Arizona law provides that penalties for non-payment or late payment of certain taxes may be waived or abated upon a showing of reasonable cause for failure to comply.
Arizona, like almost all states, has been hit hard by the COVID-19 pandemic. For instance, the tourism and hospitality industry has been especially hit hard, with spending down $7 billion during the first six months of this year. As a result, Arizona businesses across the board have found it difficult to meet their transaction privilege tax (TPT) payment liabilities.
The Arizona Department of Revenue (ADOR) recently issued a revenue ruling that may offer some relief.
Taxpayers that either file late, pay late, or fail to file after notice and demand are subject to civil penalties. These penalties can be quite onerous. The ADOR imposes a penalty for failure to timely file a return of 4.5% of the tax due per month up to a maximum of 25%. In the case of failing to timely pay TPT, the penalty is 0.5% of the tax owed per month up to a maximum of 10%. For failure to file a TPT return on notice and demand, the taxpayer must pay a penalty of 25% of the total tax.
Arizona law provides that these penalties may be waived or abated upon showing of reasonable cause for failure to comply. “Reasonable cause” means that the taxpayer exercised ordinary business care and prudence but was nevertheless unable to file the return, furnish the requested information, or provide for payment of a tax liability within the prescribed time. Aside from demonstrating reasonable cause, taxpayers must also show that their failure to timely pay or file was not due to willful neglect.
The ADOR’s revenue ruling determined that, because of the severe impact of the COVID-19 pandemic, the statewide emergency declaration, and other measures implemented by the state to protect public health constitute a reasonable basis for business owners and operators’ inability to timely file or pay transaction privilege taxes, which also includes county excise taxes and municipal privilege taxes remitted to the ADOR along with state transaction privilege tax. The ADOR has further determined that such taxpayers’ failure to timely file or pay does not stem from willful neglect.
The revenue ruling applies to late filing and payment penalties assessed for TPT periods beginning February 1, 2020, and will continue until further notice is issued by the ADOR.
If you have questions concerning the procedures and process for requesting an abatement of penalties, please contact Douglas S. John by phone 602-277-2010 or email.
