Because Washington has no personal or corporate income tax, the state relies on excise taxes to fund most of its budget. An excise tax in Washington state is a tax on a specific sale, activity, or transaction, and the ones you’re most likely to encounter are the retail sales and use tax, the Business & Occupation (B&O) tax on gross business receipts, the Real Estate Excise Tax on property sales, and a 7% capital gains tax on large investment profits. Product-specific excise taxes on fuel, tobacco, alcohol, and cannabis sit on top of all that. Rates, exemptions, and filing schedules differ for each.
Retail Sales and Use Tax
The state retail sales tax rate is 6.5%. Cities and counties add their own local rates, so the combined rate you pay at the register varies by location and exceeds 10% in some parts of the state.1Washington Department of Revenue. Retail Sales Tax for Private Mailing Businesses Businesses collect it from customers and remit it to the Department of Revenue.
Most groceries sold for home consumption are exempt, as are SNAP purchases, prescription medications, and certain medical devices.2Washington State Legislature. WAC 458-20-244 Prepared restaurant food is taxable. The line between exempt groceries and taxable prepared food causes more confusion than any other exemption.
Use tax is the backstop for sales tax. If you buy something for use in Washington and no sales tax was collected—say, from an out-of-state retailer or during a trip to a lower-tax state—you owe use tax at the combined state and local rate for where you first use the item.3Washington Department of Revenue. Use Tax You won’t owe both taxes on the same purchase.
Out-of-state sellers without a physical presence in Washington must register, collect sales tax, and file returns once their gross receipts sourced to the state exceed $100,000.4Washington Department of Revenue. Remote Sellers
Business and Occupation Tax
The B&O tax applies to gross receipts, meaning total revenue before you subtract any expenses.5Washington Department of Revenue. Business & Occupation Tax Even a business that barely breaks even after costs owes B&O on every dollar that came in the door. That’s the feature that catches new owners off guard.
Rates by Activity
The rate depends on what your business does:6Washington Department of Revenue. Business and Occupation (B&O) Tax
- Retailing: 0.471% of gross receipts
- Wholesaling: 0.484% of gross receipts
- Manufacturing: 0.484% of gross receipts
- Service and other activities: 1.5% of gross receipts
The service rate runs roughly triple the retailing rate, which is why professional service firms feel the B&O more than retailers do. If your business spans multiple activities, different revenue streams may be taxed at different rates.
Small Business Credit
A B&O credit can wipe out your liability if it stays low enough. When less than half your taxable income comes from service activities, the credit zeroes you out when total B&O owed stays below $110 per month, $330 per quarter, or $1,320 annually. When half or more of your income is from service classifications, the thresholds are $320 per month, $960 per quarter, or $3,840 annually.7Washington Department of Revenue. Credits The credit phases out as your liability rises.
Real Estate Excise Tax
When real property changes hands, the seller owes the Real Estate Excise Tax (REET). The buyer becomes liable only if the seller fails to pay.8Washington Department of Revenue. Real Estate Excise Taxes The state portion uses graduated brackets, updated every four years. Since January 1, 2023:9Washington Department of Revenue. Real Estate Excise Tax
- $525,000 or less: 1.10%
- $525,000.01 to $1,525,000: 1.28%
- $1,525,000.01 to $3,025,000: 2.75%
- Over $3,025,000: 3.00%
Because the brackets are graduated, a $600,000 home doesn’t get taxed at 1.28% on the full price. The first $525,000 is taxed at 1.10%, and only the remaining $75,000 is taxed at 1.28%. Local jurisdictions may add their own REET on top. The tax is handled at closing, so most sellers never write a separate check.
Capital Gains Tax
Washington enacted a 7% flat tax on net long-term capital gains in 2021. It’s classified legally as an excise tax rather than an income tax, and it applies only to individuals, though you can owe it through ownership of a pass-through entity.10Washington Department of Revenue. Capital Gains Tax For 2025 the standard deduction is $278,000 per individual, and only gains above that amount are taxed. The deduction adjusts for inflation each year.
Several categories are exempt regardless of the gain:
- Real estate (REET applies separately)
- Assets held in qualified retirement accounts
- Depreciable business assets that qualify for depreciation or expensing under federal rules
- Timber and timberlands, including distributions from timber-related REITs
- Livestock used in farming or ranching
- Gains from selling all or substantially all of a qualifying family-owned small business
Charitable donations above the standard deduction amount are also deductible, up to $111,000 for 2025. Returns are due on the same day as your federal income tax return, typically April 15.
Fuel, Tobacco, Alcohol, and Cannabis
Several products carry their own excise taxes on top of, or in place of, regular sales tax.
The state gas tax runs 55.4 cents per gallon from July 2025 through June 2026, collected from distributors and built into the pump price.11Washington Department of Revenue. Motor Vehicle Fuel Tax Rates
Cigarettes are taxed at $30.25 per carton, roughly $3.025 per pack.12Washington Department of Revenue. Cigarette Tax Other tobacco and vapor products fall under separate rates.
Spirits carry a spirits sales tax of 20.5% for consumer purchases and 13.7% for on-premises retailers like bars and restaurants.13Washington Department of Revenue. Spirits (Hard Liquor) Sales Tax Regular retail sales tax doesn’t apply to unopened bottles of spirits but does apply to drinks by the glass. Beer and wine are taxed under separate schedules at lower rates.
Licensed cannabis retailers collect a 37% excise tax on every retail sale, on top of state and local sales tax. The 37% must be shown separately on the receipt and paid to the Liquor and Cannabis Board, not the Department of Revenue.14Washington State Legislature. RCW 69.50.535 – Cannabis Excise Tax
Filing Frequency and Deadlines
Every business that owes tax to the Department of Revenue must register and get a business license.15Washington Department of Revenue. Apply for a Business License The department assigns your filing frequency at registration based on your expected annual liability, and it can change as your business grows:16Washington Department of Revenue. Filing Frequencies & Due Dates
- Annual: $1,050 or less per year in total tax
- Quarterly: $1,051 to $4,800 per year
- Monthly: above $4,800 per year
Annual filers have a return due date of April 15. Some industries file more often regardless of revenue.
Penalties for Late Filing or Payment
Washington’s late-payment penalties escalate quickly:17Cornell Law Institute. Wash. Admin. Code 458-20-228 – Returns, Payments, Penalties
- Immediately past due: 9% of the unpaid tax
- One month past due: total penalty rises to 19%
- Two months past due: total penalty rises to 29%
Those are just the late-payment penalties. If an audit produces an assessment for substantially underpaid tax, a separate 5% penalty applies when the assessment is issued, climbing to 25% if it remains unpaid after 30 days. Tax evasion carries a 50% penalty. Misusing a reseller permit to avoid sales tax also triggers a 50% penalty. Interest accrues on top of all penalties at a variable annual rate tied to the federal short-term rate plus two percentage points.
Operating without registering adds a 5% penalty on the tax owed, and if the Department of Revenue issues a collection warrant, another 10% is tacked on. The minimum penalty for any late payment is five dollars, though the percentages compound so fast that most late filers owe far more. Filing on time with an estimated payment, even if the exact amount is uncertain, avoids the worst of these consequences.