Washington State’s First Tax Amnesty Program

When the economy’s in the tank and government needs cash without raising taxes, one thing lawmakers can do is create amnesty programs that forgive interest and fines on delinquent tax payments.  In 2009, State Auditor Brian Sonntag released his yearly audit report that showed Washington State was owed $1.6 billion in delinquent payments (at the time) and an amnesty program could be a one-time option for collecting revenue. He also discussed some of the possible cons of these programs such as implementation costs and lost revenue.

The Governor and Legislature agreed with his assessment and unanimously passed Senate Bill 6892 – Establishing a temporary penalty and interest waiver program for certain excise taxes administered by the department of revenue – which created an amnesty program to run from February 1^st to April 30^th of 2011.  At the time, state officials estimated that collections would bring in around $24 million that could be used to help bridge the gap in the budget deficit. 

The Department of Revenue (DOR) set up the application and payment process and ended up spending $381,000 on staff time and outreach efforts.  The result of this program was a huge success that dwarfed the initial collection estimate. In its final report, DOR says the program collected $345.8 million from 5,095 businesses (over 9,000 applied).   This resulted in $284 million for the state general fund, $5 million for other state accounts, and $61.3 million for cities and counties. This did come with a cost of $91 million in waived fees and penalties, but the quick infusion of cash helped to save programs and services that were on the chopping block.

According to DOR’s data, most of the money came from out-of-state businesses and 75% of businesses that were granted amnesty were small businesses that had a gross business income (GBI) of under $1 million. I’m not sure how much of an overlap there is between these two datasets, but it would be interesting to know why these two groups made up large pieces of the whole.  Regardless, this was a win-win for businesses and government.

DOR was also recognized nationally and received the 2012 Taxpayer Service and Education Award from the Federation of Tax Administrators. Citizen outreach is an important piece for any state program and process transparency builds trust between government and the public.  While this program can’t be implemented on a regular basis since it would be rewarding delinquent payments, it’s a good example of addressing a tax problem in the middle of a fiscal crisis.