Washington — Gross Receipts / Business Activity Tax

Washington imposes a Business & Occupation (B&O) tax on persons engaged in business activities in the state. The tax is levied on the act or privilege of engaging in business and is measured by the application of rates against the value of products, gross proceeds of sales, or gross income of the business. Unlike a net income tax, the B&O tax is a gross receipts tax with no deductions allowed for labor, materials, taxes, or other costs of doing business. Any person that has substantial nexus with Washington, as defined in RCW 82.04.067, is subject to the tax. Washington does not impose a separate corporate or personal income tax; the B&O tax serves as the state's primary business activity tax. Tax rates vary by business classification, ranging from 0.138% to over 2% depending on the type of activity.

Source: RCW 82.04.220; Washington Department of Revenue, Business & Occupation Tax

A person engaged in business has substantial nexus with Washington—and therefore B&O tax liability—if they meet one of three tests in the current or immediately preceding calendar year: (1) the person is a resident individual or is a business entity organized or commercially domiciled in Washington; (2) a nonresident individual or out-of-state entity has more than $100,000 of cumulative gross receipts from Washington (effective January 1, 2020); or (3) subject to certain limitations, a nonresident or out-of-state entity has physical presence in Washington that is demonstrably more than a slightest presence.

For businesses engaged in apportionable activities (certain services and royalty income) or making wholesale sales, nexus can be established through economic thresholds without any physical presence. Prior to 2020, different dollar thresholds applied to apportionable income, wholesale sales, and retail sales; these were unified effective January 1, 2020, to a single $100,000 receipts threshold that applies across all B&O tax classifications. Physical presence includes having property or employees in the state, or engaging in activities in Washington that are significantly associated with the person's ability to establish or maintain a market in the state, either directly or through an agent or representative.

Cumulative gross receipts include all of a person's gross income attributed to Washington under the sourcing provisions; for marketplace facilitators, the receipts threshold includes both the facilitator's own sales and the gross proceeds from all marketplace sellers' sales made through the facilitator's platform, even if those sellers lack nexus independently.

Source: RCW 82.04.067; WAC 458-20-19401; Washington Department of Revenue, Out-of-state businesses

Washington imposes B&O tax at rates that vary by business classification. Retailing is taxed at 0.471 percent of the gross proceeds of sales. Wholesaling is taxed at 0.484 percent of gross proceeds of sales through December 31, 2026, increasing to 0.5 percent beginning January 1, 2027. Manufacturing is also taxed at 0.484 percent.

The Service and Other Activities classification uses tiered rates based on the prior calendar year's gross income. Effective October 1, 2025, the rates are: 1.5 percent for gross income under $1 million; 1.75 percent for income between $1 million and $4,999,999.99; and 2.1 percent for income of $5 million or more. Hospitals as defined in RCW 70.41.020 and select advanced computing businesses remain at 1.5 percent regardless of income level under RCW 82.04.290(2)(a)(ii).

Source: RCW 82.04.250; RCW 82.04.270; RCW 82.04.290

B&O tax returns are filed monthly, quarterly, or annually depending on the filing frequency assigned by the Department of Revenue based on estimated annual tax liability. Monthly returns are due the 25th of the following month. Quarterly returns are due the last day of the month following the close of each quarter. Annual returns are due April 15. If a due date falls on a weekend or legal holiday, it is extended to the next business day.

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

Washington allows a small business credit against B&O tax liability. The maximum credit for most taxpayers is $55 multiplied by the number of months in the reporting period. For taxpayers reporting at least 50 percent of their taxable amount under RCW 82.04.255 (real estate brokers), 82.04.290(2)(a) (service and other activities), or 82.04.285 (contests of chance), the maximum credit is $160 multiplied by the number of months in the reporting period. When the amount of B&O tax otherwise due is equal to or less than the maximum credit, the credit equals the full amount of tax due. For tax amounts above zero but below the maximum, the Department of Revenue publishes tables showing the exact credit amount based on net B&O tax liability and reporting frequency.

Source: RCW 82.04.4451; WAC 458-20-104

Washington uses different sourcing methodologies to determine which gross receipts are subject to B&O tax, depending on the business classification. The sourcing framework determines where income is deemed to occur for tax purposes and directly affects whether receipts fall within Washington's taxing jurisdiction.

Retail sales sourcing

Retail sales are sourced under RCW 82.32.730, which follows a destination-based hierarchy. The sale is sourced to the location where the customer receives the product or service. For tangible personal property, the primary rule sources the sale to the location where the buyer receives the property. For retail services, the sale is sourced to where the purchaser receives the benefit of the service. If the benefit is received at the seller's place of business, the sale is sourced there; otherwise, it is sourced to the location where the purchaser receives the service if known to the seller. Telecommunications services follow separate sourcing rules under RCW 82.32.520.

Apportionable income attribution—single-factor receipts apportionment

Apportionable income—primarily service income and royalty income taxable under specific B&O classifications enumerated in RCW 82.04.460(4)(a)—is attributed to Washington using a single-factor receipts apportionment formula established in RCW 82.04.462, effective for periods after May 31, 2010. Only businesses that have substantial nexus with Washington and are also "taxable in another state" must apportion their income.

The receipts factor is calculated as:

Receipts Factor = Washington receipts / (Total worldwide receipts – Throwout income)

Washington taxable income equals apportionable income multiplied by this receipts factor. Throwout income consists of receipts attributed to a state where the taxpayer is not taxable (under RCW 82.04.067(1) nexus standards) and where at least some of the activity is performed in Washington.

Attribution methodology for apportionable activities

WAC 458-20-19402 establishes a cascading attribution hierarchy for determining where apportionable receipts (services and certain other activities) are deemed received. The primary rule attributes receipts to the state where the customer received the benefit of the service or, for royalties, where the customer used the intangible property.

If the benefit is received in multiple states and the Washington portion can be reasonably determined, the receipts must be proportionately attributed. If the taxpayer cannot reasonably determine where the benefit was received in multiple states, WAC 458-20-19402 provides fallback rules based on the location from which the service was ordered, the customer's billing address, or other reasonable methods.

Specific attribution rules vary by service type. Services relating to real property are attributed to the location of the property. Services relating to tangible personal property are attributed to where the property is located or intended to be located. Services relating to a customer's business activities are attributed to the location(s) where the customer's related business activities occur.

Royalty income attribution

Royalty income from granting the right to use intangible property is attributed under WAC 458-20-19403. Royalties are generally attributed based on where the customer uses the intangible property. The regulation distinguishes among different types of use, including use in the regular course of business operations and "marketing use" (where intangible property is used for marketing, displaying, or selling goods or services).

Wholesale sales sourcing

Wholesale sales are sourced under the same RCW 82.32.730 framework as retail sales, with the sale sourced to where the buyer receives the property.

Reconciliation requirement

Taxpayers reporting apportionable income using prior-year or estimated current-year data must file an annual reconciliation by October 31 of the following year to true up the receipts factor based on actual full-year data. Interest applies to any additional tax due or overpayment; penalties apply only if the reconciliation is not filed and additional tax not paid by the October 31 deadline.

Source: RCW 82.04.462; RCW 82.32.730; WAC 458-20-19402; WAC 458-20-19403