Gig Harbor lawyer, Gig Harbor attorney, Tacoma lawyer, Tacoma attorney, Seattle lawyer, Seattle attorney

The Law Offices of Ralph W. Flick, P.S.
HOME     TAX SERVICES     BUSINESS SERVICES     ESTATE PLANNING     IMMIGRATION SERVICES     OTHER SERVICES     CONTACT US     ATTORNEY BIO     FAQ'S     MAKE A PAYMENT     RESOURCES      
Settling IRS Debts     Offers in Compromise     IRS Liens & Levies     Gift & Estate Tax     Tax Litigation     Tax Returns     Washington Taxes     B&O Tax     Washington Tax Appeals      

Seattle: (206) 414-3094             Gig Harbor: (253) 719-7174

rwflick@rwfesq.com

 
Business and Occupation (B&O) Tax 
 

Washington is one of few states that impose a Business and Occupation (B&O) tax on gross revenue (rather than net income). Strictly speaking, this is not an income tax, but rather a tax imposed on all Washington businesses for the privilege of doing business in Washington. In practical terms, this means that no deduction may be used to reduce the tax base (your gross revenue) on which a B&O tax is assessed. 

 

Washington’s business and occupation (B&O) tax is the second largest tax source for the state. In Fiscal Year, 2006, B&O tax collections totaled just over $2.4 billion, representing over 16 percent of the taxes deposited into the state general fund. Many Washington cities also tax businesses on their gross income.

 

Almost all businesses located or doing business in Washington are subject to the state B&O tax, including Corporations, Limited liability companies (LLCs), Partnerships, Sole proprietors, and Nonprofit organizations. Unlike many other states, Washington does not have an income tax. An income tax is based on business profits AFTER expenses. Washington’s B&O tax is calculated on GROSS income. There are no deductions from the B&O tax for labor, materials, taxes, or other costs of doing business. However, your business may qualify for certain very limited exemptions, deductions, or credits permitted by law.

 

The state B&O tax is calculated and paid with the filing of an excise tax return. Businesses file tax returns monthly, quarterly, or annually. After you register your business, the Washington State Department of Revenue will determine your reporting frequency based on the estimated annual tax liability and the type of business.

 

You must register your business with the Washington State Department of Revenue if your business:

  • Grosses $12,000 or more per calendar year;
  • Collects or pays any other taxes, including retail sales tax;
  • Is required to obtain a specialized license, including a renewable license; or
  • Buys or processes cedar or specialty wood products.

 

 
B&O Tax Rates
 

B&O tax rates and classifications vary according to the type of business activity. Some businesses may report under one or more tax classifications.

 MOST COMMON B&O CLASSIFICATIONS                               Tax Rate

Retailing                                                                 

0.471%

Wholesaling

0.484%

Manufacturing

0.484%

Service & Other Activities

1.5 - 1.8*%

 

RETAILING: Sales of goods and certain services to consumers are retail sales. There are numerous services defined as retail sales. Businesses making retail sales are subject to the B&O tax under the Retailing classification, even when the sales are exempt from retail sales tax.

 

WHOLESALING: Wholesalers sell goods and certain services to persons who will resell them to others in the regular course of business. Retail sales tax is not collected on wholesale transactions.

 

MANUFACTURING: The Manufacturing B&O tax classification is used by businesses that manufacture items in Washington, regardless of where the product is sold. Thus, products manufactured   in Washington but sold and delivered out-of-state are still subject to the Manufacturing B&O tax. 

 

SERVICE AND OTHER ACTIVITIES: This classification is for businesses that provide personal and professional services or for activities not otherwise classified. Services that fall under this category include, but are not limited to consulting or management services, medical services, legal services, beautician services, and computer programming.

 

* Services B&O Tax Increase, Higher Cigarette Tax Expected to Start May 1; Other Tax Changes to Follow

 

OLYMPIA – April 20, 2010 – Several tax changes will take effect as early as May 1, assuming Governor Chris Gregoire signs into law a tax package sent to her by the Legislature.


2ESSB 6143 temporarily increases the business and occupation tax rate on services beginning May 1.  Another bill, ESHB 2493, increases cigarette and most other tobacco taxes May 1.

 

The legislation also extends the sales tax to candy and bottled water beginning June 1, increases the beer tax starting June 1, and imposes a carbonated beverage tax effective July 1.  All the tax changes expire on July 1, 2013, except the ones on candy and tobacco products.

 

While the tax changes are contingent on the governor’s action, the Department of Revenue is notifying businesses ahead of time so they can prepare for them.  Detailed information on each tax measure is being posted here.

 

The service tax increase to 1.8 percent of gross income from 1.5 percent affects all service businesses except hospitals and scientific research and development activities.  The services and other business activities” classification includes businesses such as attorneys, architects, engineers, physicians and private investigators. 

 

The measure includes a permanent doubling to $70 a month of the small business B&O tax credit that will allow services to gross up to about $80,000 annually without incurring any additional B&O tax liability, and in some cases paying lower taxes.  About 74,000 service businesses out of a total of 137,000 companies will benefit from the increase in the credit.

 

2ESSB 6143 also temporarily suspends a sales tax exemption affecting livestock nutrient management, repeals a property management salary exemption, limits the bad debt deduction on retail sales, requires corporate boards of directors to pay tax on their fees, directs the Department to deny abusive tax avoidance schemes, addresses several court decisions affecting taxation, and sets minimum nexus standards affecting out-of -state companies doing business in Washington. More information on the legislation is available at http://leg.wa.gov.

 

Retrieved from the World Wide Web on April 25, 2010, from: http://dor.wa.gov/Content/AboutUs/newsroom/html/042010.aspx.