Author: Jeff Dorris, CPA
Foreign companies doing business in the U.S. have struggled to comply with a patchwork of state tax compliance obligations. Now, for the first time, one state is offering a program to help these businesses move into a compliant position while avoiding heavy penalties for prior noncompliance.
Washington state’s International Remote Seller Voluntary Disclosure Program (IRSVDP) is the first state-level tax amnesty program directed at foreign organizations. The just-announced amnesty policy waives the penalties associated with noncompliance for sellers who apply to the program, are accepted and voluntarily pay their overdue tax debts.
Tax Amnesty That Offers Significant Savings
Like domestic businesses, overseas sellers must navigate a continually evolving regulatory maze, making compliance both challenging and resource-intensive. In the post-Wayfair world, businesses may incur tax liabilities in any state where they have nexus — but nexus rules vary state-to-state. That reality has led large numbers of retailers to risk costly consequences by ignoring state-level business tax obligations.
The IRSVDP is an enticing opportunity for organizations headquartered outside of the U.S. with accumulated business tax liabilities in Washington state. By taking advantage of the voluntary disclosure program, participants can avoid:
- A 5% penalty for not registering their business with the state’s Department of Revenue
- A 5% penalty for underpaying past tax liabilities
- A 29% penalty that accompanies tax due on returns not filed timely
Those who participate will benefit from generous amnesty rules. The guidelines call for a lookback period of only one year for state sales tax that sellers failed to collect, report and remit. With those liabilities brought current, sellers don’t have to worry that they’ll be penalized for unpaid sales tax liabilities predating the lookback period.
There’s also a four-year lookback period for the state’s Business and Occupation taxes. Washington’s DOR assesses B&O tax liability as an excise tax on gross receipts of companies doing business within the state, with rates varying based on business classification. For retailers, the rate is 0.471% in 2025.
A Model for Other States
It’s an appealing chance to reduce regulatory risk at a relatively low financial cost, especially for retailers who do significant business in Washington and plan to continue. And while IRSVDP is the first of its kind, it may not be the last. Other states are watching closely to see how effective the program is in enticing noncompliant sellers to pay up.
Washington state leaders look forward to a one-time cash infusion as companies remit delinquent tax liabilities under the program. Running from February 1 through the end of May 2026, IRSVDP will generate revenue that can build an extra cushion into 2027 budgets.
The state could also benefit over the longer term as these sellers join the ranks of fully compliant, registered retailers that collect and timely pay sales tax in the future, along with annual B&O taxes.
That outcome is possible, but not guaranteed. One question is how many noncompliant sellers will choose to take advantage of the program. Since these businesses likely face similar compliance issues in multiple other U.S. states, addressing noncompliance in Washington could appear futile when the problem is multi-jurisdictional.
Still, as state tax authorities look for ways to boost revenue and improve tax compliance in an increasingly global retail economy, Washington’s amnesty program is an interesting experiment that could serve as a model for other states to adopt or revise.
Smart Solutions for Non-U.S. Companies
Establishing a presence in the U.S. offers vast opportunities for overseas companies, but it comes with risks. The experienced advisors at Mauldin & Jenkins bring deep insights into cross-border business, with specialized expertise to help foreign-based organizations succeed in their U.S. endeavors. Reach out today to learn how we can help you increase profitability, reduce risk, and expand your footprint in the world’s largest economy.
