual who is the current or a former chief executive or chief financial officer, liability under this section applies regardless of fault or whether the individual was or should have been aware of the unpaid tax liability of the limited liability business entity.
     (b) For any other responsible individual, liability under this section applies only if he or she willfully fails to pay or to cause to be paid to the department the taxes due from the limited liability business entity.
     (4)(a) Except as provided in this subsection (4)(a), a responsible individual who is the current or a former chief executive or chief financial officer is liable under this section only for tax liability accrued during the period that he or she was the chief executive or chief financial officer. However, if the responsible individual had the responsibility or duty to remit payment of the limited liability business entity's taxes to the department during any period of time that the person was not the chief executive or chief financial officer, that individual is also liable for tax liability that became due during the period that he or she had the duty to remit payment of the limited liability business entity's taxes to the department but was not the chief executive or chief financial officer.
     (b) All other responsible individuals are liable under this section only for ((taxes collected which)) tax liability that became due during the period he or she had the ((control, supervision,)) responsibility((,)) or duty to ((act for the corporation described in subsection (1) of this section, plus interest and penalties on those taxes)) remit payment of the limited liability business entity's taxes to the department.
     (((3))) (5) Persons ((liable under)) described in subsection (((1))) (3)(b) of this section are exempt from liability under this section in situations where nonpayment of the ((retail sales tax funds held in trust)) limited liability business entity's taxes is due to reasons beyond their control as determined by the department by rule.
     (((4))) (6) Any person having been issued a notice of assessment under this section is entitled to the appeal procedures under RCW 82.32.160, 82.32.170, 82.32.180, 82.32.190, and 82.32.200.
     (((5) This section applies only in situations where the department has determined that there is no reasonable means of collecting the retail sales tax funds held in trust directly from the corporation.
     (6))) (7) This section does not relieve the ((corporation or)) limited liability ((company)) business entity of ((other tax liabilities)) its tax liability or otherwise impair other tax collection remedies afforded by law.
     (((7))) (8) Collection authority and procedures prescribed in this chapter apply to collections under this section.
     (9) For purposes of this section, the following definitions apply:
     (a) "Chief executive" means: The president of a corporation; or for other entities or organizations other than corporations or if the corporation does not have a president as one of its officers, the highest ranking executive manager or administrator in charge of the management of the company or organization.
     (b) "Chief financial officer" means: The treasurer of a corporation; or for entities or organizations other than corporations or if a corporation does not have a treasurer as one of its officers, the highest senior manager who is responsible for overseeing the financial activities of the entire company or organization.
     (c) "Limited liability business entity" means a type of business entity that generally shields its owners from personal liability for the debts, obligations, and liabilities of the entity, or a business entity that is managed or owned in whole or in part by an entity that generally shields its owners from personal liability for the debts, obligations, and liabilities of the entity. Limited liability business entities include corporations, limited liability companies, limited liability partnerships, trusts, general partnerships and joint ventures in which one or more of the partners or parties are also limited liability business entities, and limited partnerships in which one or more of the general partners are also limited liability business entities.
     (d) "Manager" has the same meaning as in RCW 25.15.005.
     (e) "Member" has the same meaning as in RCW 25.15.005, except that the term only includes members of member-managed limited liability companies.
     (f) "Officer" means any officer or assistant officer of a corporation, including the president, vice-president, secretary, and treasurer.
     (g)(i) "Responsible individual" includes any current or former officer, manager, member, partner, or trustee of a limited liability business entity with an unpaid tax warrant issued by the department.
     (ii) "Responsible individual" also includes any current or former employee or other individual, but only if the individual had the responsibility or duty to remit payment of the limited liability business entity's unpaid tax liability reflected in a tax warrant issued by the department.
     (iii) Whenever any taxpayer has one or more limited liability business entities as a member, manager, or partner, "responsible individual" also includes any current and former officers, members, or managers of the limited liability business entity or entities or of any other limited liability business entity involved directly in the management of the taxpayer. For purposes of this subsection (9)(g)(iii), "taxpayer" means a limited liability business entity with an unpaid tax warrant issued against it by the department.
     (h) "Willfully fails to pay or to cause to be paid" means that the failure was the result of an intentional, conscious, and voluntary course of action.

Sec. 201   RCW 82.32.235 and 1987 c 208 s 1 are each amended to read as follows:
     (1) In addition to the remedies provided in this chapter the department is ((hereby)) authorized to issue to any person((, or to any political subdivision or department of the state)), a notice and order to withhold and deliver property of any kind whatsoever when there is reason to believe that there is in the possession of such person((, political subdivision or department)), property which is or ((shall)) will become due, owing, or belonging to any taxpayer against whom a warrant has been filed.
     (2) The ((notice and order to withhold and deliver shall be served by the)) sheriff of the county ((wherein)) where the service is made, or ((by)) his or her deputy, or ((by)) any duly authorized representative of the department((, provided that service by such persons may also be made)) may personally serve the notice and order to withhold and deliver upon the person to whom it is directed or may do so by certified mail, with return receipt requested((, upon those persons, or political subdivision or department, to whom the notice and order to withhold and deliver is directed. Any person, or any political subdivision or department upon whom service has been made is hereby required to answer the notice within twenty days exclusive of the day of service, under oath and in writing, and shall make true answers to the matters inquired of in the notice)).
     (3)(a) The department is authorized to issue a notice and order to withhold and deliver to any financial institution in the form of a listing of all or a portion of the unsatisfied tax warrants filed under this chapter with the clerk of the superior court of a county of the state, except tax warrants subject to a payment agreement, which is not in default, between the department and the taxpayer.     
     (b) As an alternative to the methods of service in subsection (2) of this section, the department may serve the notice and order to withhold and deliver authorized under this subsection electronically. The remedy in this subsection (3) is in addition to any other remedies authorized by law.
     (c) No more than one notice and order to withhold and deliver under this subsection (3) may be served on the same financial institution in a calendar month.
     (d) For purposes of this subsection, "financial institution" means a bank, trust company, mutual savings bank, savings and loan association, or credit union authorized to do business and accept deposits in this state under state or federal law.
     (4) Any person who has been served with a notice and order to withhold and deliver under subsection (1) or (3) of this section must answer the notice within twenty days, exclusive of the day of service. The answer must be in writing, under oath if required by the department, and include true answers to the matters inquired of in the notice. The department may authorize any person served electronically under subsection (3) of this section to answer the notice and order to withhold and deliver electronically.
     (5) In the event there is in the possession of any ((such)) person ((or political subdivision or department)) served with a notice and order to withhold and deliver, any property which may be subject to the claim of the department, such property ((shall)) must be delivered ((forthwith)) immediately to the department of revenue or its duly authorized representative upon demand ((to be held in trust by)). The department must hold the property in trust for application on the indebtedness involved or for return, without interest, in accordance with final determination of liability or nonliability((, or in the alternative, there shall be furnished a good and sufficient)). Instead of delivering the property to the department or the department's duly authorized representative, the person may furnish a bond satisfactory to the department conditioned upon final determination of liability.
     (6) Should any person ((or political subdivision)), having been served with a notice and order to withhold and deliver, fail to ((make)) answer ((to an)) the notice and order to withhold and deliver within the time prescribed ((herein, it shall be lawful for the court, after the time to answer such order has expired, to)) in this section or otherwise fail to comply with the duties imposed in this section, the department may bring a proceeding, in the superior court of Thurston county or of the county in which service of the notice was made, to enforce the notice and order to withhold and deliver. The court may render judgment by default against such person ((or political subdivision)) for the full amount claimed by the department in the notice and order to withhold and deliver or may grant such other relief as the court deems just, together with costs.
     (7) For purposes of this section, "person" has the same meaning as in RCW 82.04.030 and also includes any agency, department, or institution of the state.

NEW SECTION.  Sec. 202   (1) The legislature finds that the state's vital interest in collecting lawfully due taxes must be balanced against the burden of complying with section 201(3) of this act, particularly for small financial institutions.
     (2)(a) Therefore, the legislature directs the department of revenue to work with interested financial institutions to develop policies regarding the frequency of service under section 201(3) of this act and under what circumstances a notice and order to withhold and deliver will contain only a partial list of unsatisfied tax warrants eligible to be included in the notice. The policies should take into account the size of a financial institution, location of a financial institution, number of business accounts that a financial institution has, and any other factors the department may choose to consider.
     (b) The department is also directed to develop a policy regarding the information to be contained in a notice and order to withhold and deliver to ensure that financial institutions can accurately match their records with the names of tax debtors.
     (3) The department must report to the fiscal committees of the legislature on the implementation of section 201(3) of this act by January 1, 2012. The report should describe the policies developed by the department as directed in subsection (2) of this section. The report should also describe any difficulties the department encountered in implementing section 201(3) of this act and any suggestions the department may have to improve the effectiveness of section 201(3) of this act, reduce the burden on financial institutions in complying with section 201(3) of this act, or both.

NEW SECTION.  Sec. 301   Part headings used in this act are not any part of the law.

NEW SECTION.  Sec. 302   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 303   Section 101 of this act applies to assessments issued under that section to responsible individuals as defined in that section on or after the effective date of this act.