Washington Business and Occupation (B&O) tax

Scope and who this is for

Washington has no personal income tax on business profit. Instead it imposes the business and occupation (B&O) tax, a tax on gross receipts, on almost every person engaging in business in the state (RCW 82.04.220). This Guide covers the state B&O tax for sole proprietors, freelancers and small companies, for 2026 reporting periods, with a short section for 2025 periods still being filed or amended. Figures are for 2026 reporting periods unless a line says otherwise.

Covered:

• who must register, who must file and who has nexus;
• the main classifications (Retailing, Wholesaling, Manufacturing, Service and Other Activities) and their rates;
• the Service and Other Activities rate tiers and the affiliated-group rule;
• the small business B&O tax credit (SBC);
• apportionment of service income for businesses also taxable in another state;
• the multiple activities tax credit (MATC) in outline;
• filing frequency, due dates and late-payment penalties.

Not covered (refer or use another Guide):

• retail sales tax and use tax, including which services became retail sales on 1 Oct 2025: use the wa-sales-tax Guide. This Guide only covers the B&O side of those sales.
• city B&O taxes (administered by each city, not the Department of Revenue (DOR));
• public utility tax, insurance premiums tax, real estate excise tax, capital gains tax;
• specialized B&O classifications other than the four main ones (DOR lists more than 50);
• financial institutions, select advanced computing businesses, hospitals and the high-grossing business surcharge (see "When to refuse or refer").

Ask the client first

• What does the business do, activity by activity? (Sells goods to end users, sells goods for resale, makes goods, provides services, licenses intangibles.)
• Since 1 Oct 2025, does any service fall into the new retail-sale list (IT services, custom software, website development, advertising, temporary staffing, security, live presentations)? If yes, that income moves to Retailing B&O and sales tax applies. The list is narrower than it looks. One-on-one instruction such as tutoring, consulting or music lessons is not a live presentation (DOR live presentations). From 1 July 2026 ESSB 6346 also excludes music lessons whatever the number of participants, presentations by 501(c) nonprofits, before- and after-school care provided on site by elementary schools, and instruction incidental to an excluded performance (DOR special notice). From the same date, staffing is not temporary staffing if it is used by hospital-based clinical providers to supplement their fulfillment of hospital contracts for professional services and is used for limited periods of time to supplement hospital staffing; both conditions must hold (DOR special notice). Excluded services stay in Service and Other Activities (before- and after-school care: the Child Care classification; a nonprofit presentation that is an exempt fundraising activity is not taxed at all). The wa-sales-tax Guide has the full lists.
• Is the business based in Washington? If not, what were its Washington-sourced gross receipts and any physical presence (property, employees, agents) in the current and the previous calendar year? If it first passed the test this year, on what date?
• What was the Service and Other Activities gross income in the previous calendar year, for the business and for every affiliate under common control?
• What filing frequency did DOR assign (monthly, quarterly, annual, or active non-reporting)?
• Is income also earned from customers outside Washington (apportionment), or are goods delivered outside Washington?
• Does the business both manufacture and sell the same goods (MATC)?
• Which cities does it operate in (possible city B&O tax)?

The method, step by step

1. Check the obligation to register. Anyone engaging in a taxable business must hold a DOR registration certificate (RCW 82.32.030(1)). Unless the person is a firearms dealer as defined in RCW 9.41.010 (a dealer must always register), registration is not required only if all of these hold: B&O gross income from all activities is under $12,000 per year; public utility tax income is under $12,000 per year; the person does not have to collect or pay any other tax or fee to DOR (for example retail sales tax); and the person does not otherwise need a business license under chapter 19.02 RCW (RCW 82.32.030(2); WAC 458-20-101). A seller that must collect retail sales tax must register whatever its income.

2. Check nexus (out-of-state businesses). A non-Washington individual or business has substantial nexus, and is subject to B&O tax, if in the current or immediately preceding calendar year it had more than $100,000 of cumulative gross receipts sourced or attributed to Washington, or physical presence in Washington (RCW 82.04.067(1)). A Washington resident individual, or an entity organized or commercially domiciled in Washington, always has nexus. Receipts from all classifications count toward the $100,000 test.

   • Which part of the year is taxable. If the business met the test in the prior calendar year, the whole current year is taxable. If it first meets the test during the current year, and did not meet it in the prior year, B&O tax for the current year applies only to business activity on and after the date nexus arose (RCW 82.04.220(2); WAC 458-20-19401(3)(c)). Activity earlier in that year is not taxed, even though its receipts count toward the $100,000. The next calendar year is then taxable in full.

3. Classify every income stream. Each activity is taxed under its own classification; one business can owe under several (RCW 82.04.440(1)). Use the classification table in the rates section. Any business activity not taxed explicitly elsewhere in chapter 82.04 RCW falls into Service and Other Activities (RCW 82.04.290(2)). Sales to consumers of prewritten computer software (however delivered), digital goods and digital automated services, including software as a service, are retail sales and go under Retailing (RCW 82.04.050(6)(a) and (8)(a); DOR digital products). This was already the rule before 1 Oct 2025. Long-standing retail services to consumers are Retailing too, not Service and Other (RCW 82.04.050(2)(a)-(f)). They include:

   • installing, repairing, cleaning, altering, imprinting or improving consumers' tangible personal property;
   • constructing, repairing, decorating or improving buildings and other structures for consumers;
   • cleaning, fumigating, razing or moving existing buildings, but not janitorial services (wall and window washing, floor cleaning and waxing, cleaning rugs, drapes and upholstery in place);
   • automobile towing, unless the business pays public utility tax on it;
   • lodging and other services by a hotel, motel, rooming house or similar, as distinct from renting real property.

   So a repair shop, a contractor building for consumers or a motel pays Retailing B&O (0.471% for 2026) and collects retail sales tax.

   • Wholesaling needs proof. A sale for resale is Wholesaling only if the seller can prove it. "The burden of proving that a sale is a wholesale sale rather than a retail sale is on the seller." The normal proof is a copy of the buyer's reseller permit, taken at the time of sale or within a reasonable time after it. An approved exemption certificate can stand in only if it carries the buyer's reseller permit number (RCW 82.04.470(1), (2)). The statute also allows a few narrower routes, such as proving the facts and circumstances under DOR rules ((3) to (5)). Without that proof, the sale is a retail sale: Retailing B&O plus retail sales tax.

4. Measure gross income for each classification. The base is gross income, gross proceeds of sales or value of products, "without any deduction on account of the cost of tangible property sold, the cost of materials used, labor costs, interest, discount, delivery costs, taxes, or any other expense" (RCW 82.04.080). Only deductions the law specifically allows are taken, and they are itemized on the return. B&O is not collected from customers; the business pays it.

5. Source and apportion.

• Goods: a sale takes place in Washington when the buyer (or the buyer's agent or donee) receives the goods in Washington (WAC 458-20-193). Goods received by the buyer outside Washington are not Washington sales. Possession by a separate shipping company is not receipt by the buyer.
• Services and royalties (apportionable income): if the business is also taxable in another state, it apportions using a single receipts factor: Washington receipts over worldwide receipts from that activity, computed separately for each classification (RCW 82.04.460, 82.04.462). Receipts are attributed first to where the customer received the benefit of the service, then down a fixed cascade (where primarily received, where ordered, billing address, payment address, customer address, commercial domicile). "Taxable in another state" includes a state that could tax the business under Washington's own nexus standards, even if it does not. A business may use the prior year's factor but must correct the current year once complete data exist, and not later than 31 October of the following year; penalties apply only if that correction is not made and paid by that date (RCW 82.04.462(4)).

6. Apply the rate for each classification (the rates section). For Service and Other Activities pick the tier from the prior calendar year income in that classification, aggregated across affiliates.

7. Apply the small business credit to the total B&O tax for the period (the SBC section).

8. Apply any MATC where the same goods were manufactured and sold (the MATC section).

9. File and pay on the excise tax return in My DOR by the due date for the assigned frequency ("Filing and payment").

Rates and thresholds for 2026

Main classifications

Classification	Periods in 2026	From 1 Jan 2027	Source
Retailing (includes the services made retail sales on 1 Oct 2025)	0.471%	0.5%	RCW 82.04.250
Wholesaling	0.484%	0.5%	RCW 82.04.270
Manufacturing (measured on value of products)	0.484%	0.5%	RCW 82.04.240
Service and Other Activities	tiered, below	tiered, below	RCW 82.04.290(2)

The 2027 rates are already enacted by chapter 420, Laws of 2025 and appear in the published RCW as the versions "effective January 1, 2027".

Service and Other Activities tiers (periods from 1 Oct 2025)

The tier depends on gross income subject to Service and Other Activities in the immediately preceding calendar year:

Prior-year Service and Other income	Rate
Less than $1,000,000	1.5%
$1,000,000 to $4,999,999.99 (at least $1,000,000 and less than $5,000,000)	1.75%
$5,000,000 or more	2.1%

Conditions:

• Affiliates are aggregated. A business below a threshold on its own is pushed up if the aggregate prior-year Service and Other income of all its affiliates reaches the threshold. "Affiliate" means control, or common control, of more than 80% of the power to direct management and policies (RCW 82.04.290(2)(f)).
• DOR may ask in writing for a list of affiliates. Failing to answer fully within 30 days, with intent to evade, can cost the lower rate for the current year and the next four years (RCW 82.04.290(2)(d)).
• Hospitals and select advanced computing businesses stay at 1.5% (DOR special notice, July 2025).
• Royalties (RCW 82.04.2907) and real estate commissions are separate classifications taxed at 1.5%; check DOR's classification list for any activity outside the main four.

Other thresholds

Item	Figure	Source
Registration not required below (all conditions in Step 1)	$12,000 per year of B&O gross income	RCW 82.32.030(2); WAC 458-20-101
Economic nexus (out-of-state)	more than $100,000 of Washington receipts, current or prior year	RCW 82.04.067; DOR
Return filing relief (active non-reporting), until 31 Dec 2028	under $125,000 per year of B&O gross income, and under $24,000 per year of public utility tax income, and no other tax or fee payable to DOR (see note)	RCW 82.32.045(5)
Return filing relief from 1 Jan 2029	B&O limit rises to under $250,000 per year; the other two conditions are unchanged	RCW 82.32.045(5), version effective January 1, 2029
High-grossing business surcharge (1 Jan 2026 to 31 Dec 2029)	0.5% of certain Washington taxable income over $250,000,000	RCW 82.04.288; DOR special notice

Active non-reporting is a relief DOR may grant, not an automatic right. All three conditions must hold: B&O gross income under the limit; public utility tax income under $24,000; and the person is not required to collect or pay DOR any other tax or fee it administers, such as retail sales tax or use tax (RCW 82.32.045(5)). A business with an assigned monthly, quarterly or annual frequency that thinks it qualifies must contact DOR and ask (DOR active non-reporting). Until DOR changes the status, the business files as assigned.

Small business B&O tax credit (SBC)

The SBC is one credit per taxpayer per return, computed on the total B&O tax for the reporting period, not per classification (RCW 82.04.4451).

Maximum credit per month in the reporting period (periods through 31 Dec 2028):

• $160 per month if the taxpayer reports at least 50% of its taxable amount under Service and Other Activities (RCW 82.04.290(2)(a)) and the other classifications listed in RCW 82.04.4451(1);
• $55 per month for everyone else.

Multiply by the months in the period: 1 (monthly), 3 (quarterly) or 12 (annual).

How the credit works:

• If B&O tax due is equal to or less than the maximum credit, the credit equals the tax, so no B&O tax is due.
• If B&O tax due exceeds the maximum credit, the credit is twice the maximum credit minus the tax due, but not less than zero. So the credit reaches zero once tax due is twice the maximum.
• The credit never exceeds the B&O tax due.
• The return must use DOR's SBC table for the filing frequency (monthly, quarterly or annual). The table is built so no one owes more than the formula result, so a table figure can differ by a few dollars. My DOR applies it automatically for electronic filers.

From 1 Jan 2029 the maximums rise to $125 per month (general) and $375 per month (the 50% service group), under chapter 238, Laws of 2026. Do not use these for 2026 to 2028 periods.

Old rule to discard: the SBC is not phased out by gross income bands. It phases out by tax due against the maximum credit.

Multiple activities tax credit (MATC), in outline

Each activity is taxed, but the MATC stops the same goods being taxed twice:

• a retailer or wholesaler selling goods in Washington gets a credit for manufacturing (or extracting) tax paid on making those same goods, up to the B&O tax on the sale (RCW 82.04.440(2));
• a Washington manufacturer can get credit for certain gross receipts taxes paid to other states on the sale of the same products (RCW 82.04.440(4)).

The credit is claimed on the return's MATC schedule. Anything beyond a simple "make and sell in Washington" case: refer (WAC 458-20-19301).

Boundary and exception table

Situation	Treatment	Source
Expenses, cost of goods, wages, losses	Never deducted	RCW 82.04.080
Prior-year Service and Other income exactly $1,000,000	1.75% tier ("equal to or greater than")	RCW 82.04.290(2)(a)(i)
Prior-year Service and Other income exactly $5,000,000	2.1% tier	RCW 82.04.290(2)(a)
Own income under $1,000,000 but affiliates' aggregate at least $1,000,000	Not the 1.5% tier	RCW 82.04.290(2)(a)(ii)(B)
Out-of-state business with exactly $100,000 of Washington receipts, no physical presence	No economic nexus ("more than")	RCW 82.04.067(1)(c)(i)
Receipts over $100,000 in the prior year but not this year	Nexus continues through the current year	RCW 82.04.067(1)
Out-of-state business first passes $100,000 partway through this year, not met last year	Taxable only on activity on and after the date nexus arose; earlier activity this year is not taxed; next year fully taxable	RCW 82.04.220(2); WAC 458-20-19401(3)(c)
Out-of-state business passed the test last year	Whole current year taxable, from 1 January	RCW 82.04.220(2)(b)
Custom software, IT support or website development for a Washington customer from 1 Oct 2025	Retailing B&O plus retail sales tax, not Service and Other (contracts signed before 1 Oct 2025: see the transition rule in the wa-sales-tax Guide)	DOR special notice, July 2025 (ESSB 5814)
Goods shipped to and received by the buyer outside Washington	Not a Washington sale	WAC 458-20-193
Gross income under $125,000, but owes any other tax or fee to DOR (for example retail sales tax or use tax)	Not eligible for active non-reporting; must file	RCW 82.32.045(5)(c); DOR
Gross income under $125,000 and no other DOR tax	DOR may relieve the business of filing on request; until then it files as assigned	RCW 82.32.045(5); DOR active non-reporting page
Repair, installation or cleaning of a consumer's goods; construction or repair of a building for a consumer; towing; hotel or motel lodging	Retailing (plus retail sales tax), not Service and Other	RCW 82.04.050(2)(a)-(f)
Janitorial services (wall and window washing, floor cleaning and waxing, cleaning rugs and upholstery in place)	Not a retail sale; Service and Other	RCW 82.04.050(2)(d)
Sale for resale without the buyer's reseller permit (or a certificate showing its number)	Treated as a retail sale: Retailing B&O and sales tax, not Wholesaling	RCW 82.04.470
Prewritten software, digital goods or SaaS sold to consumers	Retailing, not Service and Other	RCW 82.04.050(6)(a), (8)(a)
Music lessons, 501(c) nonprofit presentations, hospital staffing (both hospital conditions met), from 1 July 2026	Not retail sales; Service and Other Activities (nonprofit presentations: unless an exempt fundraising activity)	DOR special notices, April 2026 (ESSB 6346)
Active non-reporter whose income passes the threshold	Must tell DOR, file and pay; late filing brings penalties and interest	DOR active non-reporting page
Tax due exactly equal to the SBC maximum	Full credit, zero tax	RCW 82.04.4451(2)
Tax due twice the SBC maximum or more	No credit	RCW 82.04.4451(3)
City B&O tax	Separate, not administered by DOR; not on the state return	DOR city B&O tax page

When to refuse or refer

Refer to a Washington tax professional, or ask DOR for a ruling, when:

• the business belongs to an affiliated group near the $1,000,000 or $5,000,000 tier lines (RCW 82.04.290), or DOR has asked for an affiliate list;
• Washington taxable income could reach $250,000,000 (high-grossing surcharge, RCW 82.04.288), or the group may be a select advanced computing business (workforce education surcharge, RCW 82.04.299);
• the business is a financial institution, hospital, insurer, or in a specialized classification;
• apportionment involves several states and the benefit location is unclear;
• MATC involves out-of-state taxes;
• the business was unregistered for past periods;
• the question is about city B&O tax: send the client to the city, or to the Municipal Research and Services Center list that DOR links to.

Do not state a 2026 rate for a service moved to Retailing on 1 Oct 2025 without also sending the client to the wa-sales-tax Guide for the sales tax side.

Filing and payment

Frequency. DOR assigns a frequency when the business registers, based on estimated annual tax liability for all excise taxes on the return, including retail sales tax collected, not B&O alone (WAC 458-20-22801; DOR):

Annual tax liability	Frequency
$1,050 or less	Annual
$1,051 to $4,800	Quarterly
$4,801 or more	Monthly

A business can ask DOR to change its frequency.

Due dates (RCW 82.32.045; DOR):

• monthly: the 25th of the following month (June is due 25 July);
• quarterly: the last day of the month after the quarter (Q1 is due 30 April);
• annual: 15 April of the following year (the 2026 annual return is due 15 April 2027).

A due date on a weekend or legal holiday moves to the next business day. DOR may grant a filing extension only if asked before the due date. File and pay electronically through My DOR.

Late-payment penalties (RCW 82.32.090(1)): 9% of the tax if not paid by the due date; 19% in total if not paid by the last day of the following month; 29% in total if not paid by the last day of the second month after the due date. The minimum penalty is $5. Interest is charged as well.

Other penalties (RCW 82.32.090):

• 5% of the tax due for periods when a business that had to register did not. This is not imposed if the business registers before DOR tells it to.
• 5% for a substantial underpayment found by DOR, rising if the assessment is not paid on time.
• A further 50% where any part of a deficiency came from intent to evade.

DOR can waive late-return penalties only in qualifying circumstances, on request.

Worked cases (2026 periods)

Case A: service business, quarterly filer. A Washington sole proprietor provides bookkeeping services (Service and Other Activities; not in the 1 Oct 2025 retail list). 2025 Service and Other income was well under $1,000,000, so the rate is 1.5%. 2026 gross income is $150,000, earned evenly: $37,500 per quarter. Expected annual tax of $2,250 puts it in the quarterly band.

• Quarterly B&O before credit: $37,500 × 1.5% = $562.50.
• SBC maximum (all income is Service and Other, so $160 a month): $160 × 3 = $480.
• Tax exceeds the maximum, so credit = 2 × $480 − $562.50 = $397.50.
• B&O due per quarter: $562.50 − $397.50 = $165. For the year: $660.
• Gross income is over $125,000, so active non-reporting is not available.

Case B: tier boundary, monthly filer. A consulting company's 2025 Service and Other income was exactly $1,000,000, and it has no affiliates. In January 2026 it earns $90,000 of consulting income.

• Rate: 1.75% ($1,000,000 is "equal to or greater than" the threshold).
• January B&O: $90,000 × 1.75% = $1,575.
• SBC: the monthly maximum is $160. Tax due is more than twice the maximum ($320), so there is no credit. Due 25 February 2026: $1,575.

Case C: reclassified IT service, monthly filer. A Washington freelancer builds custom websites for Washington clients. From 1 Oct 2025 this is a retail sale. She bills $10,000 a month, about $120,000 a year.

• Frequency: the retail sales tax she collects counts toward the frequency test. At the state rate alone (six and five-tenths percent, RCW 82.08.020(1)) that is more than $4,800 a year, so DOR would normally assign her a monthly frequency.
• Retailing B&O for January 2026: $10,000 × 0.471% = $47.10.
• SBC: none of her taxable amount is Service and Other, so the maximum is $55 for a monthly period. Tax is below the maximum, so the credit is $47.10 and B&O is zero. The B&O result would be the same on a quarterly return.
• She must still register, collect and remit retail sales tax (wa-sales-tax Guide) and file every month. Collecting sales tax rules out active non-reporting.

Case D: out-of-state consultant with prior-year nexus. An Oregon-based consultant with no Washington property, staff or agents had $110,000 of Washington-sourced receipts in 2025 and has $120,000 in 2026, out of $400,000 total, all Service and Other. It is taxable in Oregon.

• Nexus: more than $100,000 of Washington receipts in 2025, so all of 2026 is taxable from 1 January (RCW 82.04.220(2)(b)). 2026 receipts also pass the test, so 2027 is covered too. It must register and file.
• Apportioned Washington income: $400,000 × ($120,000 / $400,000) = $120,000.
• Tax before credit for 2026: $120,000 × 1.5% = $1,800, which puts it in the quarterly band.
• If earned evenly, each quarter's tax is $450, below the $480 quarterly maximum, so the SBC removes it. It still files every quarter.

Case E: out-of-state consultant crossing the threshold mid-year. Same consultant, but its 2025 Washington receipts were $80,000 (no nexus in 2025). In 2026 it earns $10,000 of Washington receipts each month.

• Cumulative 2026 receipts reach exactly $100,000 at the end of October. That is not "more than" $100,000, so there is no nexus yet.
• Nexus arises in November, on the date cumulative receipts first exceed $100,000.
• Only activity on and after that date is taxable for 2026 (RCW 82.04.220(2)(a)). January to October activity is not taxed, and no returns were due for those months. It registers and reports from the nexus date.
• 2027 is taxable in full, because the test was met in 2026.

Case F: wholesaler across the 2027 rate change. A distributor makes $200,000 of wholesale sales in December 2026 and the same in January 2027 (monthly filer; the tax is far above twice the $55 monthly maximum, so no SBC).

• December 2026: $200,000 × 0.484% = $968.
• January 2027: $200,000 × 0.5% = $1,000.

2025 periods (late or amended returns)

• Service and Other Activities: through 30 Sep 2025 there were two tiers: 1.5% (prior-year income under $1,000,000) and 1.75% ($1,000,000 or more). From 1 Oct 2025 the three tiers in the rates section apply, with 2.1% at $5,000,000 or more.
• Services made retail sales by ESSB 5814: Service and Other Activities until 30 Sep 2025; Retailing (and retail sales tax) from 1 Oct 2025. A 2025 annual or quarterly return may need both. Contracts signed before 1 Oct 2025 had a DOR transition rule, so billings under them may stay on the old treatment for a time: check the existing-contracts section of the wa-sales-tax Guide before reclassifying.
• Retailing 0.471%, Wholesaling and Manufacturing 0.484%, and SBC maximums of $55 and $160 per month applied throughout 2025.
• The 2025 annual return was due 15 April 2026. Late payment brings the penalties in "Filing and payment".

Completion checklist

• Registration requirement and nexus checked for the current and prior year; if nexus arose mid-year, only activity from that date taxed
• Each income stream classified; ESSB 5814 services moved to Retailing from 1 Oct 2025; RCW 82.04.050(2) retail services treated as Retailing; reseller permits on file for every wholesale sale
• Gross income used, with no expense deductions
• Goods sourced by place of receipt; service income apportioned if taxable elsewhere
• Service and Other tier from prior-year income, affiliates aggregated
• Correct rate for the period (2027 rate changes noted)
• SBC computed once on total B&O tax, with the right monthly maximum and period length
• MATC considered for make-and-sell businesses
• Return filed by the due date for the assigned frequency
• City B&O and retail sales tax obligations flagged to the right place