What is Washington B&O Tax? Rates, Rules & Who Must File
In Washington, the business and occupation (or B&O) tax is a key part of the state’s tax system. Washington does not have personal or corporate income tax, and instead, the state secures revenue from excise taxes—including B&O tax. This is a gross receipts tax that is based on the revenue a business brings in, not its profit.
This is where misunderstandings occur—a company that has high revenue but very thin profit margins may be surprised to find out how much they owe in B&O tax, which is why it’s so important for Washington business owners to fully understand their obligations in this area. To get help now, contact us at Seattle Legal Services today.
Key Takeaways
- B&O tax – required for businesses with physical or economic nexus in Washington State.
- Payment schedule – Businesses must pay monthly, quarterly, or annually.
- Tax rates – Variable based on business classifications and activities.
- How to file – B&O tax is included on a business’s excise tax return.
- Penalties for not filing – Up to 39% of the tax due.
What is the B&O Tax in Washington?
The business and occupation tax is based on how much income a business earns from activities in Washington. It’s a gross receipts tax – A key factor separating it from business income tax is the fact that there are no deductions for business-related expenses.
The tax is administered by the Department of Revenue via the excise tax return, which is filed monthly, quarterly, or annually, depending on the type of business you have and how much money it brings in.
Who is Required to Pay B&O Tax?
Most businesses operating in Washington are required to pay business and occupation tax, including sole proprietors, corporations, service providers, contractors, and LLCs. However, even businesses located outside the state may have to pay this tax and file an excise tax return.
Out-of-state sellers may have to pay B&O tax if they have nexus.
- A business has physical nexus if it has employees, goods or inventory, or personal property in the state.
- It has an economic nexus if it has more than $100,000 in sales in Washington. This includes e-commerce businesses.
How B&O Tax is Calculated
B&O tax is based on gross receipts. This means that the amount you pay is calculated solely based on how much you sell, not net income. Net income is how much you bring in after accounting for the cost of goods sold and other operating expenses.
Since this is not an income tax, there are no deductions for expenses. To calculate how much your business will pay in B&O tax, you must look up your B&O classification and multiply the revenue brought in by the amount listed as the tax rate.
Rates for Different Industries
Most businesses fit into one of the major B&O classifications, listed here with their tax rates as of 2025:
- Manufacturing: 0.484%
- Retailing: 0.471%
- Service and other activities: 1.5%
- Service and other activities (for businesses with $1 million or more in revenue the previous year): 1.75$
- Wholesaling: 0.484%
The Department of Revenue also has a list of specialized tax classifications, listed here with their tax rates as of 2025. If you fit into any of these, you have a separate tax rate as follows:
- Assisted living facilities: .275%
- Canned salmon labelers: .484%
- Chemical dependency center: .484%
- Child care: .484%
- Cleanup of radioactive waste for the U.S. government: .471%
- Extracting and extracting for hire: .484%
- Extracting timber and extracting for hire timber: .3424%
- FAA Part 145 repair stations: .2904%
- For-profit hospitals: 1.5%
- Gambling contests of chance (less than $50,000 per year): 1.5%
- Gambling contests of chance (more than $50,000 per year): 1.76%
- Government contracting: .484%
- Insurance agents/insurance brokers commissions: .484%
- International charter freight brokers and stevedoring: .275%
- International investment management services: .275%
- Manufacturers and processors for hire of semiconductor materials: .275%
- Manufacturing of aluminum smelter: .2904%
- Manufacturing of commercial airplanes or components: .484%
- Manufacturing of commercial airplane tooling: .484%
- Manufacturing of dairy products: .484%
- Manufacturing of fresh fruit and vegetable products: .484%
- Manufacturing of seafood products: .484%
- Manufacturing of solar energy: .275%
- Manufacturing of timber or wood products: .3424%
- Manufacturing wheat into flour: .138%
- Manufacturing of wood biomass fuel: .138%
- Non-manufacturing aerospace product development: .90%
- Parimutuel wagering: .26%
- Prescription drug warehousing: .138%
- Printing and publishing: .484%
- Processing for hire: .484%
- Processing for hire timber products: .3424%
- Public or nonprofit hospitals: .15%
- Public road construction: .484%
- Qualified co-ops: 1.5%
- Radio and TV broadcasting: .484%
- Radioactive waste disposal: 3.30%
- Real estate commissions: 1.5%
- Retailing of commercial airplanes or components: .484%
- Retailing of commercial airplane tooling: .471%
- Retailing of interstate transportation equipment: .484%
- Royalties: 1.5%
- Sale of standing timber: .3424%
- Scientific research and development: 1.5%
- Slaughtering, breaking, and processing perishable meat: .138%
- Soybean and canola processing: .138%
- Specified financial institutions: 1.2%
- Splitting and processing dried peas: .138%
- Travel agents and tour operators ($250,000 or less): .275%
- Travel agents and tour operators (more than $250,000): .9%
- Warehousing: .484%
- Wholesaling of commercial airplanes or components: .484%
- Wholesaling of manufactured aluminum: .2904%
- Wholesaling of solar energy: .275%
- Wholesaling of timber or wood products: .3424%
If businesses bring in revenue from various classifications, that revenue must be split up and taxed accordingly. Consider, for example, a food processing facility that both processes perishable meat and manufactures dairy products. The revenue from those two sources would be taxed differently.
Thresholds, Credits & Small Business Relief
There are several different credits that may reduce the total amount of B&O tax you owe. The main credits include:
- Rural county: Provides a tax credit for companies with new employees in manufacturing or research and development in rural counties.
- High technology: Offers a tax credit to businesses that do research and development in specific high-technology categories
- Small business: Offers relief to businesses below a certain B&O tax liability
- Multiple activities: Provides credit for businesses that do more than one taxable activity for the same product to avoid charging B&O tax on the same amount
Depending on the credit you receive, you may or may not have to do additional work on your excise tax return. For example, the multiple activities tax credit requires completion of the Multiple Activities Tax Credit, Schedule C, every time you claim the credit. However, the small business tax credit is automatically calculated and credited when you file electronically.
If you fall below a certain threshold, you may qualify for active non-reporting status. This means that you are doing business in Washington but do not have to file tax returns. This is only available to businesses that do not require the collection of retail sales tax and have gross proceeds of sales, gross income, or value of products and services amounting to less than $125,000 per year. This amount changed in 2023 and is subject to change in the future.
B&O and Use Tax: How They Are Related
The state of Washington collects B&O tax for a business’s revenue, and it collects use tax for purchases for which sales tax has not been paid. The state charges either sales or use tax for products. Situations requiring payment of use tax may include purchases made in a state with a lower sales tax rate than Washington, purchases made from a party that is not authorized to collect sales tax, and out-of-state online purchases from companies that do not collect Washington’s sales tax.
Due Date for B&O Tax Returns
You file and pay B&O tax with the rest of the state’s excise tax, and the due date varies.
Businesses in Washington file excise tax returns monthly, quarterly, or annually, depending on their estimated gross annual income and industry. These business activity categorizations correlate with B&O tax classifications. Due dates vary between the filing schedules, so it’s crucial for businesses to keep up with upcoming returns and payments due via My DOR.
Penalties for Failing to Pay or File B&O Tax
Failing to file or pay on time results in penalties starting at 9% of the total amount due. The penalties for not paying or filing B&O tax can get up to 39% of the balance due. For instance, if you owe $20,000, the penalty can get up to $7800.
Common Mistakes and Pitfalls
The B&O tax is fairly complex, particularly with the various specialized classifications that have different tax rates. It’s easy to make mistakes that result in a Washington tax audit or adjustment that increases your tax bill or leads to penalties.
Avoid these common mistakes with the help of a Washington tax attorney:
- Failing to register with the Department of Revenue: Businesses that earn income in Washington must register their business with the Department of Revenue so they can file excise tax returns and pay taxes. Failing to do so can lead to multiple years of assessed taxes and penalties.
- Conflating profit with revenue and assuming no tax is due: The B&O tax is based solely on revenue, regardless of how profitable or unprofitable a business is. A business owner whose company is not profitable may wrongfully assume that they do not owe B&O tax if their business doesn’t break even in a given year. For example, imagine a business brings in a certain amount of income. However, due to an increase in labor and material expenses, they actually lose money and earn zero profit. Regardless of this, they would still owe B&O tax on their total revenue.
- Misclassifying business activities: Misclassifying business activities can lead to businesses paying the wrong tax rate. If they underpay, they may be hit with a large tax bill with adjusted tax rates, penalties, and interest.
- Failing to apportion income from multiple states: A business that earns money in multiple states must apportion revenue correctly to avoid underpaying in one state and overpaying in the other.
Can You Reduce or Settle B&O Tax Bills?
Whether you didn’t know you needed to file or you’ve simply fallen behind on your B&O tax payments, you may have options available to help you get caught up. Many businesses qualify for self-service payment plans as long as they owe less than $100,000 and can pay their total balance in 12 months or less.
Penalty relief is also available to those with a valid reason for missing payments or who have at least 24 months of tax compliance immediately prior to their current penalties.
Some businesses also qualify for the state’s voluntary disclosure program. This is open to businesses that have not registered for a business license in Washington and have not filed excise tax returns. By voluntarily disclosing their failure to comply, they benefit from a shorter lookback period and decreased penalties.
The state offers Rule 100 settlements, but in-operation businesses generally don’t qualify to settle state taxes for less than owed.
How a Washington Tax Attorney Can Help You
A tax attorney can assist with a variety of B&O tax issues. If you’ve never registered with the Department of Revenue and you know you owe back taxes, your lawyer can help you navigate the voluntary disclosure program and other forms of relief. You can also get personalized guidance regarding your correct tax classifications.
Businesses facing heavy penalties or audits can protect their best interests with legal representation. Regardless of your current tax situation, working with Seattle Legal Services can give you the peace of mind that comes with tax compliance.
Confused about how B&O tax applies to your business? Set up a time to discuss your case with our Washington tax attorneys by calling us at the number above or contacting us online.