The state of Washington does not assess an income tax. Therefore, whether you are a regular corporation, S corporation, limited liability company (LLC), or an individual business owner, you will not have to pay income tax. However, the state of Washington does assess a Business and Occupation Tax. This tax is imposed for the act or privilege of engaging in business activities in the state.
The Business and Occupation Tax (B and O tax) is basically a gross receipts tax, measured by a specific tax rate against the value of products, gross proceeds of sales, or gross income of the business. The major B and O business classifications and their related tax rates are: Retailing, with a rate of 0.471 percent; wholesaling, with a rate of 0.484 percent; manufacturing, with a rate of 0.484 percent; and service and other activities, with a rate of 1.5 percent. A variety of rates apply to specialized B and O tax classifications, with rates as low as 0.13% for parimutuel wagering and as high as 3.3% for radioactive waste disposal.
There are many specific activities that are exempt from the tax — for example, certain farm and horticultural products are exempt from the tax. You'll want to check and see if you are exempt from the tax. If you are not exempt, you'll need to check the tax rate for your business and area.
Every person engaging in any taxable business is required to register with the Department of Revenue. No fee is required. A separate permit is required for each place of business.
If the amount of business and occupation tax otherwise due exceeds the maximum credit, a reduced credit is allowed equal to twice the maximum credit, minus the tax otherwise due, but not less than zero.
Businesses whose B and O tax liability is below a certain level are entitled to a small business tax credit. The credit varies depending on the amount of B and O tax due (the total of all classifications) after all other B and O tax credits have been taken. The credit is available for businesses whose total B and O tax liability is below $71 for monthly taxpayers, $211 for quarterly taxpayers and $841 for annual taxpayers. The maximum amount of the credit equals $35 multiplied by the number of months in the reporting period. If the amount of B and O tax due is equal to or less than the maximum credit, a credit equal to the amount of tax otherwise due is allowed. The credit phases out as B and O tax liability prior to the credit reaches the levels noted above: $71 for monthly taxpayers, $211 for quarterly taxpayers and $841 for annual taxpayers.