Washington State excise taxes are levied on specific transactions and business activities rather than on income, and because Washington has no personal or corporate income tax, they carry an outsized role in funding transportation, education, and public health.1Washington Department of Revenue. Income Tax The ones you’re most likely to encounter are the real estate excise tax, the business and occupation tax, the capital gains tax, and taxes on cannabis, fuel, tobacco, and vapor products.
Real Estate Excise Tax
The real estate excise tax (REET) applies whenever real property changes hands, covering land and anything permanently attached to it. The seller usually pays, but the buyer becomes liable if the seller doesn’t.2Washington Department of Revenue. Real Estate Excise Tax The county where the property sits collects the tax when the sale documents are recorded.
Washington uses a graduated rate structure, so different portions of the sale price are taxed at increasing rates:2Washington 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%
- $3,025,000.01 and above: 3.00%
Many cities and counties add a local REET on top of the state rate, so the combined tax on a sale can be meaningfully higher than the state portion alone.
Not every transfer triggers REET. Gifts of real property are generally exempt, and so are transfers by inheritance or a will.3Washington State Legislature. WAC 458-61A-201 – Gifts4Legal Information Institute. WAC 458-61A-202 – Inheritance or Devise Other exemptions cover certain transfers between related entities and specific government transactions.
Business and Occupation Tax
The business and occupation (B&O) tax is a gross receipts tax on nearly every business operating in Washington. Unlike a corporate income tax, it’s calculated on total gross revenue with no deductions for labor, materials, rent, or other expenses.5Washington Department of Revenue. Business and Occupation Tax A business can owe B&O tax even in a year it loses money.
Rates depend on the type of activity:6Washington Department of Revenue. Business and Occupation Tax Classifications
- Retailing: 0.471%
- Wholesaling: 0.484%
- Manufacturing: 0.484%
- Service and other activities: 1.5% (under $1 million in prior-year revenue), 1.75% ($1 million to $4.99 million), or 2.1% ($5 million and above)
Service businesses pay noticeably more than retailers or manufacturers. Businesses with revenue in more than one category report each portion under the applicable classification.
Small Business B&O Tax Credit
A small business tax credit can offset some or all of your B&O liability. The credit is based on your total taxable amount and calculated from tables published by the Department of Revenue. If at least half of your taxable revenue falls under the service classification, the maximum credit is $160 per month; for all other businesses, the maximum is $55 per month.7Legal Information Institute. WAC 458-20-104 – Small Business Tax Relief Based on Income of Business The credit phases out as income rises, and the DOR publishes updated credit tables showing the exact amount at each income level.8Washington Department of Revenue. Small Business Tax Credit Tables
Capital Gains Tax
Washington’s capital gains tax took effect in 2022. It imposes a 7% tax on the sale or exchange of long-term capital assets like stocks, bonds, and business interests.9Washington Department of Revenue. Capital Gains Tax Only individuals pay this tax, though you can owe it through your ownership stake in a pass-through entity that sells qualifying assets.
A standard deduction shields the first portion of your gains. For the 2025 tax year, the deduction is $278,000 per individual, and the threshold adjusts annually for inflation.9Washington Department of Revenue. Capital Gains Tax Spouses and domestic partners share that same $278,000 deduction whether they file jointly or separately.
Beginning January 1, 2025, gains above $1 million face an additional 2.9% surtax on the amount exceeding that threshold.10Washington State Legislature. RCW 82.87.040 – Tax Imposed An individual who realizes $1.5 million in Washington-allocated gains after the standard deduction would pay 7% on the full amount plus 2.9% on the $500,000 above $1 million.
You only need to file a capital gains tax return if you owe the tax. The return is due on the same date as your federal income tax return and must be filed electronically.9Washington Department of Revenue. Capital Gains Tax The tax only applies to gains allocated to Washington, so the sale of real estate located in another state or assets with no Washington connection isn’t covered. The sale of a primary residence is excluded under the same federal exclusion rules.
Cannabis, Fuel, Tobacco, and Vapor Products
Washington levies excise taxes on several categories of consumer goods, collected at the point of sale or through distributors.
Cannabis
Recreational cannabis carries a 37% excise tax, paid by the retailer to the Liquor and Cannabis Board rather than the Department of Revenue.11Washington Department of Revenue. Taxes Due on Cannabis Medical cannabis patients with a valid recognition card are exempt from this excise tax when buying from a retailer with a medical cannabis endorsement, an exemption set to remain in effect through June 30, 2029.12Washington State Legislature. RCW 69.50.535 – Cannabis Revenue Tax Standard retail sales tax still applies to recreational purchases on top of the excise tax.
Fuel
Washington’s motor fuel tax is charged per gallon on gasoline and diesel. The rate is set by statute and periodically adjusted. It’s built into the pump price, and revenue is earmarked primarily for road construction and maintenance.
Tobacco and Vapor Products
Cigarettes and other tobacco products are subject to a per-unit excise tax collected by distributors before the products reach store shelves. Vapor products face a separate excise tax, currently set at $0.09 per milliliter for accessible containers of solution larger than 5 mL and $0.27 per milliliter for all other vapor products.13Washington Department of Revenue. Vapor Products Tax
How to Register and File
Any business required to pay excise taxes in Washington must register with the Department of Revenue through a Business License Application.14Washington Department of Revenue. Apply for a Business License Once registered, you’ll receive a Unified Business Identifier (UBI) number and information about your assigned filing frequency. Most returns are reported and paid through the DOR’s online portal, My DOR.
Filing frequency depends on the size of your business:15Washington Department of Revenue. Filing Frequencies and Due Dates
- Monthly filers: returns are due the 25th of the following month. A June return is due July 25.
- Quarterly filers: returns are due by the last day of the month after the quarter ends. A January through March return is due April 30.
- Annual filers: returns are due April 15.
The DOR assigns your frequency based on estimated yearly tax liability. Higher-revenue businesses file more often. You’re responsible for keeping accurate records of gross income, deductions, and credits for each reporting period.
Penalties for Late Payment
Washington escalates penalties quickly when excise payments are late. If payment isn’t received by the due date, the penalty is 9% of the tax owed. If it’s still unpaid by the end of the following month, the penalty rises to 19%. By the end of the second month after the due date, it reaches 29%.16Washington State Legislature. Washington Code Title 82 Chapter 82.32 Section 82-32-090
Interest accrues on top of penalties. Washington calculates the annual interest rate using the federal short-term rate plus two percentage points, so it fluctuates year to year. Intentional evasion triggers a 50% penalty, and misusing resale certificates carries the same 50% penalty.
Successor Liability When Buying a Business
If you’re buying a business in Washington, the previous owner’s unpaid excise taxes can become your problem. State law requires anyone who acquires a business or its assets to withhold enough of the purchase price to cover any outstanding tax debt. If the seller doesn’t produce a receipt from the DOR showing full payment or a certificate that no tax is due, and the tax remains unpaid for more than ten days after the sale, the buyer becomes personally liable for the full amount.17Washington State Legislature. RCW 82.32.140 – Successor Liability
One limited protection exists. If the fair market value of the acquired assets is less than $50,000, your liability as the buyer is capped at that fair market value rather than the full tax debt, and the burden of proving the assets’ value falls on you. Before closing a business acquisition in Washington, request a tax status letter from the DOR to confirm the seller’s account is clean.