Business & 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.