The short answer is that Washington does not have a business income tax. There is no state tax on corporate profits. There is no state tax on LLC income. There is no state tax on sole proprietorship profits. If you run a business in Washington, you do not file a state income tax return for that business.
Instead of an income tax, Washington has a business and occupation tax, or B&O tax. The B&O tax is not based on your profit. It is based on your gross revenue. You pay it on every dollar that comes in the door, whether you made money or lost money.
No business income tax means no state corporate tax
Most states have a corporate income tax. Washington has none. A C corporation doing business only in Washington pays no state income tax on its profits. The federal government still taxes corporate profits at 21 percent, but Washington takes nothing.
For example, a Washington C corporation has $1 million in profit. It pays $210,000 in federal corporate income tax. It pays zero in Washington state corporate income tax.
This makes Washington very attractive for profitable corporations. In California, that same corporation would pay an additional $88,400 in state tax. In Washington, it pays nothing.
No business income tax means no pass-through entity tax
Most small businesses are sole proprietorships, partnerships, LLCs, or S corporations. These are called pass-through entities because the profit passes through to the owners and is taxed on their personal returns.
Washington has no personal income tax. That means if you own a pass-through business in Washington and you live in Washington, you pay no state income tax on your business profit. You pay federal tax. But Washington takes nothing.
For example, you own an LLC that makes $200,000 in profit. You live in Seattle. You pay federal income tax on that $200,000. You pay Washington nothing.
This is the main reason wealthy individuals move to Washington. The lack of both a business income tax and a personal income tax creates a very favorable environment for business owners.
The B&O tax is not an income tax
The B&O tax is often confused with an income tax, but it is very different. An income tax applies to your profit after deducting expenses. The B&O tax applies to your gross revenue before deducting anything.
Here is the difference. You run a retail store. You buy a product for $60 and sell it for $100. Your profit is $40. Under an income tax, you pay tax on the $40 profit. Under the B&O tax, you pay tax on the $100 of revenue.
The B&O tax rates vary by business classification. Retailing is 0.471 percent. That is $4.71 for every $1,000 of revenue. Service businesses pay 1.5 percent, which is $15 for every $1,000 of revenue.
If your retail store has $1 million in revenue, your B&O tax is $4,710. If your service business has $1 million in revenue, your B&O tax is $15,000.
The small business credit
Washington offers a small business credit that reduces or eliminates the B&O tax for businesses with low revenue.
For 2026, the credit is $280 per year. For a service business at 1.5 percent, the credit covers the first $18,667 of revenue. For a retail business at 0.471 percent, the credit covers the first $59,448 of revenue.
If you make less than these amounts, you pay no B&O tax.
What about LLCs and sole proprietors?
If you own an LLC or operate as a sole proprietor in Washington, you pay no state income tax on your business profit. You report your profit on your federal return and pay federal tax. Washington takes nothing.
However, you still pay the B&O tax on your gross revenue. The B&O tax applies to all businesses, regardless of legal structure.
So the answer to what is the business income tax in Washington is simple: there is none. But that does not mean you pay no tax. You pay the B&O tax instead.
Frequently Asked Questions (FAQ)
What is the business income tax rate in Washington state?
There is no business income tax in Washington. The state does not tax corporate profits or LLC income. Instead, businesses pay the B&O tax on gross revenue at rates from 0.471 percent to 1.5 percent.
Does Washington have a corporate income tax?
No. Washington does not have a corporate income tax. C corporations pay no state tax on their profits. They pay federal tax, but Washington takes nothing.
Do I pay state income tax on LLC profits in Washington?
No. If you own an LLC in Washington and live in Washington, you pay no state income tax on your share of the profit. You still pay federal income tax.
What is the difference between the B&O tax and an income tax?
An income tax applies to profit after expenses. The B&O tax applies to gross revenue before expenses. Under an income tax, you pay nothing if you have no profit. Under the B&O tax, you pay on every dollar of revenue, even if you lost money.
Is Washington a good state for business owners?
Yes. Washington has no personal income tax and no business income tax. The B&O tax is a gross receipts tax that favors high-margin businesses. For most business owners, Washington is very tax-friendly.