Washington state is home to over 650,000 small businesses, according to 2022 data from the Small Business Administration’s Office of Advocacy. Small businesses make up 99.5% of all Washington businesses and employ 1.4 million people across the state.
Whether you’re an established business owner or an aspiring entrepreneur living in Washington, it’s important to understand how small business taxes in Washington state work. Keep reading for more information on which business taxes to expect, which business entities have to pay them, and when.
What kind of business taxes do you have to pay in Washington?
Washington doesn’t impose corporate or personal income taxes. However, as a business owner in Washington State, you may have to pay a business and occupation (B&O) tax, a retail sales tax, a personal property tax, or a public utility tax.
Need to know your federal tax bracket? Check out our tax bracket guide here.
Washington business and occupation (B&O) tax
Washington imposes the B&O tax on almost all small businesses for the privilege of doing business within the state. This applies to corporations, Limited Liability Companies (LLCs), partnerships, and sole proprietorships.
Washington calculates B&O tax based on your gross income from business activities in the state. The tax rate varies by business classification. However, the majority of small businesses fall into the “service and other activities” category, which has a tax rate of 1.5% of gross receipts.
You can’t take deductions from the B&O tax for labor, materials, taxes, or other costs of doing business. However, you can take certain B&O tax credits, including the following:
- Rural County B&O Credit for New Employees
- High Technology B&O Tax Credit
- Small Business B&O Tax Credit
- Multiple Activities Tax Credit (MATC)
- Credit for Hiring Unemployed Veterans
Washington retail sales tax
Washington imposes retail sales tax on any businesses that sell products (including digital products) within the state. Businesses making retail sales collect sales tax from their customers, then pay taxes periodically to the state. There are certain exceptions to retail sales tax, including food and prescription drugs.
Some service-based businesses are also subject to the retail sales tax. This includes businesses with installation, repair, cleaning, altering, improving, construction, and decorating services, as well as retail recreational services and lawn maintenance.
The current sales tax rate in Washington state is 6.5%. However, you also must add local sales tax rates on top of that; those vary by location.
Washington use tax
Washington imposes a use tax on items that aren’t subject to sales tax. Generally, consumers end up paying use tax. Let’s say, for example, that you purchase a printer at a garage sale where no sales tax is charged or collected. In that case, you’d have to pay use tax on the printer.
Here are some other instances where use tax applies:
- You’re a Washington resident and you purchase goods in another state that doesn’t have a sales tax or in a state with a lower sales tax than Washington’s.
- You purchase goods from someone who’s not authorized to collect sales tax.
- You purchase goods out of state online, by subscription, or through a mail-order company—and the company doesn’t collect sales tax.
- You acquire personal property (like furniture) when you purchase real property (like an office building).
The use tax rate is the same as your local sales tax rate. You can consult this resource for a list of local Washington sales and use tax rates by county.
Washington personal property taxes
Washington also levies a tax for any personal property you use for business purposes. That includes machinery, equipment, furniture, and supplies. For example, let’s say you buy a sleek sofa for your home; after a year, you decide to move the sofa to the lobby of your office space. In that case, you’d have to pay a tax on the sofa for the privilege of using it for your business.
Your local county assessor values the property at 100% of its current market value, which is the amount that a buyer would pay a seller. If you use personal property for your business, you have to fill out a personal property tax listing form and file it with your county assessor’s office by April 30 of each year. The assessor will then use the listing to value your personal property for taxes due the next year.
You pay your personal property taxes to the county treasurer’s office where your property is located. To find out your tax rate and download a personal property tax listing form, contact your local county assessor or treasurer.
Washington state public utility tax
The public utility tax is a tax on certain public service businesses in Washington. The public utility tax replaces the B&O tax for businesses in transportation, communications, and the supply of energy, natural gas, and water. The public utility tax rates range from 0.6% to over 5%, depending on the business activity.
How to pay business taxes in Washington state
You report and pay B&O tax, retail sales tax, use tax, and any applicable public utility tax when you file your Washington state excise tax return. New businesses need to register with the Washington State Department of Revenue to receive information about how and when to file their taxes.
The Department of Revenue assigns every business a filing frequency—monthly, quarterly, or annually—based on what the estimated annual business income.
- Monthly returns are due on the 25th day of the following month. For example, a July tax return is due by August 25.
- Quarterly returns are due by the end of the month following the close of a quarter. For example, Q1 returns are due April 30.
- Annual returns are due by April 15.
Check here to see the filing due dates for each year. As of 2020, you can’t pay your taxes by mail. You have to file your returns and pay online by signing up for or logging into Washington State’s tax filing and payment system, My DOR.
Need more tax guidance? Here’s a tax guide for small business owners.
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