If your business earns more than $2 million a year in Seattle-sourced gross revenue, the Seattle B&O tax applies at 0.342% on retail, wholesale, and manufacturing income and 0.658% on service and other business income, with the first $2 million deducted before the rate is applied. Below $2 million, you owe no B&O tax at all. These figures took effect on January 1, 2026, under the Seattle Shield package, and they are locked in through 2032.1City of Seattle. Tax Rates and Classifications
What Changed on January 1, 2026
Three things moved at once, and they work together:
- The taxability threshold rose from $100,000 to $2 million in annual gross revenue. Businesses under that line don’t owe B&O tax for the year.2City of Seattle. Business Taxes
- Businesses above the threshold get a $2 million standard deduction, so the higher rates apply only to revenue above that amount.
- Every classification rate went up. Retail, wholesale, and manufacturing climbed from 0.222% to 0.342%. Services jumped from 0.427% to 0.658%.3City of Seattle. Seattle Shield Business and Occupation (B&O) Tax Changes
The design is deliberate. Small businesses drop out of the tax entirely, mid-sized businesses often pay roughly the same or less, and large businesses pay materially more.
Rates by Classification Through 2032
Seattle’s B&O tax is a gross receipts tax. It applies to money coming in before any expenses come out, so you can owe the tax even in a loss year. The current rates:1City of Seattle. Tax Rates and Classifications
- Manufacturing and extracting: 0.342%
- Wholesaling: 0.342%
- Retail sales and retail services: 0.342%
- Printing and publishing: 0.342%
- Tour operator and processor for hire: 0.342%
- Service and other business activities: 0.658%
- Transporting freight for hire: 0.658%
“Service and other business activities” is the catch-all. Consulting, legal work, accounting, design, and software development all fall here at the higher rate. If your work doesn’t clearly fit retail, wholesale, or manufacturing, assume it lands in services.1City of Seattle. Tax Rates and Classifications
What the Math Looks Like
Take a consulting firm with $5 million in Seattle-sourced revenue. Subtract the $2 million standard deduction and apply 0.658% to the remaining $3 million. The city bill is $19,740. Under the old rules the same firm would have paid about $20,930. Slight decrease.
Now scale up. A service firm at $20 million pays 0.658% on $18 million, or $118,440. Under the old rates the same firm would have owed roughly $85,000. That is the shift Seattle Shield is engineering.
Who Owes the Tax
Any person or entity doing business in Seattle owes B&O tax once annual gross revenue passes the $2 million threshold. A physical office in the city isn’t required. Seattle treats nexus as established if you are physically present, if you try to hold market share here, or if you benefit from the city’s economic infrastructure.4City of Seattle. Directors Rule 5-043 – Engaging in Business Out-of-state sellers and service providers can trigger nexus purely through economic activity.5Washington Department of Revenue. Out of State Businesses Reporting Thresholds and Nexus
Being under the $2 million threshold does not exempt you from the license. If you operate in the city at all, you still need a Seattle business license tax certificate. You just won’t owe B&O tax on the revenue.
What You Can and Can’t Deduct
Seattle’s B&O tax does not allow you to subtract ordinary business expenses. Rent, payroll, utilities, insurance, cost of goods sold — none of it reduces your taxable gross receipts. Only deductions specifically written into the Seattle Municipal Code count.6City of Seattle. Deductions From the Business License Tax The most commonly used ones:
- Bad debts you already reported and paid tax on but couldn’t collect
- Bona fide contributions and donations received
- Interstate and foreign sales the city can’t constitutionally tax
- Cash and trade discounts actually taken by your buyer
- Casual and infrequent sales outside your regular business activity
- Childcare services for children under age eight who haven’t entered first grade
Each deduction needs documentation tied to specific transactions. Bad debt claims, for instance, require records showing the income was originally reported, that collection efforts failed, and the amount written off.
Nonprofits
There is no blanket exemption for 501(c)(3) organizations. Seattle exempts specific nonprofit activities — child care resource and referral services, credit and debt counseling, employment services for people with disabilities, and student loan administration — but a nonprofit running a store, charging fees for professional services, or selling event tickets generally owes B&O tax on that revenue.7City of Seattle. Exemptions From the Business License Tax
Apportioning Service Income Across Cities
If your service business operates in more than one jurisdiction, you don’t owe Seattle B&O tax on your entire book. Since January 1, 2020, Seattle has used market-based sourcing: the customer’s location controls, not where the work is performed.8City of Seattle. Service Income Apportionment
For business customers, the city looks first at where the service was ordered from. If that’s unknown, it falls back to the customer’s billing address, then to the customer’s commercial headquarters. For individual customers, the location is wherever the service is performed if the customer must be physically present, or the customer’s home address if not.8City of Seattle. Service Income Apportionment This is a frequent audit issue for service firms, because the allocation directly controls how much revenue Seattle can tax.
Filing, Licensing, and Deadlines
Seattle taxes are filed separately from Washington state taxes, through the city’s FileLocal platform.9City of Seattle. Manage Your Account Online Your reporting frequency — monthly, quarterly, or annual — depends on your revenue level and is printed on your business license.2City of Seattle. Business Taxes Each return reports gross receipts, sorts revenue into the right classifications, applies eligible deductions, and separates Seattle-sourced income from revenue earned elsewhere.
The Business License Itself
Every business operating in Seattle needs a business license tax certificate, even under the $2 million B&O threshold. The annual license fee scales with prior-year taxable revenue:10City of Seattle. Business Licenses
- $0 to $19,999: $73
- $20,000 to $499,999: $147
- $500,000 to $1,999,999: $667
- $2,000,000 to $4,999,999: $1,604
- $5,000,000 or more: $3,210
Branch locations inside the city add $10 each. Operating without a license triggers a 5% penalty on all unpaid tax, applied automatically with no right to contest. Register voluntarily before the city contacts you and that penalty doesn’t attach.11City of Seattle. Directors Rule 5-007
Penalties and Interest
Late payment penalties escalate on a fixed schedule. Miss the due date and the city adds 9%. Still unpaid at the end of the following month, it climbs to 19%. Unpaid through the second month after the due date, it reaches 29%. Minimum penalty is $5.11City of Seattle. Directors Rule 5-007 Interest runs separately. For 2026 the assessment interest rate is 6%.12Washington Department of Revenue. Interest Rate Tables Penalties and interest stack, and a missed quarter can get expensive inside 60 days.
Keep financial records at least five years. If you operated without a license, the city can request records going back ten years, matching the extended statute of limitations for unregistered businesses.13City of Seattle. Recordkeeping Requirements
How It Stacks with State B&O and JumpStart
Seattle’s B&O tax sits on top of Washington’s state B&O tax. There is no credit between the two. State rates are 0.471% on retailing and 1.5% on service activities.14Washington Department of Revenue. Business and Occupation (B&O) Tax A Seattle-based service firm faces a combined gross receipts rate near 2.16% (0.658% city plus 1.5% state) before deductions. The state doesn’t let you subtract taxes or other operating costs from the state B&O base.15Washington Department of Revenue. Business and Occupation Tax
Seattle also imposes a separate JumpStart payroll expense tax on larger employers. For 2026 it applies to employees earning $194,452 or more, but only at companies with total Seattle payroll of at least $129,634,413. Rates range from 0.746% to 2.557% depending on both total payroll and the individual employee’s compensation. It applies in addition to city and state B&O.16City of Seattle. Payroll Expense Tax
Disputing an Assessment
If you disagree with a tax assessment or audit finding, Seattle’s Office of Hearing Examiner handles B&O tax appeals independently of the Department of Finance and Administrative Services. Penalties for late payment, substantial underpayment, failure to follow written reporting instructions, or intent to evade tax are governed by SMC 5.55.110 and cross-reference state law.17Municode Library. Seattle Municipal Code Chapter 5.55 – General Administrative Provisions Most disputes get resolved at the department level, so start by contacting the Department of Finance directly. Escalate to the Hearing Examiner if those conversations stall.