The Washington Business and Occupation (B&O) tax is an important subject for anyone doing business in the state. Even if you’re not based in Washington, you need to make sure you understand this tax in order to stay compliant and avoid penalties. This guide will explain what a B&O tax is, how to calculate it, and how to file B&O tax in Washington.
What is B&O Tax?
B&O tax, or Business and Occupation tax, is a gross receipts tax in Washington state. This means it is based on a business’s gross income, without deductions for labor, materials, or other expenses. It’s paid in addition to sales tax and is not collected from customers – it’s essentially a tax on the privilege of doing business in Washington.
Unlike many other states, Washington does not impose a corporate income tax, but it relies on the gross receipts tax to generate revenue. This tax applies to almost all businesses with a physical presence within the state, regardless of their size or profitability, in addition to out-of-state businesses that reach economic nexus.
Who Needs to Pay B&O Tax in Washington?
Any business conducting activities within Washington can be subject to the business and occupation tax the state imposes. This includes corporations, partnerships, sole proprietors, and LLCs.
The physical and economic nexus rules we associate with sales tax also apply to B&O tax. That means you have to pay the tax if:
- The business or any of its employees are based in Washington State
- You have a store, warehouse, office or even a postal address there
- Your sales reach the economic nexus threshold ($100,000 at the time of writing)
Businesses need to determine their tax obligations early to ensure compliance. Failing to pay the appropriate taxes can result in fines, penalties, and interest charges.
How Much is the WA B&O Tax?
The rate for B&O tax in Washington state varies depending on the type of business activity. There are multiple classifications, each with its own tax rate. Some common classifications include:
- Retailing: 0.471%
- Wholesaling: 0.484%
- Manufacturing: 0.484%
- Service and Other Activities: 1.5%
*Rates subject to change.
These rates are applied to the gross income of the business. For example, if a retail business earns $100,000 in gross receipts, the B&O tax owed would be $471.
You’ll need to identify the correct classification for your business and apply the appropriate tax rate. Some businesses may engage in multiple activities and need to report under multiple classifications. If in doubt, speak to a tax manager.
How to Calculate B&O Tax in Washington State
Calculating the B&O tax you owe is a simple process:
- Determine Gross Income: Calculate the total gross receipts from your business activities without deducting any expenses.
- Identify Business Classification: Determine which tax classification(s) your business activities fall under.
- Apply the Tax Rate: Multiply your gross income by the appropriate tax rate for each classification.
- Sum the Taxes Owed: Add up the taxes owed under each classification to get the total B&O tax due.
Example Calculation:
Gross Income: $200,000
Activities:
Retailing: $150,000
Wholesaling: $50,000
Calculation:
Retailing Tax: $150,000 x 0.471% = $706.50
Wholesaling Tax: $50,000 x 0.484% = $242
Total B&O Tax Owed: $706.50 + $242 = $948.50
Understanding how to calculate B&O tax can help you prepare and budget for your business’s tax obligations. We recommend taking a look even if you haven’t yet surpassed the economic nexus threshold.
How to File B&O Tax in Washington
You’ll need to file your B&O tax along with your sales tax and any additional taxes on Washington’s Annual Combined Excise Tax Return. Here’s how businesses can file B&O tax in Washington:
- Register with the Department of Revenue: If you haven’t already, register your business with the Washington State Department of Revenue (DOR).
- Gather Necessary Information: Collect all financial records showing your gross income for the reporting period.
- Access the Filing Portal: Use the DOR’s online system, My DOR, to file your taxes electronically. Paper forms are also available but electronic filing is encouraged.
- Complete the Return: Enter your gross income, classify your business activities, and calculate the tax owed.
- Submit Payment: Pay the calculated tax amount through the online portal or via mail if filing a paper return.
- Keep Records: Maintain copies of your filed returns and payment confirmations for future reference and compliance checks.
Many businesses now use automated filing systems to streamline the tax process, especially those that operate in multiple states. At Yonda Tax, we ensure B&O tax is correctly calculated, filed and paid along with your sales taxes.
Penalties for Late Filing
If you don’t file or pay your B&O tax by the due date, you will receive penalties or interest charges. These penalties increase the longer the payment is overdue. The DOR may also issue additional fines for repeated or severe non-compliance.
Exemptions and Deductions
The B&O tax is based on gross receipts, so most businesses cannot claim deductions or exemptions. That said, income from specific activities like farming or nonprofit services may be exempt. Review the DOR guidelines or consult with a tax professional to check if you’re eligible for any deductions before submitting your excise tax return.
Conclusion
Navigating the B&O tax Washington imposes is an essential part of running a business in the state.
For more detailed information and assistance, businesses can consult the Washington State Department of Revenue or seek advice from qualified tax professionals experienced in gross receipts tax regulations.
Remember, any business obligated to pay B&O Tax in Washington also needs to collect and remit sales tax. Take a look at our guide to Sales Tax in Washington and find out how we can streamline your entire tax compliance process.
Benefits of Using Yonda Tax
- Automated Calculations: Yonda Tax automatically calculates the tax you owe to each state based on the latest tax rates.
- Seamless Integration: Easily integrate Yonda Tax with your eCommerce platform or accounting system.
- Accurate Reporting: Generate detailed tax reports to simplify your filing process.
- Timely Remittance: Yonda Tax helps ensure you pay sales and B&O taxes on time, avoiding potential penalties and interest.
Ready to streamline your sales tax process? Try Yonda Tax today!