The Washington State Legislature has just enacted substantial increases to payments for businesses that pay taxes late. Beginning August 1, 2015, if a return is not paid by the due date the 5% penalty is increased to a whopping 9%! If the tax is not paid by the end of the second month the penalty is increased from 15% to 19%, and if not paid by the end of the third month, the tax is increased from 25% to 29%. For example, if a taxpayer’s payment is due September 25th and is not paid on time the penalty is 9%. If the tax is not paid in October, the penalty is 15%, and if not paid in November, the penalty is 29%. Think about it, a penalty of almost 30% if a payment is a little over 2 months late.
For many taxpayers who sometimes must juggle finances by filing a few days late in order to make other payments, the danger is now that the slap on the wrist 5% penalty has became more of a slap in the face at 9%, while the 29% penalty is the kind of rate that would make the hardest of hard money lenders cringe (or smile in admiration).
The reason for the increase is not hard to figure out: The legislators want to raise revenue, but too few in the legislature are willing to go on record as voting for a tax increase. The next best thing is to disguise a tax increase as a penalty, which will largely go unnoticed by the voting public. Moreover, those hurt by a late payment penalty are in an embarrassing position as it is, and not likely to voice objection in public. To make matters worse, there are very few circumstances allowing for waiver of a late payment penalty. In all, this is a grossly inequitable development in Washington State’s tax enforcement and it is likely to make full compliance more difficult, if not impossible, for many small businesses.