Washington — Corporate Income / Franchise Tax

## Direct answer

Washington State does not impose a corporate income tax or a corporate franchise tax on businesses.

Source: Washington Department of Revenue — Income tax

## Why this matters

Unlike most U.S. states, Washington has no tax measured by corporate net income. Washington also does not impose a franchise tax (a tax on the privilege of doing business in the state, sometimes measured by net worth or capital).

Source: Washington Department of Revenue — Income tax

Instead, Washington imposes a Business & Occupation (B&O) tax, which is a gross receipts tax. The B&O tax is measured on the gross income from business activities — there are no deductions for labor, materials, taxes, or other costs of doing business. This is fundamentally different from a corporate income tax, which is measured by net income (gross income minus deductible expenses).

Source: Washington Department of Revenue — Business & occupation tax

The B&O tax applies to virtually all business entities engaged in business in Washington, including corporations, limited liability companies, partnerships, and sole proprietors. The tax rate varies depending on the business activity classification (retailing, wholesaling, manufacturing, service and other activities, etc.).

Source: Washington Department of Revenue — Business tax structure in Washington State

## What this guide covers

Because Washington does not have a corporate income tax or franchise tax, this guide covers Washington's B&O tax as it applies to corporations and other business entities. The B&O tax is Washington's primary tax on business activities and serves as the functional equivalent of a business tax in other states, though it is structured as a gross receipts tax rather than an income tax.

Source: Washington Department of Revenue — Business & occupation tax

Practitioners should note that the absence of a net income tax creates significant structural differences in tax planning, compliance obligations, and the treatment of losses, deductions, and apportionment. Because the B&O tax is measured by gross receipts, businesses with low profit margins may face higher effective tax burdens than in income-tax states.

## Caution / review status

Not yet human confirmed. This section addresses the foundational question of whether Washington imposes corporate income or franchise tax; the answer is definitively no, and that answer is supported by official Washington Department of Revenue publications. Subsequent sections will address the B&O tax in detail.

Washington's Business & Occupation tax applies different rates depending on the business activity classification. The B&O tax is measured by gross receipts with no deductions for costs of doing business.

Major B&O tax classifications and rates (as of May 2026):

Retailing: 0.471% of gross proceeds from retail sales. Effective January 1, 2027, the rate increases to 0.5%.

Source: RCW 82.04.250

Wholesaling: 0.484% of gross proceeds from wholesale sales. Effective January 1, 2027, the rate increases to 0.5%.

Source: RCW 82.04.270

Manufacturing: 0.484% of the value of products manufactured. A Multiple Activities Tax Credit may eliminate duplicate taxation when the same business both manufactures and sells goods in Washington.

Source: RCW 82.04.240

Service and Other Activities: Effective October 1, 2025, this classification has three graduated rates based on prior calendar year taxable income under this classification (including affiliated group income):

• Less than $1 million: 1.5%
• $1 million to $4,999,999.99: 1.75%
• $5 million or more: 2.1%

Hospitals and select advanced computing businesses remain at 1.5% regardless of income level. Real estate brokers report commissions separately but follow the same tiered structure for other service income.

Source: Washington Department of Revenue — Service and Other Activities rate changes

The Service and Other Activities classification is a residual category that includes professional services, personal services, and business activities not classified elsewhere. Income that does not fit into retailing, wholesaling, manufacturing, or another specific classification is generally taxable under this classification.

Washington has over 30 specialized B&O tax classifications with varying rates for specific industries, including lower preferential rates for semiconductor manufacturing (0.275%), financial institutions, insurance producers, and certain natural resource activities.

Source: Washington Department of Revenue — B&O tax classification definitions

An out-of-state business has substantial nexus with Washington for B&O tax purposes if it had more than $100,000 of cumulative gross receipts from Washington in either the current or immediately preceding calendar year. This economic nexus threshold applies regardless of physical presence in the state.

Cumulative gross receipts include all gross income of the business attributed to Washington, combining receipts from all B&O tax classifications (retailing, wholesaling, service and other activities, apportionable income, and other classifications). Businesses organized or commercially domiciled in Washington, or individuals who are Washington residents, automatically have substantial nexus without needing to meet the $100,000 threshold.

The $100,000 economic nexus standard took effect January 1, 2020.

Source: RCW 82.04.067

Washington B&O tax returns are filed monthly, quarterly, or annually based on the filing frequency assigned by the Department of Revenue. Monthly returns are due on the 25th of the following month (e.g., the June return is due July 25). Quarterly returns are due by the end of the month following the quarter (e.g., the Q1 return covering January–March is due April 30). Annual returns are due April 15. If any due date falls on a weekend or legal holiday, it extends to the next business day.

Source: Washington Department of Revenue — Filing frequencies & due dates; WAC 458-20-22801

Washington provides a small business B&O tax credit that reduces or eliminates tax liability for businesses with low B&O tax amounts. Effective January 1, 2023, the maximum credit is $55 per month ($660 annually) for most taxpayers. Taxpayers who report at least 50 percent of their taxable amount under service and other activities (RCW 82.04.290(2)(a)), real estate brokers (RCW 82.04.255), or contests of chance (RCW 82.04.285) receive a higher maximum credit of $160 per month ($1,920 annually).

When B&O tax otherwise due is equal to or less than the maximum credit, the credit eliminates the entire tax liability. The Department of Revenue provides tax credit tables that show the credit amount for each level of net B&O tax. The credit phases out as tax liability increases, with the full credit available when tax is below the maximum and the credit declining to zero as tax reaches approximately double the maximum credit amount.

Source: RCW 82.04.4451; WAC 458-20-104

Washington B&O tax sourcing rules determine where receipts are attributed for purposes of calculating Washington taxable income. The sourcing framework differs fundamentally based on whether the receipts fall under retail/wholesale classifications or apportionable service and other activities income.

Retail and wholesale sales sourcing (tangible personal property and retail services)

Retail sales of tangible personal property, digital goods, digital codes, digital automated services, and certain other services defined as retail sales are sourced under the destination-based sourcing hierarchy in RCW 82.32.730. This same sourcing statute applies to B&O retailing and wholesaling tax as well as retail sales tax collection. The cascading sourcing rules are:

1. Seller's business location: The sale is sourced to the seller's business location where the purchaser receives the product or service.

1. Location of receipt: If not received at the seller's business location, the sale is sourced to the location where the purchaser (or purchaser's donee) receives the product or service, including the location indicated by delivery instructions known to the seller.

1. Purchaser's address in seller's records: If the above do not apply, the sale is sourced to the address for the purchaser available from the seller's business records maintained in the ordinary course of business, when use of this address does not constitute bad faith.

1. Address obtained during sale: If the above do not apply, the sale is sourced to the address for the purchaser obtained during the consummation of the sale, including the address of the purchaser's payment instrument if no other address is available and use does not constitute bad faith.

1. Origin sourcing (default): If none of the above apply, the sale is sourced to the address from which the tangible personal property was shipped, from which the digital good or software was first available for transmission, or from which the service was provided.

Source: RCW 82.32.730

Apportionable income sourcing (service and other activities classification)

Businesses with substantial nexus in Washington that earn apportionable income taxable in another state must use single-factor receipts apportionment under RCW 82.04.462. Apportionable income includes receipts from service and other activities (RCW 82.04.290), royalties, and other specified classifications when the taxpayer is taxable in another state. The receipts factor is Washington-attributed receipts divided by total receipts from all states.

Apportionable receipts are attributed to Washington based on where the customer receives the benefit of the service, using a cascading method under WAC 458-20-19402:

Tier 1 – Benefit of service received (primary rule):

• If the taxpayer can reasonably determine the amount of a specific receipt that relates to a specific benefit received in a state, attribute that receipt to that state. This may be determined by a reasonable proportional method.

• If the customer receives the benefit in multiple states but the taxpayer can reasonably determine that more than 50 percent of the benefit is received in one state (the state where the benefit is "primarily" received), attribute the entire receipt to that state.

Tier 2 – Where benefit is received (detailed framework):

The determination of where the customer receives the benefit depends on the nature of the service:

• Services related to real property: Benefit is received where the real property is located.

• Services to business customers not related to real property: Benefit is received at either the customer's market or the customer's business location, depending on the nature of the service. Services that promote the customer's products, assist in determining or reaching the customer's market, or are purchased for resale are attributed to the customer's market. Services purchased for internal business operations are attributed to the customer's business location.

• Services to individual consumers (not acting as a business): Benefit is generally received at the individual's residence unless the service relates to real property or requires physical presence at a specific location.

Tier 3 – Fallback attribution rules (if benefit cannot be determined):

If the taxpayer cannot determine where the benefit is received after reasonable effort, the following hierarchy applies:

1. Where the customer ordered the service.
2. Where the bill is sent (billing address).
3. Where the customer sends payment from.
4. The customer's address maintained in the seller's records.

Source: RCW 82.04.462; WAC 458-20-19402

Throwout rule

Receipts from apportionable activities performed at least partially in Washington are excluded from the receipts factor denominator (but not the numerator if attributed to Washington) if the receipts are attributed to a state where the taxpayer is not taxable and does not meet Washington's substantial nexus standards for that state. This "throwout" rule prevents receipts from disappearing from the apportionment formula when the destination state cannot or does not tax the income.

Source: RCW 82.04.462(3)(c)

Distinction between sourcing frameworks

Practitioners must distinguish between the two sourcing regimes. Retail sales of services (such as custom software development services that meet the retail sale definition, or advertising services meeting the retail definition effective July 1, 2025) are sourced under RCW 82.32.730's destination-based hierarchy. Service income that is not a retail sale and falls under the service and other activities classification is sourced under the benefit-of-service attribution rules in RCW 82.04.462 and WAC 458-20-19402. Misclassification of a transaction's B&O tax classification directly determines which sourcing framework applies.