A Washington partnership tax return is really two filings in parallel: a federal Form 1065 submitted to the IRS, and a state combined excise tax return submitted to the Washington Department of Revenue. Washington has no state income tax, so there is no state analog to Form 1065, but every partnership doing business here owes excise taxes measured on gross receipts and, in many cases, sales tax collected from customers.
Federal Form 1065 Comes First
Every domestic partnership must file Form 1065 with the IRS, whether or not the state it operates in taxes income. Calendar-year partnerships are due March 15 each year.1Internal Revenue Service. 2025 Instructions for Form 1065
Form 1065 is informational. The partnership itself pays no federal income tax; income, deductions, and credits flow through to each partner on a Schedule K-1, and partners report their share on their personal returns. The K-1s have to reach partners by the same March 15 date.
The late-filing penalty is $255 per partner for each month or partial month the return is overdue, up to 12 months.1Internal Revenue Service. 2025 Instructions for Form 1065 A five-partner firm three months late owes $3,825 before any tax calculation. An automatic six-month extension is available on Form 7004, but you have to file it before the March 15 deadline passes.
The Washington Combined Excise Tax Return
Washington rolls three taxes into one filing: the Business and Occupation (B&O) tax, retail sales tax, and use tax. That single document is the combined excise tax return.
You file through the Department of Revenue’s My DOR portal, and electronic filing is mandatory.2Washington State Legislature. WAC 458-20-22802 – Electronic Filing and Payment of Taxes You’ll need your nine-digit Unified Business Identifier (UBI) number, assigned when you register for a Washington business license.3Washington Department of Revenue. Business Licensing and Renewals FAQs On the return, you break out gross receipts by tax classification, enter any deductions in the designated fields, and the system calculates credits automatically.
A quiet trap: even in a period with zero activity, you still have to file a “no business” return by the due date. You can do that through My DOR, through the express-file tool on the Department of Revenue website without logging in, or by calling the automated line at 360-705-6705.4Washington Department of Revenue. Efile in My DOR Save the confirmation number. State law requires you to keep tax records for at least five years, including the return itself, income records by activity, and proof of any deductions or credits claimed.5Washington State Legislature. WAC 458-20-254 – Record Retention
Business and Occupation Tax
B&O tax, codified at RCW 82.04, is measured on gross receipts with no deductions for labor, materials, rent, or other costs of doing business.6Washington Department of Revenue. Business and Occupation Tax Every dollar of revenue counts. Partners used to income-tax states are frequently caught off guard by that.
Rates depend on what the partnership does. Retailing is taxed at 0.471% of gross receipts, service activities at 1.5%, and wholesaling, manufacturing, and other classifications each have their own rates.7Washington Department of Revenue. Business and Occupation (B&O) Tax A partnership with revenue in more than one classification reports each stream separately at its own rate.
Smaller partnerships can reduce or eliminate B&O liability through the small business tax credit, which is available when the period’s B&O liability stays below a set threshold. For monthly filers earning more than half their income from service and other activities, that threshold is $320 per period.8Washington Department of Revenue. Credits The credit calculates automatically on the electronic return.
Who Has to Register
A partnership must register with the Department of Revenue and begin filing if, in the current or prior year, it has a physical presence in Washington, has more than $100,000 in combined gross receipts sourced to Washington, or is organized or commercially domiciled in the state.9Washington Department of Revenue. Out of State Businesses Reporting Thresholds and Nexus The $100,000 receipts threshold reaches out-of-state partnerships selling remotely into Washington: an Oregon consulting firm with $150,000 of Washington clients has to register even without an office in the state.
Reporting Frequency and Due Dates
Once you’re registered, the Department of Revenue assigns a filing frequency based on your estimated annual tax. Partnerships owing more than $4,800 per year file monthly, those between $1,050 and $4,800 file quarterly, and those under $1,050 file annually.10Cornell Law Institute. Washington Administrative Code 458-20-22801 – Tax Reporting Frequency Annual returns are due April 15.4Washington Department of Revenue. Efile in My DOR
Retail Sales Tax and Use Tax on the Same Return
If your partnership sells tangible goods, certain digital products, or taxable services, you collect retail sales tax from your customers and remit it on the combined excise tax return. The state rate is 6.5%, and local jurisdictions add their own rates on top, so the combined rate depends on where the customer receives the goods or services, not where you’re located.11Washington Department of Revenue. Retail Sales Tax Sales tax you collect is trust money. It belongs to the state from the moment of collection, and spending it on business expenses is a serious compliance violation.
Use tax is the mirror image. When your partnership buys equipment, supplies, or other items for its own use without paying Washington sales tax, use tax applies at the same combined rate. Common triggers are out-of-state vendors who don’t collect Washington tax and online orders that arrive with no sales tax charged. Report and pay it on the same combined return.12Washington Department of Revenue. Use Tax Misusing a reseller permit to avoid sales or use tax on items actually consumed in the business carries a 50% penalty on the tax owed.
One change to flag: starting October 1, 2025, ESSB 5814 expanded retail sales tax to cover several professional services that used to be exempt, including advertising, IT support and consulting, custom website development, live online or in-person workshops, investigation and security services, temporary staffing, and custom software.13Washington Department of Revenue. Services Newly Subject to Retail Sales Tax If you sell any of these, you now collect sales tax on them. If you buy them, expect sales tax on vendor invoices.
If You Earn Income in More Than One State
Multistate partnerships don’t pay B&O on their worldwide revenue. They apportion using a single-factor receipts method: total apportionable income multiplied by the ratio of Washington receipts to worldwide receipts, minus throw-out income.14Washington Department of Revenue. Apportionment Formula (Receipts Factor) Income attributed to another state where the partnership lacks physical presence, has under $100,000 in gross receipts, and isn’t subject to a business activities tax gets removed from the denominator, which raises the Washington share.15Washington Department of Revenue. Throw-Out Income Partnerships that use partial-year figures when they file must reconcile once full-year numbers are available.
Reporting Capital Gains to Partners
Washington’s capital gains tax falls on individuals, not partnerships, but the partnership has to give partners the information they need to file. The tax applies to gains from assets like stocks, bonds, and other intangible interests. Each individual gets a $250,000 annual deduction, after which the first $1 million of taxable Washington capital gains is taxed at 7% and anything above $1 million at 9.9%.16Washington Department of Revenue. New Tiered Rates for Washington’s Capital Gains Tax Chapter 82.87 RCW sets out the rules.17Washington State Legislature. Washington Code 82.87 – Capital Gains Tax Each partner’s allocable share has to be reported to them alongside the federal Schedule K-1 so they can calculate their own Washington liability. Inaccurate reporting here flows straight through to penalties on partners’ personal returns.
Local City B&O Taxes Are Separate
Several Washington cities impose their own B&O taxes on top of the state’s. Seattle charges 0.658% on service income, and Tacoma charges 0.4%. Many smaller cities levy local B&O at lower rates, often only on specific activities such as retail or manufacturing. Local returns go through each city’s own system, not the state portal, and a partnership working across the Puget Sound region can owe in several jurisdictions at once. Confirm with each city whether your activity triggers a filing obligation.
Late Filing and Payment Penalties
Washington’s late-payment penalty is tiered and escalates fast. If payment isn’t received by the due date, the Department of Revenue assesses 9% of the amount owed. If payment still hasn’t arrived by the last day of the following month, the penalty rises to 19%. By the end of the second month after the due date, it reaches 29%. The minimum is $5 in every case.18Washington State Legislature. RCW 82.32.090 – Penalties These are total figures, not stacked layers: a payment 45 days late sits at 19%, not 9% plus 19%. Interest runs on top. The Department can waive penalties in limited circumstances, but you have to request the waiver and show a qualifying reason.19Washington Department of Revenue. Penalty Waivers
Payroll Filings If You Have Employees
Partnerships with Washington employees face two state payroll obligations beyond the federal baseline, both handled through systems separate from the combined excise tax return.
The WA Cares Fund takes 0.58% of each employee’s gross wages, withheld by the employer and remitted to the state. The program covers most workers, with narrow exceptions for federal employees, certain tribal employees, and workers on temporary non-immigrant visas.20WA Cares Fund. How the Fund Works
Paid Family and Medical Leave requires a combined premium of 1.13% of each employee’s gross wages up to the Social Security cap, which is $184,500 in 2026. Partnerships with 50 or more employees split the premium 28.57% employer / 71.43% employee. Smaller partnerships aren’t required to pay the employer share, but they still have to collect and remit the employee portion.21Washington State’s Paid Family and Medical Leave. Estimate Your Paid Leave Payments Missing these withholdings creates penalties for the partnership and leaves employees without benefits they are entitled to claim.