How does Washington decide whether to waive a late return penalty, and should the penalty be paid with the request?

The penalty a waiver request addresses

Washington has no separate late filing penalty. The penalty a late return draws is measured by tax not paid on time: "If payment of any tax due on a return to be filed by a taxpayer is not received by the department of revenue by the due date, there is assessed a penalty of nine percent of the amount of the tax," rising to a total of 19 percent if the tax is not received "on or before the last day of the month following the due date," and to 29 percent if not received by the last day of the second month following (RCW 82.32.090(1)). The minimum is $5. The Department's rule calls this the late payment of return penalty (WAC 458-20-228(5)(a)); its late filing page calls it a late return penalty. The Department's combined excise tax return instructions add that "There is no penalty if no tax is due."

Other penalties sit beside it and are waived, if at all, on their own terms: the 5 percent substantial underpayment assessment penalty where the taxpayer paid less than 80 percent of the tax the Department determines to be due and the shortfall is at least $1,000 (RCW 82.32.090(2)); the 5 percent unregistered business penalty (RCW 82.32.090(4)); and the 10 percent penalty for disregarding specific written instructions or the electronic filing requirement (RCW 82.32.090(5)). Interest is separate again. RCW 82.32.050(1) adds "interest on the tax only," at the average federal short-term rate plus two percentage points (RCW 82.32.050(2)).

A waiver request therefore starts with sorting. The late payment of return penalty can be waived on either of two grounds. Every other penalty can be waived only for circumstances beyond the taxpayer's control, and the rule warns that "circumstances that qualify for waiver of a late payment of return penalty do not necessarily also justify waiver of the substantial underpayment assessment penalty" (WAC 458-20-228(9)(a)). Interest is waived only where the failure to pay "was the direct result of written instructions given the taxpayer by the department," or where the Department extended the due date of a deficiency assessment, not at the taxpayer's request, "for the sole convenience of the department" (RCW 82.32.105(3); WAC 458-20-228(10)). A waiver of the penalty on a late return leaves the interest on the late tax in place.

Ground one: circumstances beyond the taxpayer's control

RCW 82.32.105(1) is mandatory once its finding is made: the Department "must waive or cancel any penalties." The rule supplies the standard. The circumstances "must actually cause the late payment"; they "are generally those which are immediate, unexpected, or in the nature of an emergency"; and they "result in the taxpayer not having reasonable time or opportunity to obtain an extension of the due date or otherwise timely file and pay" (WAC 458-20-228(9)(a)(ii)). "The taxpayer bears the burden of establishing that the circumstances were beyond its control" and that they directly caused the late payment (WAC 458-20-228(9)(a)(i)).

The qualifying examples are a timely payment sent to the wrong agency; erroneous written information from a Department employee; death or serious illness of the taxpayer, its accountant or tax preparer, or their immediate families; "the unavoidable absence of the taxpayer or key employee, prior to the filing date," which "does not include absences because of business trips, vacations, personnel turnover, or terminations"; fire or other casualty destroying the place of business or records; undetectable theft by an employee or contractor despite "reasonable safeguards or internal controls"; and the Department's failure to answer a timely request for a form (WAC 458-20-228(9)(a)(ii)(A) to (G)). The examples that generally do not qualify include "Financial hardship," "A misunderstanding or lack of knowledge of a tax liability," a registration that was not voluntary, and "Mistakes or misconduct on the part of employees or other persons contracted with the taxpayer" (WAC 458-20-228(9)(a)(iii)).

The Department's published determinations apply those lists strictly. A claim that a Department employee gave wrong advice by telephone fails, because "A penalty generally will not be waived when it is claimed that erroneous oral information was given by a department employee" (WAC 458-20-228(9)(a)(ii)(B)); in Det. No. 25-0060, 45 WTD 124 (2026), the Department confirmed that a call took place but found no record of the advice the taxpayer recalled and denied the waiver. Reliance on an outside advisor fails as well: the rule states that reliance "on incorrect advice received from the taxpayer's legal or accounting representative is not a basis for cancellation of a penalty," and Det. No. 22-0223, 45 WTD 005 (2026), applied the rule's exclusion of mistakes by "other persons contracted with the taxpayer" to an accountant's advice that the taxpayer had no Washington nexus, adding that the Department "does not have equitable powers like courts in the judicial branch." Good faith alone is not enough (Det. No. 18-0116, 38 WTD 197 (2019)), nor is a cash shortfall caused by a third party's failure to pay the taxpayer (45 WTD 124).

The timing element does much of the work. A taxpayer whose bookkeeper was hospitalized the week before a due date has a qualifying event under the key employee example, but the rule's terms still ask whether the taxpayer had "reasonable time or opportunity" to request an extension or have someone else file. A request that documents the event, the dates, and why no one else could act in the time left meets the rule's terms; one that names the event alone may not.

Ground two: the 24-month review

RCW 82.32.105(2) is written as the fallback: "The department must waive or cancel the penalty imposed under RCW 82.32.090(1) when the circumstances under which the delinquency occurred do not qualify for waiver or cancellation under subsection (1) of this section if" two conditions are met. The taxpayer must request the waiver for a return required under one of the listed statutes, the principal one being RCW 82.32.045, which governs the combined excise tax return. And the taxpayer must have "timely filed and remitted payment on all tax returns due for that tax program for a period of 24 months immediately preceding the period covered by the return for which the waiver is being requested" (RCW 82.32.105(2)(b)). Cause is irrelevant: a missed calendar entry qualifies as readily as an emergency.

The rule fills in the mechanics (WAC 458-20-228(9)(b)):

• Only one penalty. "A 24 month review is only valid when considering waiver of the late payment of return penalty," and it "cannot be used as justification for a waiver of interest, assessment penalty, or any penalty other than the late payment of return penalty" ((9)(b)(iv)).
• The window. The 24 months are fixed by the period the late return covers, not by its due date, "even if that due date has been extended" ((9)(b)(iii)). For a late March 2026 monthly return, the window runs from March 1, 2024 through February 28, 2026.
• What counts as timely. "A return will be considered timely for purpose of the waiver if there is no tax liability on it when it is filed," and also if any late payment penalties on it "were waived or canceled due to circumstances beyond the control of the taxpayer" ((9)(b)(ii)).
• Frequency. "[N]o more than one waiver can be applied to any one tax program in a 24 month period," though a taxpayer that files for more than one listed program may receive one for each ((9)(b)(ii)). The Department's waiver page states the same limit: the waiver is "only available for one return within a 24-month period."
• New businesses. A taxpayer that registered "prior to engaging in business" and has operated for less than 24 months qualifies if it "had no delinquent tax returns for periods prior to the period covered by the return," so "the taxpayer's very first return due can qualify" ((9)(b)(i)). The library's article on Washington registration and the first return covers that condition.

The determinations show the limits. In Det. No. 18-0116, 38 WTD 197 (2019), a taxpayer with late filings for several years received the waiver for the one year preceded by a clean 24 months "but not for the remaining periods." In Det. No. 20-0045, 41 WTD 126 (2022), the taxpayer's returns in the window had been filed reporting zero, but tax was later found due on them and never reported; the Department held the taxpayer "did not, and has not, timely filed and remitted payment" for the program and refused the waiver. A zero return counts as timely only if it was right.

Which ground to ask for, and why it matters later

The Department's online filing system builds the choice into the return. On a late return, the filer checks Request Penalty Waiver and then answers whether it "would like to be considered for a 24 month waiver." The instructions route a filer whose reason is "due to extenuating circumstances" to the No answer, and state that a filer who answers No and does not qualify on that ground "will then be considered for a 24 month waiver" (Department of Revenue, My DOR Help, Tax returns). A paper filer checks the box on the return and attaches a written request that "must explain the circumstances that caused" the late filing (Department of Revenue, Combined Excise Tax Return instructions, Totals). The rule asks for "all pertinent facts" with "such proof as may be available," preferably by letter (WAC 458-20-228(9)(a)(i)).

The two grounds look interchangeable on the day the penalty is waived. They are not. A return whose penalty was waived for circumstances beyond the taxpayer's control is treated as timely in later reviews; the rule extends that treatment to no other waived return, so a return waived on the 24-month review stays a late return inside the next window. The 24-month waiver also uses up the single waiver allowed for that tax program in the period.

An example shows the difference. A quarterly filer with a clean record files its first quarter 2026 return late because a new controller misread the due date. Personnel turnover is not a circumstance beyond the taxpayer's control, so the 24-month review is the only ground, and the penalty is waived on it. If the third quarter 2026 return is also late, the late first quarter return sits inside the third quarter's window and the program's one waiver for the period is spent; the third quarter penalty stands unless that delay has its own qualifying cause. Had the first quarter delay come from a casualty that destroyed the taxpayer's records, a waiver on that ground would have left the first quarter return timely and the 24-month waiver still available for the third quarter.

Paying the penalty with the request

The Department's waiver page says the written request goes "with the late return and tax payment," and the online return asks whether the filer "will pay the penalty amount" without stating what follows from either answer. The statute supplies the answer that matters. "Subject to the provisions of RCW 82.32.105, 82.32.052, and 82.32.350," the Department "must apply the payment of the taxpayer in the following order, without regard to any direction of the taxpayer: (i) Interest; (ii) penalties; (iii) fees ...; (iv) other nontax amounts; (v) taxes, except spirits taxes; and (vi) spirits taxes" (RCW 82.32.080(5)(a); WAC 458-20-228(8)).

The consequence follows from the order. A monthly filer files its return 17 days late, reporting $20,000 of tax; the 9 percent penalty is $1,800. If it remits the tax and the interest but not the penalty, the Department applies the payment first to interest, then to the $1,800 penalty, and only the remainder to tax, so $1,800 of tax is carried as unpaid. Interest runs on that tax, because interest attaches to tax and not to penalty (RCW 82.32.050(1)). The tiers in RCW 82.32.090(1) are keyed to the date the tax is "received," so on the statute's text a denial that comes after the last day of the following month leaves the shortfall open to the higher tiers. How the Department computes a higher tier on a partly paid return is not stated in the rule or on the Department's waiver pages. A return filed with no payment at all is worse: the Department "may refuse to accept any return that is not accompanied by a remittance of the tax shown to be due," and a refused return is treated as not filed (RCW 82.32.080(6)).

Paying the penalty avoids that exposure at the cost of the use of the money until a granted waiver is refunded. If the waiver is granted, the penalty has been "paid in excess of that properly due" and is refunded or credited (RCW 82.32.060(1)). If it is denied, the return is fully paid, and the denial can still be contested as a refund claim within the four-year period of RCW 82.32.060(1).

When the request is denied

Where the penalty was paid, a denial operates as a refusal to refund it, and refund denials are reviewable by the Department's Administrative Review and Hearings Division (WAC 458-20-100(1)(a)(ii)); where it was not paid, the balance due notice that follows is reviewable (WAC 458-20-100(1)(a)(iii)). Either petition is due "within thirty days after the date the departmental action has occurred," with extensions available on a written request made within that period (WAC 458-20-100(3)). The penalty rule states the same deadline for a petition seeking waiver of assessed penalties, by reference to RCW 82.32.160 (WAC 458-20-228(9)(a)(i)); under that statute an assessment not petitioned within 30 days "shall become final."

A determination on review can be appealed to the Board of Tax Appeals within 30 days after it is mailed (RCW 82.03.190(1)), or taken to Thurston County Superior Court by a taxpayer that has "paid any tax as required" (RCW 82.32.180).

Practice notes

A late return is first sorted by penalty: the late payment of return penalty, which either ground can reach, and any assessment, unregistered or electronic filing penalty, which only a qualifying cause can reach. Where a qualifying event caused the delay, the sound request rests on that ground, documents why the event left no reasonable chance to obtain an extension or file, and answers "No" to the online 24-month question, so the Department reviews the cause first and the 24-month review remains as the fallback. Where the cause is ordinary oversight, the 24-month request spends the program's single waiver for two years, and it holds only if every return in the window was both on time and correct. The tax, the interest and the penalty are paid with the return, because a payment that omits the penalty leaves tax unpaid, and a granted waiver returns the penalty. Interest is not waived on either ground. G&G State Tax Group provides Washington penalty waiver requests and administrative appeals of penalty and refund denials alongside its state and local tax practice.