On June 24, 2020, the Arizona Department of Revenue (Department) announced that in recognition of the difficulties many Arizona businesses are experiencing during COVID-19, including with respect to their ability to meet transaction privilege tax (TPT) payment timelines, Department officials are working with each business on a case-by-case basis to determine the best path forward for meeting current tax liabilities. The Department stated that it prioritizes working with businesses, rather than taking enforcement actions when reasonable, as this approach is more beneficial to businesses and efficiently serves state and municipal interests.
As part of its discussions, the Department is assisting businesses in applying for the Department’s late payment/late filing penalty abatement program. To request penalty abatement, an authorized official from the business must complete Arizona Form 290 and follow the instructions. More information on Arizona Form 290, Request for Penalty Abatement, is available on the Department’s website here.
The Department has proposed a draft Arizona Transaction Tax Procedure on the process for requesting COVID-19 related penalty abatement for TPT. Before submitting an abatement request, the draft Procedure instructs that the business ensures it has filed all outstanding tax returns and paid all TPT due for the COVID-19 period, as the Department must confirm that taxes have been paid and filings received for the COVID-19 period before it can abate penalties for those tax periods. The draft Procedure also notes that Form 290 may be used for abating penalties only; the form cannot be used to request a reduction in tax liability or interest. On the Form 290, the business should list “COVID-19” as the reason for requesting penalty abatement. The tax periods covered are limited to periods beginning March 1, 2020 and ending upon a date specified by the Department in formal guidance or similar publication (COVID-19 period), regardless of when the request for abatement is submitted to the Department. The Department has yet to specify the end of the COVID-19 period.
The draft is available here and the public comment period ends on July 13, 2020.
The Department has also proposed a draft Arizona Transaction Privilege Tax Ruling on the issue of whether taxpayers have “reasonable cause” for not timely filing or paying applicable TPT to the Department due to the COVID-19 emergency and subsequent measures taken to protect public health.
Arizona law prescribes the application of various civil penalties for noncompliance with statutory requirements, including penalties for late filing, late payments and failure to file or pay after notice and demand. However, the law also provides that most of these penalties may be waived or abated upon the showing of “reasonable cause” for failure to comply with the statutory requirements. For purposes of abating these penalties, “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 Department has determined that 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 department along with state transaction privilege tax. The Department has further determined that a taxpayers’ failure to timely file or pay does not stem from willful neglect.
Due to the nature of the COVID-19 emergency and the state’s evolving measures to protect public health, the ruling would apply to late filing and payment penalties assessed for transaction privilege tax periods beginning March 1, 2020 and will continue until further notice issued by the Department.
The draft is available here and the public comment period also ends on July 13, 2020.
The Department’s recent guidance is likely welcome news to businesses subject to the Arizona TPT. It appears as though the Department has acknowledged that, at least with respect to the TPT, due to COVID-19, all businesses have reasonable cause; therefore, they should not be subject to the penalties otherwise imposed for failure to timely pay such TPT or file the applicable TPT tax returns. Businesses that have been or are late in meeting their TPT payment and filing deadlines should speak with their tax advisors to see whether penalties may be abated in light of the Department’s recent guidance.
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