Taxes on Business Income in Washington
The tax on businesses is referred to as the Business and Occupation Tax in Washington, and it imposed on gross receipts, not income. Personal income tax is not assessed in Washington.
The state of Washington does not assess an income tax. Therefore, whether you are a regular corporation, S corporation, limited liability company (LLC), or an individual business owner, you will not have to pay income tax. However, the state of Washington does assess a Business and Occupation Tax based upon your gross receipts in the state of Washington. This tax is imposed for the act or privilege of engaging in business activities in the state.
The Business and Occupation Tax (B&O tax) is basically a gross receipts tax, measured by a specific tax rate against the value of products, gross proceeds of sales, or gross income of the business. Unlike a tradition income tax, there are no deductions allowed from the gross receipts or income of the business.
The rate of tax depends upon the type of business that you are conducting. The major B&O business classifications and their related tax rates are:
Major B&O Classifications
|Retailing ||0.00471 |
|Wholesaling ||0.00484 |
|Manufacturing ||0.00484 |
|Service & Other Activities ||0.018 |
A variety of rates apply to specialized B&O tax classifications, with rates as low as 0.13% for parimutuel wagering and as high as 3.3% for radioactive waste disposal. The complete schedule can be found here.
There are many specific activities that are exempt from the tax — for example, certain farm and horticultural products are exempt from the tax. You'll want to check and see if you are exempt from the tax. If you are not exempt, you'll need to check the tax rate for your business and area.
Every person engaging in any taxable business is required to register with the Department of Revenue. No fee is required. A separate permit is required for each place of business.
If the amount of business and occupation tax otherwise due exceeds the maximum credit, a reduced credit is allowed equal to twice the maximum credit, minus the tax otherwise due, but not less than zero.
Businesses whose B&O tax liability is below a certain level are entitled to a small business tax credit. The credit varies depending on the amount of B&O tax due (the total of all classifications) after all other B&O tax credits have been taken. The Small Business Tax Credit is available for businesses whose total B&O tax liability is below:
- $71 for Monthly taxpayers
- $211 for Quarterly taxpayers
- $841 for Annual taxpayers