Washington has no corporate income tax and no personal income tax, but that does not mean businesses pay nothing to the state. The main Washington business tax is the Business and Occupation (B&O) tax, a gross-receipts tax under RCW 82.04, and most companies also owe retail sales and use tax, personal property tax on business equipment, payroll premiums, and, in some sale transactions, a 7 percent capital gains excise tax.1Washington State Legislature. Chapter 82.04 RCW – Business and Occupation Tax
The B&O Tax on Gross Receipts
The B&O tax works nothing like the federal income tax. It applies to your total gross receipts, meaning the full value of products sold, services rendered, or other income received. There are no deductions for labor, materials, rent, or any other operating cost. A business can have a loss for the year on its federal return and still owe B&O tax in Washington.
The state assigns each activity to a classification with its own rate:
- Retailing: 0.471 percent of gross receipts
- Wholesaling: 0.484 percent of gross receipts
- Manufacturing: 0.484 percent of gross receipts
- Service and other activities: 1.5 percent, 1.75 percent, or 2.1 percent, depending on the business’s prior-year gross income
The service tier rates apply as follows. If your prior-year taxable income was under $1 million, you pay the base 1.5 percent. Between $1 million and $4,999,999, the rate is 1.75 percent. At $5 million or more, it is 2.1 percent, and the top tiers fund the state’s Workforce Education Investment program.2Washington Department of Revenue. Workforce Education
A business that operates across more than one classification reports each activity separately. A shop that manufactures a product and then sells it at retail, for example, files under both categories.3Washington Department of Revenue. Business and Occupation Tax Classifications
Credits That Reduce Your B&O Bill
Small businesses with low gross receipts may qualify for a credit that reduces or eliminates their B&O tax. The maximum is $55 per month ($660 per year) for most businesses. Businesses that report at least half their taxable amount under the service and other activities classification get a higher maximum of $160 per month ($1,920 per year).4Washington State Legislature. RCW 82.04.4451 – Credit Against Tax Due – Maximum Credit – Table When the tax owed is at or below the maximum credit, the credit wipes out the bill entirely. Above that, it phases down.
The multiple activities tax credit (MATC) addresses double taxation. Because B&O applies to gross receipts at each stage, a company that both manufactures and sells the same product in Washington could be taxed twice on the same revenue. MATC allows a credit for the overlapping amount when products are manufactured and sold in Washington, or when they are extracted and then manufactured or sold within the state.5Washington Department of Revenue. Multiple Activities Tax Credit (MATC)
Filing Schedule and Late Penalties
Filing frequency tracks how much tax you owe. Businesses owing $1,050 or less per year file annually. Between $1,051 and $4,800, quarterly. Above $4,800, monthly.6Washington Department of Revenue. Filing Frequencies and Due Dates
Late payment triggers an automatic 9 percent penalty on the tax due. If the tax is still unpaid after the month following the return’s due date, the penalty climbs to 19 percent. After the second month, it reaches 29 percent.7Washington Department of Revenue. Penalty Waivers The Department of Revenue also audits businesses regularly to check that classifications and reported gross receipts are correct.
Sales Tax, Use Tax, and Reseller Permits
If you sell tangible goods or certain services, you collect sales tax for the state at the point of sale. The state rate is 6.5 percent, and local jurisdictions add their own, typically producing a combined rate between roughly 8 and 10.6 percent depending on where the sale occurs.8Washington Department of Revenue. Retail Sales Tax Failing to collect the correct amount does not relieve you of the obligation to pay it.
Businesses buying goods for resale can avoid paying sales tax on those purchases by giving the supplier an approved exemption certificate. Washington-registered businesses use a Reseller Permit. Without proper documentation, both buyer and seller can be held liable for the unpaid sales tax.9Washington Department of Revenue. Approved Exemption Certificates for Wholesale Purchases
Use tax fills the gap. When your business acquires tangible property without paying sales tax, typically from an out-of-state vendor that does not collect Washington tax, or when you pull inventory for your own use, you must self-report and pay use tax. The rate matches the combined state and local sales tax rate at the location where the item is first used.10Washington State Legislature. Chapter 82.12 RCW – Use Tax Reporting it on each excise tax return prevents large surprise assessments during an audit.
When Out-of-State Sellers Owe Washington Tax
You do not need a physical presence in Washington to owe B&O and sales tax here. Since January 1, 2020, a single economic nexus threshold applies: $100,000 or more in gross income from activities in the state during the current or preceding calendar year. That figure covers all gross income, not just retail sales.11Washington Department of Revenue. New Law Updates Washington State Tax Requirements for Out-of-State Businesses Remote sellers crossing that threshold must register, collect and remit sales tax on retail transactions, and file B&O returns.
Capital Gains Excise Tax on Business Sales
Washington imposes a 7 percent excise tax on the sale or exchange of long-term capital assets under RCW 82.87. Long-term means held for more than one year before the sale.12Internal Revenue Service. Topic No. 409, Capital Gains and Losses The tax applies only to net gains above a standard deduction that adjusts annually for inflation; for 2025 it was $278,000 per individual or married couple, and the 2026 figure will be announced separately by the Department of Revenue.13Washington Department of Revenue. Capital Gains Tax
Although structured as a tax on individuals, business owners run into it when selling an ownership interest or disposing of substantial business assets. Gains from the sale of real estate and from the sale of a qualified family-owned small business are exempt, and a charitable deduction is also available with an annual inflation adjustment.14Cornell Law School. Washington Code 458-20-300 – Capital Gains Excise Tax – Overview and Administration
Personal Property Tax on Business Assets
Businesses pay annual property taxes on the equipment, furniture, machinery, and other tangible personal property used in operations. This is separate from real property tax on land and buildings and is based on current market value. You must file a personal property listing with the county assessor by April 30 each year.15Washington State Legislature. Washington Code 84.40.040 – Time and Manner of Listing
Missing April 30 triggers a penalty of 5 percent of the tax assessed on the unlisted property for the first month, with another 5 percent for each additional month overdue, up to 25 percent. For the first month, the penalty is also capped at $50 per calendar day.16Washington State Legislature. RCW 84.40.130 – Penalty for Failure or Refusal to List
Sole proprietors may qualify for a head-of-family exemption that removes $15,000 in assessed value from the personal property tax bill. It must be requested each year and is limited to one per taxpayer. LLCs and partnerships do not qualify.
Payroll Premiums Employers Pay
Washington has no state income tax to withhold, but employers still owe mandatory payroll premiums that function like a tax. The largest is the Paid Family and Medical Leave (PFML) premium. For 2026, the total premium is 1.13 percent of each employee’s gross wages up to the Social Security wage cap of $184,500. Employers with 50 or more employees pay 28.57 percent of the premium and the employee pays the remaining 71.43 percent. Employers with fewer than 50 employees are not required to pay the employer share but must still collect and remit the employee portion.17Washington Paid Leave. Estimate Your Paid Leave Payments
Employers also pay workers’ compensation premiums through the Department of Labor and Industries and unemployment insurance contributions through the Employment Security Department. Both vary by industry and payroll size.
Registering the Business First
Before collecting any of these taxes or filing returns, most businesses must register with the Department of Revenue and obtain a state business license. Registration is required if your gross income is $12,000 or more per year, you plan to hire employees, you sell products or services that require collecting sales tax, or you do business under a name other than your legal name. Corporations, LLCs, and partnerships must also file formation documents with the Secretary of State before applying.18Washington Department of Revenue. Apply for a Business License Once approved, the state issues a Unified Business Identifier (UBI) number that you will use on every tax filing after that.