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July 10, 2015
Why All Businesses Should be Interested in SB 5449, Addressing Tax Appeals Reform in Washington **Updated 7/10/2015**
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Imagine that you receive a call from a store in another state that is 1,500 miles away.  The caller asks a few questions, noting that you bought $5,000 worth of goods last month.  You object.  Certainly, there must be a mistake.  You respond that you only bought $5.00 worth of goods while on a business trip.  After listening to your objection, the caller asks whether you can prove that you did not purchase $5,000 worth of goods.  You say no, because there is no way to prove a negative.  Regretting that you will not get back the 10 minutes you spent on the phone, you shake your head in disbelief and hang-up on the caller.  You think, “That was odd.”  You’re not worried.

The following week, you receive a bill for $5,000.  You call the store and ask why you got this bill.  The store responds that because you did not prove that you did not buy the goods, it billed you what it thought you bought.  The store then shares a dire warning, “If you don’t pay this in 30 days, the store will get a lien and forcibly take your assets.”  Now, you’re angry at the threat thrown in your face, and the store representative senses that.  So, the store tells you that you can appeal to the store’s dispute resolution unit and that the bill will not be due until the unit has made a decision.  The store leads you to believe that this unit has the power to eliminate the bill.  You’re not worried but you are irritated that you need to go through the process.

After your conference, you find out that the store, in part, considers how much the store representative bills the customers in the employee’s annual performance evaluation.  The more the employee bills, the more positive the employee’s review will be on that specific performance standard.  You also learn that the dispute resolution unit has no power to eliminate the bill.  In fact, the customer dispute unit must consult with an isolated group within the store --- people with whom you never get to see or meet in a face to face discussion --- that may tell the unit what the decision will be.  It turns out that the whole process was an illusion of fairness.  Guess what?  After going through the process, you still owe $5,000 and it’s due in 30 days.  You’re still not worried but you are irritated and now frustrated.  Maybe, you are even angry.

Appalled by this process, you think that a court will side with you when “push comes to shove.”  You threaten the store with “Sue me then, and we’ll see if you can get a court to force me to pay you.”  The store advises you that it doesn’t need to sue you because it has lawful self-help that does not require a court’s involvement.  The store also mentions that you can pay the store now, and then you can sue the store to get your money back.  You don’t know whether to laugh or cry.  Because you don’t know which to do, you choose neither.  You go for a third option; you ignore the bill and the store’s explanation of your courses of action.  You’re still not worried but you are irritated, frustrated and now, angry for sure.

The following month, you receive a notice of a judgment lien against you and your bank notifies you that it is turning over your bank account to the store because it received a notice to withhold and deliver your bank account to the store to satisfy the judgment lien.  Now, you’re worried, as well as irritated, frustrated, angry and now at least $5,000 poorer.  It is at least $5,000, because there will be interest and penalties for failing to pay before the store started the lien process.

As ridiculous as that story sounds, business taxpayers encounter this scenario every day with Washington’s current tax appeals process.  SB 5449 corrects this unfairness.  Under the current practice, the Department of Revenue makes an honest effort to determine how much tax a business owes to the state.  Sometimes it’s right and sometimes it is wrong.  Regardless of the honest effort, the system is skewed to find additional amounts due.  In other words, when in doubt, charge the tax.  Like the store example, the auditors’ performance evaluation includes how many tax dollars they collect.  This policy has the effect of discouraging them from finding offsetting tax credits.  Why?  This is because tax credits negatively affect the amount of tax dollars that they collect.  So, when in doubt, deny the credit.

Of course, the check and balance on the auditors should be the appeals division.  The appeals division uses lawyers to review the tax bill.  They enjoy the working title of “administrative law judge,” leaving the impression that the taxpayer is getting a legal and objective review.  The review is not objective, nor is it intended to be objective.[1]  As the articles in footnote 2 explain, the appeals division is often told what the answer will be, based on the justification that the answer will be consistent and uniform to all taxpayers.  Under this method, unfortunately, if the first decision was wrong, then every taxpayer thereafter also consistently and uniformly gets the wrong decision. 

Clearly, a taxpayer can avoid the Department’s review process by paying the tax and suing for a refund.  Paying the tax and suing for a refund is commonly referred to as “pay to play.”  One problem with is this approach is that it is not cost effective to sue for a refund if the litigation costs exceed the refund.  Consequently, many taxpayers begrudgingly pay the tax, not because they agree that it is due, but because it makes no economic sense to pursue the refund.  There are no attorney fees if the taxpayer eventually wins, so paying tax and going away is often the most prudent strategy. 

Another problem with this approach is that if the assessment is large enough, a business cannot find the cash to pay the tax bill in order to “pay to play” its way into court.  Banks do not typically lend money for a business to pay tax bills.  In fact, some lenders might consider sizeable tax bills to be a breach of the lending agreement, resulting in higher interest rates or worse, cutting off a critical line of credit.  This results in taxpayers abandoning their businesses, because the tax liens will eventually result in closure anyway.  In some cases, the Department will revoke the taxpayer’s business registration, depriving the taxpayer from continuing with business in any event.  All of this happens before the taxpayer can ask disinterested third-party like a court to review the correctness of the tax bill.  If you have ever been through the audit and appeal process, then you know that the scenario described above is accurate.

SB 5449 eliminates the unfair advantage that the department has over taxpayers, and implements a fair, due process procedure before the state can take money that it thinks you owe.  In other words, it permits taxpayers to appeal to a court before they must pay the tax. 

We have a voluntary tax system, and if the system is going to work correctly, then taxpayers must have faith that the system is fair and unbiased.  This bill, if adopted into law, will put some faith and confidence back into the voluntary system.  The bill has been approved by the Senate Law and Justice Committee and is on its way to the Senate Ways and Means Committee for its review.  If you agree that fundamental fairness entitles Washington taxpayers to a system that is better than the one that currently exists, then consider supporting SB 5449[2] and contacting members of the Senate Ways and Means Committee[3] to let them know that you support a fairer tax appeals process. 

UPDATE 4/21/2015:

The Council on State Taxation (COST) published its scorecard on what grade various states have earned on their respective tax administration policies and processes.  Washington currently gets a C grade.  See  If Washington enacted SB 5449, the COST score would increase to an A-.

The Senate Ways and Means Committee approved SB 5449.  On April 15, 2015, the Senate passed SB 5449, and the bill is now pending before the House Judiciary Committee.[4]  If you agree that a transparent, unbiased review process and SB 5449 is good for taxpayers, then reach out to members of the House Judiciary Committee[5] to tell them that you support SB 5449. 

UPDATE 4/28/2015:

The session ended without a House hearing on SB 5449, in large part, because there was not enough time to hear the bill before the session ended.  Not only did this bill not move before the end of the session, but there was no budget passed either.  SB 5449 is still part of the budget from the Senate’s perspective.  Next, both chambers will be in a special session to negotiate the budget and SB 5449 could survive that process.  If you agree that an independent tax tribunal has merit, then contact members of the House to express your support to keep it in the budget.

UPDATE 7/10/2015:

After surviving two special sessions, SB 5449 did not survive the third special session.  It was not approved.  The Senator Braun is likely to continue his efforts to bring reform to tax appeals.  If you agree that an independent state tax tribunal has merit, then contact Senator Braun to encourage him to continue his efforts.

[1] For more information on the Department of Revenue’s appeals process, these links provide interesting background.  Overview:;   DOR’s view:; Former ALJs view:

[2] The bill and related documents can be reviewed at

[3] The list of Senate Ways and Means Committee members can be found at

[4] The progress and reasons why the Association of Washington Business has this as a priority legislative matter can be found at

[5] The list of House Judiciary Committee members can be found at


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