WA Bo Tax

Washington State Business & Occupation (B&O) Tax

Tier 2 content skill for Washington State Business & Occupation tax under RCW Title 82.04. Washington imposes a gross-receipts tax (NOT an income tax) on the privilege of doing business in the state. There is no personal income tax and no corporate net-income tax in Washington. The B&O tax is multi-rate by activity classification — Retailing 0.471%, Wholesaling 0.484%, Manufacturing 0.484%, Service & Other Activities 1.5% baseline rising to 1.75% on receipts above $1,000,000 (and 2.1% for select financial-services taxpayers). The Multiple Activities Tax Credit (MATC) prevents the same dollar from being taxed twice across in-state classifications. A small-business B&O credit zeroes liability for very small filers. Bright-line nexus is established at $100,000 of Washington-sourced receipts (Wayfair-compliant). The Combined Excise Tax Return covers B&O, retail sales tax, and use tax in one filing, due the 25th of the month after the period. Washington also imposes a separate 7% long-term capital gains tax on individual gains above the indexed threshold (RCW 82.87) — covered briefly with a refer-out. Tax year 2025.

1. Scope

1.1 In scope

This skill covers, for tax year 2025 unless otherwise stated:

• Washington State B&O tax under RCW 82.04 for sole proprietors, single-member LLCs disregarded for federal tax, partnerships, S corporations, and C corporations doing business in Washington.
• Rate classification across the four primary activities: Retailing, Wholesaling, Manufacturing, and Service & Other Activities.
• The 2025 rate landscape including the Service & Other Activities $1,000,000 threshold and the surcharge tiers introduced by recent Washington legislative action (verify against the final enacted bill text — see §13 Provenance for the citation discipline).
• The Workforce Education Investment surcharge on advanced-computing businesses with affiliated-group worldwide gross revenue greater than $25,000,000,000 (Amazon, Microsoft).
• The Multiple Activities Tax Credit (MATC) under RCW 82.04.440 — used to prevent the same dollar of in-state receipts from being taxed twice when a single Washington business engages in two or more of Manufacturing, Wholesaling, Retailing, or Extracting on the same product or activity.
• The Small Business B&O Tax Credit under RCW 82.04.4451 — a filing-frequency-based sliding-scale credit that zeroes B&O liability for very small filers.
• Apportionment of "apportionable income" using the single market-based receipts factor under RCW 82.04.460 and WAC 458-20-19402.
• Bright-line economic nexus under RCW 82.04.067 — $100,000 of Washington-sourced cumulative gross receipts in the current or immediately preceding calendar year, or organization in Washington, or physical presence.
• Filing frequencies (monthly, quarterly, or annual) assigned by the Washington Department of Revenue (DOR) based on estimated tax liability, the 25th-of-the-following-month due date, and the Combined Excise Tax Return as the universal vehicle.

1.2 Out of scope — refer out

The following are mentioned where they intersect with B&O but are NOT exhaustively covered here. Refer to a Washington-credentialed CPA or the appropriate sibling skill:

• Retail sales tax (RCW 82.08) and use tax (RCW 82.12). Reported on the same Combined Excise Tax Return but governed by separate rules.
• Local (municipal) B&O taxes — Seattle, Tacoma, Bellevue, Bellingham, Everett, and roughly 40 other Washington cities impose their own B&O. These are NOT administered by the Department of Revenue. See §10 below for an orientation and refer-out.
• Public Utility Tax (RCW 82.16). A separate gross-receipts tax on utility activities (electrical power, gas distribution, water distribution, motor and urban transportation, telegraph, etc.) at different rates. Not B&O.
• Insurance Premium Tax (RCW 48.14). Insurers do not pay B&O on insurance premium income — they pay the separate premium tax administered by the Office of the Insurance Commissioner.
• Washington Long-Term Capital Gains Tax (RCW 82.87). A 7% excise tax on individuals' long-term capital gains above the indexed standard deduction (approximately $270,000 for tax year 2025 — confirm with DOR before filing). Upheld by the Washington Supreme Court in Quinn v. State (March 2023) and by the U.S. Supreme Court declining certiorari (January 2024). See §11 for orientation only; the capital gains return (Form WA-CG) is its own filing.
• Estate Tax (RCW 83.100). Separate.
• Real Estate Excise Tax (REET, RCW 82.45). Separate.
• Combined reporting / unitary business issues beyond a single filer's classification — refer out.

1.3 Reviewer assumption

• Reviewer assumption — This skill assumes that the output is reviewed by a credentialed Washington practitioner (CPA licensed in Washington or an attorney with Washington tax practice) before any return is filed or any position is communicated to a taxpayer. Conservative defaults govern: when in doubt about classification, use the highest applicable rate and flag the ambiguity for the reviewer. (§1.3)

2. Why Washington is unique

Washington is one of a small handful of U.S. states with no personal income tax and no corporate net-income tax. Article VII of the Washington Constitution and a long line of Supreme Court decisions (Culliton v. Chase, 1933, and progeny) have been interpreted to bar a graduated income tax on individuals absent a constitutional amendment.

In place of an income tax, Washington funds its general fund largely through:

• The retail sales tax (6.5% state rate plus local rates, RCW 82.08);
• The B&O tax (RCW 82.04) — a gross-receipts tax on the privilege of doing business;
• The public utility tax (RCW 82.16) for utilities; and
• A patchwork of selective excise taxes including, since 2022, the long-term capital gains tax (RCW 82.87).

The practical implications for a freelancer or small business operating in Washington are profound and frequently misunderstood:

1. There is no deduction for expenses against the B&O base. The tax applies to gross receipts (with a few statutory deductions for specific items like bad debts, interstate sales, and certain exemptions), not net income. A consulting business with $200,000 of gross receipts and $190,000 of expenses still owes B&O on $200,000.
2. Cost of goods sold is not deducted from the B&O base for Retailing or Wholesaling. Margin compression at low-margin resellers (electronics, groceries, fuel) is a real concern, which is why those classifications carry the lowest rates (0.471% and 0.484%) — the legislature calibrated rates to industry margins.
3. The federal Schedule C "net profit" number is irrelevant to B&O. Owners often confuse the two. Be explicit with clients that B&O starts from gross receipts.
4. B&O is owed even in a loss year. A business that breaks even or loses money still owes B&O on every dollar of gross receipts above the small-business credit threshold.
5. No PIT means no personal Form 540 / 1040-equivalent at the state level. Owners of pass-through entities have no personal Washington return for the business income. The entity itself pays B&O.

3. Rate classifications — the 2025 table

2025 B&O rate classifications table (RCW 82.04.250, RCW 82.04.270, RCW 82.04.240, RCW 82.04.290)

Classification (RCW)	2025 base rate	Notes
Retailing — RCW 82.04.250	0.471%	Sales of tangible personal property to consumers; certain enumerated services to consumers.
Wholesaling — RCW 82.04.270	0.484%	Sales for resale; requires reseller permit from the buyer.
Manufacturing — RCW 82.04.240	0.484%	Manufacturing activity in Washington; measured by value of products manufactured.
Service & Other Activities — RCW 82.04.290	1.5% baseline	Catch-all for personal and professional services, royalties, and items not otherwise classified.
Service & Other Activities — receipts > $1,000,000	1.75%	Workforce-Education-Investment-era step-up; applies to gross income in the tier above $1M.
Specified financial institutions	~2.1%	Surcharge tier for the largest financial-services taxpayers; verify final rate against current DOR table.

• Narrower classifications and conservative default — In addition there are many narrower classifications with their own rates — extracting, processing for hire, printing and publishing, warehousing, gambling contests, travel agents, insurance producers, royalties, child care, and dozens more. When a client's activity does not obviously fit one of the four primaries, look it up in WAC 458-20 (the DOR's "ETA" series and rules) before assigning a rate. Conservative default: when an activity could plausibly be Service & Other Activities at 1.5% / 1.75% or a lower-rate specialty classification, the reviewer must verify the specialty applies before the lower rate is used. The DOR's audit posture is that Service is the residual catch-all. (WAC 458-20)

3.1 What is "Retailing"?

• Retailing definition — Retailing under RCW 82.04.050 includes: - Sales of tangible personal property to consumers (not for resale); - Charges for installing, repairing, cleaning, altering, imprinting, or improving tangible personal property of consumers; - Charges for constructing, repairing, decorating, or improving real or personal property of consumers (with carve-outs for prime contractors and speculative builders); - Lodging for fewer than 30 days; - Specified digital products sold to consumers; - Specified personal services (tanning, tattooing, escort, dating, physical fitness, etc., enumerated in RCW 82.04.050(3)(g)). The classification is critical because most "retail" activities also trigger retail sales tax collection — the same transaction generates both the 0.471% Retailing B&O and the 6.5%+ state-and-local retail sales tax. The B&O is the seller's burden; the sales tax is the buyer's burden collected by the seller. (RCW 82.04.050)

3.2 What is "Wholesaling"?

• Wholesaling definition — Wholesaling under RCW 82.04.060 is a sale of tangible personal property or specified services to a buyer who will resell the item in the regular course of business. The seller must obtain and retain a reseller permit from the buyer to avoid the transaction defaulting to Retailing. Reseller permits are issued by the DOR to qualifying buyers (not by the seller). The seller's duty is to verify the permit's validity on the DOR's "Reseller Permit Verification" page and retain proof. (RCW 82.04.060)

3.3 What is "Manufacturing"?

• Manufacturing definition — Manufacturing under RCW 82.04.110 is the production, fabrication, or processing of articles for sale or commercial use. The measure is the value of products manufactured — generally the selling price when the manufactured product is sold in Washington, or the fair market value at the time of first commercial use when the manufacturer also uses or transfers the product. A common trap: a Washington manufacturer that also sells the manufactured product owes Manufacturing B&O AND Retailing or Wholesaling B&O on the same product. This is the canonical MATC fact pattern — see §5 below. (RCW 82.04.110)

3.4 What is "Service & Other Activities"?

• Service & Other Activities definition — Service & Other Activities under RCW 82.04.290 is the residual catch-all for activities not classified elsewhere. It covers, among many other things: - Professional services (accounting, legal, consulting, engineering, architecture, IT services, software development to business customers, marketing, advertising); - Royalties from licensing intangibles; - Investment management; - Personal services not enumerated in the Retailing list; - Most freelance software development for business customers (sale of custom software, SaaS subscriptions to business customers, development hours billed to business clients — though see WAC 458-20-15502 for digital products edge cases). The freelance software developer fact pattern almost always lands here at the 1.5% / 1.75% rate. There is no lower "professional services" or "small business" classification — Washington does not treat services preferentially the way it treats Manufacturing. (RCW 82.04.290; WAC 458-20-15502)

4. The 2025 rate changes — Service tier step-up and surcharge layers

Washington has, since 2019, layered surcharges and tier step-ups on top of the historical 1.5% Service & Other Activities rate. The 2025 landscape, as of the version date of this skill, is:

4.1 The $1,000,000 Service & Other Activities threshold

• Service & Other Activities $1,000,000 threshold — 1.5% on the first $1,000,000 of annual gross income; 1.75% on receipts above $1,000,000 USD (The $1,000,000 threshold is measured on an annual calendar-year basis; on a monthly or quarterly return, the taxpayer prorates or — in practice — applies the higher rate prospectively once the threshold is crossed and reconciles on the annual return. The reviewer must check the DOR's published rate table for the year of the return; the threshold has been the subject of multiple legislative iterations and the 2025/2026 SB 5814 changes may have modified the threshold dollar amount, the tier rate, or both. Do not rely on a remembered figure — pull the current DOR rate table for every engagement.) (RCW 82.04.290)

4.2 Specified financial institutions

• Specified financial institutions surcharge tier — historically 2.1% (This catches the largest banks and certain bank holding companies. It is not a freelance-developer concern but the practitioner should be aware that a fintech client with depository activity may trigger it.) (RCW 82.04.29004)

4.3 Workforce Education Investment surcharge on advanced computing

• Advanced computing surcharge — additional 1.22% percent (Applies to 'advanced computing businesses' — broadly, businesses primarily engaged in providing advanced computing services (cloud computing, operating systems, hardware design at scale) that are members of an affiliated group with worldwide gross revenue greater than $25,000,000,000. The surcharge has an annual cap (historically $9,000,000) and is paid in addition to the base Service & Other Activities rate. In practice this catches Amazon (AWS) and Microsoft (Azure) and essentially no one else. Mention only if the client is part of such a group.) (RCW 82.04.299)

4.4 Other surcharges

Several narrower surcharges exist (e.g., the long-standing 0.2% surcharge on certain financial services, the Aerospace surcharge adjustments, the timber preferential rates). These are out of scope for a generalist engagement; refer out if encountered.

5. Multiple Activities Tax Credit (MATC)

5.1 The problem MATC solves

• MATC problem statement — A Washington manufacturer that also sells its product in Washington engages in two B&O-taxable activities on the same dollar of value: 1. Manufacturing — measured by the value of products manufactured (typically the selling price), 0.484%. 2. Wholesaling or Retailing — measured by the selling price, 0.484% or 0.471%. Without relief, the same $1 of value would be taxed twice. The Multiple Activities Tax Credit under RCW 82.04.440 prevents that double-taxation when the activities all occur in Washington (or when either the manufacturing or the selling activity occurs in another state that imposes a gross-receipts tax on the same dollar). (RCW 82.04.440)

5.2 How MATC is computed

• MATC computation and worked examples — The taxpayer reports gross income under each applicable classification separately, computes B&O on each, and then claims a credit equal to the smaller of the two B&O amounts on the overlapping dollars. Worked example — Washington manufacturer who wholesales its product: - Manufacturing gross: $1,000,000 × 0.484% = $4,840 - Wholesaling gross: $1,000,000 × 0.484% = $4,840 - MATC = $4,840 (the smaller — they happen to be equal) - Net B&O before any other credit = $4,840 (not $9,680) For a Washington manufacturer who retails the product: - Manufacturing gross: $1,000,000 × 0.484% = $4,840 - Retailing gross: $1,000,000 × 0.471% = $4,710 - MATC = $4,710 (the smaller) - Net B&O before any other credit = $4,840 (RCW 82.04.440)

5.3 MATC and out-of-state activity

• MATC and out-of-state activity — If the manufacturing happens in Washington and the product is sold to a buyer in another state that imposes a gross-receipts tax on the seller's receipts (e.g., another state with a B&O-style tax), the taxpayer is entitled to a MATC against the Washington Manufacturing B&O equal to the lesser of the Washington Manufacturing B&O or the other state's gross-receipts tax on the same dollars. This avoids double taxation across state lines and was specifically upheld in Tyler Pipe Industries v. Washington (483 U.S. 232, 1987) and subsequent statutory amendments. The reverse — manufacturing outside Washington, selling into Washington — also gets a MATC against the Washington Wholesaling or Retailing B&O for the out-of-state manufacturing tax on the same dollar. (Tyler Pipe Industries, Inc. v. Washington Dep't of Revenue, 483 U.S. 232 (1987))

5.4 Reporting mechanics

• MATC reporting mechanics — MATC is claimed on Schedule C of the Combined Excise Tax Return. The classifications and the credit must be reported separately — the taxpayer cannot net the two classifications first and report only the larger. (Combined Excise Tax Return, Schedule C)

6. Small Business B&O Tax Credit

6.1 The structure

• Small Business B&O Tax Credit structure — The Small Business B&O Tax Credit under RCW 82.04.4451 provides a sliding-scale credit that fully or partially zeroes B&O liability for very small filers. The credit's mechanics depend on filing frequency (assigned by DOR): - Monthly filers. A maximum credit of $35 per month, phased out as the monthly B&O liability rises above $35 such that the credit fully offsets liability at the floor and tapers to zero by approximately $71/month of B&O tax. This translates roughly to zero B&O for monthly filers with around $1,500–$2,500 of gross Service receipts per month (depending on classification mix). - Quarterly filers. A maximum credit of $105 per quarter, similar taper. - Annual filers. A maximum credit of $420 per year. The figures above are the long-standing structural amounts and the reviewer must confirm the current DOR figures for the tax year of the return. The DOR publishes a "Small Business B&O Tax Credit Table" that gives the exact credit for each band of monthly liability. (RCW 82.04.4451)

6.2 Interaction with filing thresholds

• Small Business Credit vs filing threshold — Note that the Small Business Credit is distinct from the filing threshold. Washington requires every business with $100,000 or more of Washington-sourced gross income (or otherwise nexused) to register and file even if no B&O is ultimately owed because the Small Business Credit zeroes the liability. The credit reduces tax, not the duty to file. Failure to file generates penalties even on a $0 return. (RCW 82.04.4451)

6.3 Application

• Small Business Credit application mechanics — The credit is computed automatically by the DOR's online MyDOR filing system. On a paper return it is computed using the DOR's published Small Business Credit Table. The credit applies to B&O only — it does NOT reduce retail sales tax, use tax, or any of the local B&O taxes. (DOR Small Business B&O Tax Credit Table)

7. Apportionment and sourcing

7.1 When apportionment applies

• When apportionment applies — Apportionment under RCW 82.04.460 applies to "apportionable income" — principally Service & Other Activities income and a defined list of other classifications enumerated in the statute. Retailing, Wholesaling, Manufacturing, and most specialty classifications are not apportioned — they are sourced based on where the underlying activity occurs (location of delivery for retail, location of buyer for wholesale, location of manufacturing for manufacturing). (RCW 82.04.460)

7.2 The single market-based receipts factor

• Single receipts factor and sourcing hierarchy — For apportionable income, Washington uses a single receipts factor (no property or payroll factor) under RCW 82.04.462. The factor is the ratio of Washington-sourced gross income from apportionable activities to total worldwide gross income from apportionable activities. Receipts are sourced under a multi-tier "market" hierarchy implemented in WAC 458-20-19402: 1. Where the customer received the benefit of the service. If that can be determined. 2. Where the customer ordered the service. If receipt-of-benefit cannot be determined. 3. Where the customer's billing address is. If the prior tiers fail. 4. Where the customer's commercial domicile is. If all prior tiers fail. 5. Where the taxpayer earns at least 15% of its total apportionable income. Reasonable-method fallback. The reviewer must document which tier was used for each customer or each meaningful revenue stream. For a freelance software developer with a handful of business clients, Tier 1 (where the customer received the benefit) is typically determinable and used. (RCW 82.04.462; WAC 458-20-19402)

7.3 Software, SaaS, and digital products sourcing

• Software/SaaS/digital products sourcing — For Service-classified digital deliverables (custom software development, ongoing development hours, etc.), Washington's position is generally that the benefit is received where the customer's principal use occurs. For SaaS subscriptions sold to business customers, the benefit is the customer's commercial use location. Note the interaction with the Digital Products statutes (RCW 82.04.192, RCW 82.04.257): "digital automated services" and "digital goods" delivered to consumers may be retailing rather than service-classified. The DOR has issued multiple ETAs (Excise Tax Advisories) on this — verify the current ETA before assigning a classification. (RCW 82.04.192; RCW 82.04.257)

8. Nexus

8.1 The bright-line test

• Bright-line nexus threshold — more than $100,000 of cumulative gross receipts sourced to Washington USD (Under RCW 82.04.067, a person has substantial nexus with Washington for B&O purposes if any of the following is true for the current or immediately preceding calendar year: (1) organized or commercially domiciled in Washington; (2) a non-resident individual who is a resident or domiciliary of Washington at any time during the year; (3) physical presence in Washington (employees, inventory, leased real property, etc.) for more than one day; OR (4) more than $100,000 of cumulative gross receipts sourced to Washington. The $100,000 receipts threshold is Wayfair-compliant (post South Dakota v. Wayfair, 138 S. Ct. 2080 (2018)) and applies to remote sellers, marketplace facilitators, and service providers with no physical presence in the state.) (RCW 82.04.067)

8.2 Apportionable vs non-apportionable activities and nexus

• Apportionable vs non-apportionable nexus prongs — The receipts threshold for the apportionable-activities nexus test counts the taxpayer's Washington-sourced apportionable receipts. For Retailing/Wholesaling/Manufacturing, the "physical presence" or "in-Washington-activity" test is the dominant nexus prong — a remote retailer with no Washington activity beyond making sales into Washington is nexused on the $100,000 economic threshold under the Wayfair-aligned RCW 82.04.067(1)(d). (RCW 82.04.067(1)(d))

8.3 Trailing nexus

• Trailing nexus rule — Washington applies trailing nexus: once a person is nexused, nexus continues for the remainder of the current year and the full following calendar year. A remote business that drops below $100,000 in year 2 still has nexus through the end of year 2 and all of year 3. (RCW 82.04.067)

8.4 Marketplace facilitators

• Marketplace facilitator B&O rule — Under RCW 82.08.0531 and parallel B&O provisions, a marketplace facilitator is required to collect retail sales tax and report B&O on the third-party sales it facilitates into Washington. The marketplace seller (the underlying merchant) generally does not re-report the same receipts; the facilitator's filing satisfies the B&O on those receipts. The seller still must register and file if nexused for its own direct sales. (RCW 82.08.0531)

9. Filing — frequency, due dates, the Combined Excise Tax Return

9.1 The Combined Excise Tax Return

• Combined Excise Tax Return — Washington uses one return — the Combined Excise Tax Return — to report B&O, retail sales tax, use tax, and most of the specialty excises in one document. The return is filed electronically via the DOR's "MyDOR" portal for substantially all filers (paper filing is permitted only on hardship waiver). (DOR Combined Excise Tax Return)

9.2 Filing frequencies

Filing frequencies table (DOR filing frequency assignment rules)

Frequency	Tax-liability range (approximate)	Period	Due date
Monthly	> ~$4,800 / year	Calendar month	25th of next month
Quarterly	~$1,050 – ~$4,800 / year	Calendar quarter	End of next month
Annual	< ~$1,050 / year	Calendar year	April 15 of next yr

9.3 The 25th-of-the-month due date

• 25th-of-month due date rule — Monthly returns are due on the 25th of the month following the reporting period. (Note this is unusual — most state filing systems use end-of-month or 20th-of-month due dates. Washington's 25th is a frequent source of late-filing penalties.) If the 25th falls on a weekend or holiday, the due date moves to the next business day. Quarterly returns are due at the end of the month following the quarter (April 30, July 31, October 31, January 31). Annual returns are due April 15 of the year following the calendar year. (§9.3)

9.4 Penalties

• Late filing/payment/assessment penalties — - Late filing. 9% of tax due if 1–30 days late, 19% if 31–60 days late, 29% if more than 60 days late. Minimum penalty $5. - Late payment. Same tiers as late filing (combined). - Assessment penalty (audit). Additional 5% under-reporting penalty if the underpayment was material. - Failure to file penalty on a zero return. Yes — even a zero return carries a minimum $5 / late-period penalty if not filed. Interest accrues at the federal short-term rate + 2%, set annually. (WAC 458-20-100)

9.5 Registration

• Business registration requirements — Every business with Washington nexus must register with the DOR via the Business Licensing Service before commencing activity. The Business License application also handles UBI (Unified Business Identifier) assignment, city endorsements (which determine which local B&O jurisdictions apply — see §10), L&I (Labor & Industries) workers' comp, and Employment Security registration in one form. (§9.5)

10. Local (municipal) B&O — orientation

10.1 The structure

Washington allows municipalities to impose their own B&O taxes. The DOR does NOT administer these — each city administers its own. Roughly 40+ cities impose B&O; the major ones include:

• Seattle — Seattle Business License Tax under SMC 5.45. Approximate 2025 rates: Retailing 0.222%, Wholesaling 0.222%, Manufacturing 0.222%, Services 0.427%. Significant taxpayer-level surcharges (the "JumpStart" payroll expense tax under SMC 5.38 is separate from B&O but commonly confused; check Seattle FAS current rate schedule). $100,000 small-business deduction threshold (below which no Seattle B&O is owed).
• Bellevue — Bellevue B&O under BCC 4.09. Approximate 2025 rates: Retailing 0.1496%, Services 0.1496%, with a $190,000 small-business deduction.
• Tacoma — Tacoma B&O under TMC 6A.30. Approximate 2025 rates: Services 0.40%, others lower. $250,000 threshold.
• Everett, Bellingham, Bremerton, Renton, Burien, Lake Forest Park, Kent, Issaquah, Olympia, Tumwater, Auburn, etc. — variable rates and thresholds.

10.2 What this skill does NOT do

This skill does NOT compute local B&O. Local B&O is its own specialty:

• Each city has its own apportionment rules (most use the Washington Cities Model B&O Ordinance — RCW 35.102 — but with variations);
• Each has its own forms, due dates, and electronic-filing portals;
• Each has its own small-business thresholds and credits;
• Many cities require a separate City Business License in addition to DOR registration.

The reviewer must independently address local B&O for any client with physical presence or apportionable receipts sourced to a B&O-taxing city. The standard practice is to confirm the client's city of residence/office and whether they have customers in any other B&O-taxing city.

10.3 RCW 35.102 — Model Ordinance and apportionment harmonization

• Model Ordinance harmonization — Since 2008, RCW 35.102 has required the larger B&O-taxing cities to use a common apportionment methodology (Two-Factor: payroll and service-income factors for services; single-factor sourcing for non-services). This reduced — but did not eliminate — variance. (RCW 35.102)

11. Washington Long-Term Capital Gains Tax (refer-out)

Washington enacted a 7% excise tax on individuals' long-term capital gains under RCW 82.87, effective for sales and exchanges on or after January 1, 2022. Key parameters for tax year 2025:

• Rate. 7% of the Washington-allocated long-term capital gain in excess of the standard deduction.
• Standard deduction. Approximately $270,000 for tax year 2025 (indexed annually for inflation — verify with the DOR's published amount).
• Filing. Form WA-CG (Washington Capital Gains Tax Return) filed with the DOR; due April 15 of the year following the year of the gain.
• Allocation. Gains are allocated to Washington if (a) the taxpayer was a Washington resident at the time of the sale, or (b) tangible personal property was located in Washington at the time of the sale, or (c) tangible personal property was located in Washington at any time during the year of the sale or the prior year and the seller is a non-resident at the time of the sale (with conditions).
• Exemptions. Real estate, retirement-account assets, certain livestock and timber, certain qualified family-owned business interests below an asset threshold, charitable deductions up to a cap, and certain other enumerated items.
• Constitutionality. Upheld by the Washington Supreme Court in Quinn v. State, 526 P.3d 1 (Wash. 2023) on the ground that the tax is an excise on the privilege of selling, not an income tax prohibited by Article VII. The U.S. Supreme Court denied certiorari in January 2024.

This skill does NOT compute the WA capital gains tax. Refer out to a separate WA-CGT skill or a Washington CPA. Note however that the capital gains tax is distinct from B&O — B&O applies to business gross receipts; the capital gains tax applies to individual investment realizations.

12. Worked examples

12.1 Example A — Seattle SaaS company, $2M Service receipts

Facts. Acme Cloud LLC is a Washington LLC headquartered in Seattle, taxed federally as a partnership. In 2025 it earns $2,000,000 of subscription revenue from business customers, of which $1,200,000 is sourced to Washington under the market-based hierarchy (Tier 1 — customers' principal-use locations) and $800,000 is sourced to other states. Activity: Service & Other Activities (SaaS to business customers). No Retailing or Wholesaling. Monthly filer.

Step 1 — apportionment. Apportionable gross income from Service: $2,000,000. Washington receipts: $1,200,000. Receipts factor = 60%. Washington-apportioned Service income = $1,200,000.

Step 2 — Service & Other Activities B&O.

• First $1,000,000 at 1.5% = $15,000.
• Next $200,000 at 1.75% = $3,500.
• Subtotal B&O = $18,500.

Step 3 — Small Business Credit. Annual B&O liability is $18,500. The Small Business Credit phases out well below this level. Credit = $0.

Step 4 — MATC. Single classification (Service). No MATC available.

Step 5 — Advanced Computing surcharge. Acme is not part of a $25B+ affiliated group. No surcharge.

Step 6 — State B&O owed. $18,500 for the year, paid in 12 monthly installments via the Combined Excise Tax Return.

Step 7 — Local B&O (Seattle). Seattle Business License Tax at the Services rate of ~0.427% applies to receipts sourced to Seattle. If Seattle-sourced is $900,000, Seattle B&O = ~$3,843 (subject to the Seattle $100,000 small-business deduction — Acme is over the threshold so no deduction applies). Refer out to a Seattle-FAS-aware practitioner for the actual Seattle filing.

Step 8 — Retail Sales Tax. SaaS to business customers is generally treated under Washington rules as a Service for B&O AND as a digital automated service that is subject to retail sales tax if delivered to a Washington consumer. Business-to-business sales with a valid Washington reseller permit or the buyer's MTC may be exempt; otherwise sales tax must be collected. This is a separate analysis — refer to the WA sales tax skill.

Total Washington tax (B&O only): $18,500.

12.2 Example B — Spokane manufacturer who wholesales, with MATC

Facts. Cascade Widgets LLC is a Washington single-member LLC headquartered in Spokane (no city B&O at this filing date in the Spokane city limits, but verify with City of Spokane Treasury). In 2025 it manufactures $3,000,000 of widgets at its Spokane plant and sells all $3,000,000 to a Boise wholesale distributor for resale. The Boise buyer holds a valid Washington reseller permit, so the sale is classified as Wholesaling (not Retailing).

Step 1 — Manufacturing B&O. Value of products manufactured = $3,000,000 (selling price proxy). $3,000,000 × 0.484% = $14,520.

Step 2 — Wholesaling B&O. Wholesale sales = $3,000,000. $3,000,000 × 0.484% = $14,520.

Step 3 — MATC. The same $3,000,000 produces both Manufacturing and Wholesaling B&O. MATC = the smaller of the two = $14,520. Net B&O = $14,520 (not $29,040).

Step 4 — Out-of-state buyer consideration. The sale is to a Boise (Idaho) buyer. If delivery occurs in Idaho, the Wholesaling B&O is sourced to Idaho (under the place-of-delivery rule for tangible personal property) and is NOT a Washington taxable receipt. In that scenario:

• Manufacturing B&O (sourced to Washington because manufacturing occurred in Spokane) = $14,520. Owed.
• Wholesaling B&O (sourced to Idaho where the buyer takes delivery) = $0 in Washington.
• MATC = $0 in Washington (no overlapping Washington-taxed activity), but the manufacturer may claim a MATC against the Washington Manufacturing B&O for any Idaho gross-receipts tax on the same dollars — Idaho does not impose a gross-receipts tax, so MATC remains $0.
• Net Washington B&O = $14,520.

If, alternatively, delivery occurs in Spokane (the buyer picks up in Washington and transports the widgets to Idaho), the Wholesaling B&O is Washington-sourced, and the full MATC analysis in Steps 1–3 applies — net Washington B&O is $14,520 (after MATC).

Step 5 — Sales tax. Wholesale sales with a valid reseller permit are exempt from retail sales tax. The seller retains the reseller permit copy.

Step 6 — Small Business Credit. Liability of $14,520 is far above the credit phase-out. Credit = $0.

Total Washington B&O: $14,520 (or $14,520 under either delivery scenario in this example — the MATC interlock makes it the same).

12.3 Example C — Tacoma retail bakery, small-business-credit-zeroed

Facts. Lina's Bakery LLC operates a single retail bakery in Tacoma. 2025 gross receipts:

• $24,000 of retail sales of bread and pastries to walk-in customers (Retailing classification);
• $6,000 of cake-decorating workshops sold to consumers (Retailing under RCW 82.04.050 — personal services list); and
• $0 of any other activity.

Total annual gross income = $30,000. Monthly filer (because Tacoma DOR registration defaults to monthly for businesses without a volume estimate). Lina's monthly average gross is $2,500.

Step 1 — Retailing B&O. $30,000 × 0.471% = $141.30 per year, or $11.78 per month.

Step 2 — Small Business Credit. Lina is a monthly filer. The maximum monthly Small Business Credit is $35; with B&O liability of $11.78/month, the credit equals the liability and reduces B&O to $0.

Step 3 — Filing is still required. Lina must still file her monthly Combined Excise Tax Return on the 25th of each following month, reporting:

• Retailing gross of $2,500;
• Retailing B&O of $11.78;
• Small Business Credit of $11.78;
• Net B&O of $0.

Failure to file the $0 return generates a $5 minimum penalty per late period.

Step 4 — Retail Sales Tax. Retail sales of food: Washington exempts most grocery food from sales tax (RCW 82.08.0293) but prepared food is taxable. Bread and pastries sold for off-premises consumption are generally exempt as "food for human consumption." Cake-decorating workshops are a taxable service. Lina must collect Tacoma's combined state + local sales tax (~10.3%) on the workshop fees and remit on the same Combined Excise Tax Return.

Step 5 — Tacoma local B&O. Tacoma imposes its own B&O. The retail rate is low and Tacoma has its own small-business threshold. Refer to the City of Tacoma Tax & License Division for the local filing — typically annual at this gross level. Refer out for actual Tacoma return preparation.

Total state B&O owed: $0 (zeroed by Small Business Credit). Filing duty: Yes — monthly Combined Excise Tax Return must be filed even at $0 B&O.

13. Provenance

The rates, thresholds, and statutory citations in this skill are based on the following primary sources. The reviewer must verify each before relying on it for a current engagement, as Washington's tax statutes are amended frequently.

13.1 Statutes (RCW)

• RCW Title 82 — Excise Taxes — the master title.
• RCW 82.04 — Business and Occupation Tax (the B&O chapter).
• RCW 82.04.050 — definition of "sale at retail."
• RCW 82.04.060 — definition of "sale at wholesale."
• RCW 82.04.067 — substantial nexus (the $100,000 receipts threshold and physical-presence / organization tests).
• RCW 82.04.110 — definition of "to manufacture."
• RCW 82.04.240 — Manufacturing tax (rate).
• RCW 82.04.250 — Retailing tax (rate).
• RCW 82.04.270 — Wholesaling tax (rate).
• RCW 82.04.290 — Service and Other Activities (rate, with the $1M threshold step-up).
• RCW 82.04.299 — Workforce Education Investment surcharge on advanced computing businesses.
• RCW 82.04.4451 — Small Business B&O Tax Credit.
• RCW 82.04.440 — Multiple Activities Tax Credit.
• RCW 82.04.460 — Apportionment of apportionable income.
• RCW 82.04.462 — Single receipts factor methodology.
• RCW 82.08 — Retail Sales Tax (referred out).
• RCW 82.12 — Use Tax (referred out).
• RCW 82.16 — Public Utility Tax (referred out).
• RCW 82.87 — Capital Gains Tax (referred out, §11).
• RCW 35.102 — Municipal B&O Model Ordinance (referred out, §10).

13.2 Regulations (WAC)

• WAC 458-20 — DOR rules on B&O and excise taxes (the "Rules Index"). Specific rules referenced:
• WAC 458-20-19401 — Minimum nexus thresholds.
• WAC 458-20-19402 — Single factor receipts apportionment.
• WAC 458-20-19403 — Apportionment for periods before 2010 (legacy).
• WAC 458-20-15502 — Computer hardware, computer software, and digital products.
• WAC 458-20-145 — Local sales and use tax.
• WAC 458-20-100 — Interest and penalties.

13.3 Cases

• Quinn v. State, 526 P.3d 1 (Wash. 2023) — Washington Supreme Court upholding the capital gains tax under Article VII.
• Tyler Pipe Industries, Inc. v. Washington Dep't of Revenue, 483 U.S. 232 (1987) — Commerce Clause limits on the Manufacturing B&O / MATC structure.
• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018) — basis for the $100,000 economic nexus threshold.
• Avnet, Inc. v. Dep't of Revenue, 187 Wash. 2d 44 (2016) — apportionment and sourcing of receipts.

13.4 DOR materials

• Washington Department of Revenue, "Combined Excise Tax Return Instructions" (most recent edition).
• Washington Department of Revenue, "Tax Rate Lookup Tool" and the published "B&O Rate Schedule" — verify each filing year.
• Washington Department of Revenue, "Small Business B&O Tax Credit Table".
• Washington Department of Revenue, Excise Tax Advisories (ETAs) — particularly the ETAs on digital products, SaaS classification, and apportionment sourcing.
• Washington Department of Revenue, "Reseller Permit Verification" online tool.

13.5 Legislation to verify for 2025/2026 effective dates

• SB 5814 (2025 session, if enacted) — Service & Other Activities rate / threshold modifications. Confirm the enacted final text against the DOR's published rate table for the year of the engagement before relying on the rates in §3 and §4 above.
• Any 2025-session bill modifying the Workforce Education Investment surcharge, the advanced-computing surcharge cap, or the Small Business Credit thresholds.

13.6 Self-check at engagement start

For every Washington engagement the reviewer must:

1. Pull the current-year DOR rate table and compare against the rates in this skill.
2. Confirm the current Small Business Credit table.
3. Confirm the current $100,000 nexus threshold has not been amended.
4. Confirm filing-frequency thresholds.
5. Confirm the current capital gains tax standard deduction (for the §11 mention).
6. Confirm any local B&O city rates and thresholds for the client's nexus footprint.

End of skill

End of skill. Tax year 2025.