How Much Is B&O Tax in Washington State?

The Washington State Business and Occupation (B&O) tax applies to most businesses operating within its borders. Unlike income taxes based on net profit, the B&O tax is a gross receipts tax, levied on a business’s total income without deductions for labor, materials, or other operational expenses. This tax helps fund various state services and initiatives. Businesses, including corporations, partnerships, sole proprietorships, and LLCs, are generally subject to this tax if they conduct activities within Washington.

Understanding Business Activities and Classifications

The B&O tax amount depends on a business’s specific activities, as different activities have different tax rates. The state classifies business activities to determine the appropriate rate. “Taxable gross income” refers to the total revenue a business receives before deductions, which is then allocated to the relevant B&O tax classifications.

Businesses often engage in multiple activities, each potentially falling under a different classification and subject to a distinct tax rate. For example, a business might have revenue from both selling goods and providing services. Common B&O tax classifications include:

Retailing: Sales of goods and certain services directly to consumers.
Wholesaling: Sales of goods and services to those who will resell them.
Manufacturing: Producing products within Washington.
Service and Other Activities: Income from professional or personal services not classified elsewhere.
Extracting: Removing natural resources.

Current Tax Rates for Common Business Activities

B&O tax rates vary by business activity classification and are applied as a percentage of the business’s gross income within each classification. The current general state B&O tax rates for common classifications are:

Retailing: 0.471%
Wholesaling: 0.484%
Manufacturing: 0.484%
Service and Other Activities: 1.5%

These rates are subject to change by the Washington State Legislature. Businesses should regularly consult the official Washington Department of Revenue (DOR) website for the most current information. Some service and other activities may also be subject to an additional workforce education surcharge, which can result in a higher rate for businesses with gross income exceeding a certain threshold.

Common Deductions and Exemptions

While the B&O tax applies to gross receipts, deductions and exemptions can reduce the taxable income. These provisions are not automatically applied; businesses must meet specific criteria and maintain proper documentation.

Common deductions include income from work performed outside the state, allowing businesses to subtract out-of-state gross receipts from their Washington taxable income. Deductions may also be available for bad debts written off for federal tax purposes, provided tax was already paid on them. Specific industry exemptions exist, such as for certain nonprofit hospitals or income from custom farming services. Additionally, a small business threshold exemption or credit can reduce or eliminate the B&O tax for businesses with gross receipts below certain amounts, though this credit reduces as revenue increases.

Calculating Your B&O Tax Liability

Classifying Gross Income

Determining the B&O tax owed involves classifying all gross income by the appropriate B&O tax activity. This means accurately assigning revenue from different operations to classifications like Retailing, Wholesaling, Manufacturing, or Service and Other Activities.

Applying Deductions and Exemptions

After classification, apply any relevant deductions and exemptions to arrive at the taxable gross income for each category. For instance, out-of-state sales income can be deducted from gross receipts for the relevant classification.

Calculating Taxable Income and Total Liability

Next, multiply the taxable gross income for each classification by its corresponding B&O tax rate. Finally, sum the results from all classifications to determine the total B&O tax liability.

Example Calculation

For example, if a business has $100,000 in retailing income and $50,000 in service income with no deductions, the retailing tax would be $100,000 multiplied by 0.471% ($471), and the service tax would be $50,000 multiplied by 1.5% ($750), resulting in a total B&O tax of $1,221.

Filing and Paying Your B&O Tax

After calculating the B&O tax liability, businesses must follow specific procedures for filing and payment with the Washington Department of Revenue (DOR). The primary method for filing and paying B&O tax is electronically through the My DOR online portal. Businesses are generally required to file and pay electronically.

Filing frequency varies depending on a business’s estimated tax liability, with options for monthly, quarterly, or annual filing. Monthly returns are typically due on the 25th day of the following month, quarterly returns by the end of the month following the close of the quarter, and annual returns by April 15th. Meeting these deadlines helps avoid potential penalties. New businesses register with the DOR and receive information about their specific filing requirements.