Washington state has a business and occupation tax. Most people call it the B&O tax. It is not a sales tax. It is not an income tax. It is a gross receipts tax. That means you pay it on your total revenue, not on your profit. You pay it even if you lose money.
What is the B&O tax?
The B&O tax is Washington's primary business tax. It applies to almost all businesses operating in the state. You pay the tax on your gross income from business activities. There are very few deductions.
Unlike a corporate income tax, you cannot deduct your costs. You cannot deduct payroll, rent, materials, or any other business expense. You pay the tax on every dollar that comes in the door, whether you made a profit or not.
For example, you run a retail store. You buy a product for $50 and sell it for $100. Your gross income is $100. You pay B&O tax on the full $100, not just on your $50 profit. If you sell the product for $40 at a loss, you still pay B&O tax on the $40.
This makes the B&O tax very different from taxes in most other states. It can be brutal for low-margin businesses. A grocery store operating on a 2 percent profit margin pays B&O tax on 100 percent of its revenue. The tax can eat up most or all of the profit.
B&O tax rates by classification
Washington groups businesses into classifications. Each classification has its own tax rate. You need to determine which classification fits your business.
Here is the complete rate table as of 2026.
The most common classifications for small businesses are retailing, wholesaling, manufacturing, and service.
Retailing rate: 0.471 percent
Retailing applies to businesses that sell physical goods to the general public. This includes stores, restaurants, gas stations, and online retailers selling to consumers. The rate is 0.471 percent, which is $4.71 per $1,000 of gross revenue.
If your retail store has $500,000 in gross sales for the year, your B&O tax is $2,355.
Restaurants are considered retailers. They pay the retailing rate on food and beverage sales. However, restaurants also have a separate B&O tax on certain activities, so the calculation can get complicated.
Wholesaling rate: 0.484 percent
Wholesaling applies to businesses that sell goods to other businesses for resale. If you sell products to retailers, you are a wholesaler. The rate is 0.484 percent, which is $4.84 per $1,000 of gross revenue.
If your wholesale business has $2 million in gross sales, your B&O tax is $9,680.
The distinction between retailing and wholesaling matters because the rates are slightly different. More importantly, wholesale sales are generally exempt from retail sales tax. You need to collect a reseller permit from your customers.
Manufacturing rate: 0.484 percent
Manufacturing applies to businesses that make products from raw materials. If you take wood and make furniture, you are a manufacturer. If you take metal and make tools, you are a manufacturer. The rate is 0.484 percent, the same as wholesaling.
If your manufacturing business has $1 million in gross revenue, your B&O tax is $4,840.
Manufacturers also get a partial exemption for the value of products they sell to out-of-state customers. This is called the manufacturing exemption. It can significantly reduce your tax if you export most of your products.
Service rate: 1.5 percent
Service applies to most businesses that do not sell physical goods. This includes consultants, accountants, lawyers, architects, cleaning services, landscapers, repair shops, and many others. The rate is 1.5 percent, which is $15 per $1,000 of gross revenue.
If your consulting business has $300,000 in gross revenue, your B&O tax is $4,500.
This is the most common classification for small businesses. The 1.5 percent rate is significantly higher than the retailing rate. Many service business owners are surprised by how much they owe.
Financial services rate: 1.5 percent
Financial services applies to banks, credit unions, investment firms, and other financial businesses. The rate is also 1.5 percent. There are special rules for interest income and other financial products.
Public utility rates: 0.642 percent to 3.873 percent
Public utilities have their own rates. Electric utilities pay 0.642 percent. Gas utilities pay 0.642 percent. Water utilities pay 0.642 percent. Telephone and telecommunications pay 0.484 percent. Private railroads pay 1.5 percent. The highest rate is for private garbage collection, which pays 3.873 percent.
Deductions and exemptions
The B&O tax has very few deductions. But there are some important ones you need to know.
Sales to the federal government are exempt. If you sell goods or services to the US government, you do not pay B&O tax on that income.
Sales to other Washington businesses for resale are exempt from the retailing and wholesaling classifications. But you need to collect a reseller permit from your customer. This prevents double taxation of the same product as it moves through the supply chain.
Exports are exempt. If you sell products to customers outside Washington, you may be able to deduct those sales from your gross income. The rules are complex, but the general principle is that Washington cannot tax interstate commerce.
The manufacturing exemption applies to manufacturers who sell products out of state. You can deduct the value of products manufactured in Washington and sold to customers outside the state.
Small business credits are available. If your gross income is below certain thresholds, you may owe little or no B&O tax. I will explain that next.
The small business credit
Washington has a small business credit that reduces or eliminates B&O tax for very small businesses. The credit is a fixed dollar amount that you subtract from your tax liability.
For 2026, the small business credit is $280 per year. That means if your B&O tax for the year is $280 or less, you pay nothing. If your tax is $500, you pay $220.
The credit applies to all classifications except public utilities. It is a per-business credit, not a per-location credit. If you have multiple locations or multiple business activities, you still get only one credit.
To figure out if you qualify, you need to calculate your tax before the credit. If the tax is under $280, you pay nothing. If the tax is over $280, you subtract $280 and pay the rest.
For a service business at 1.5 percent, the credit covers the first $18,667 of gross revenue. For a retail business at 0.471 percent, the credit covers the first $59,448 of gross revenue.
This means many very small businesses pay no B&O tax at all. But once you grow past these thresholds, you start paying.
Filing and paying the B&O tax
You file your B&O tax return with the Washington State Department of Revenue. Most businesses file on the Combined Excise Tax Return, which is Form 5200. This form also reports your sales tax and other state taxes.
The filing frequency depends on how much tax you owe. The state assigns you a filing schedule based on your tax liability.
If you owe less than $1,200 per year, you are a quarterly filer. Your returns and payments are due by the end of the month following the quarter. The due dates are April 30, July 31, October 31, and January 31.
If you owe between $1,200 and $4,800 per year, you are a monthly filer. Your returns and payments are due by the 25th of the following month.
If you owe more than $4,800 per year, you are a semi-monthly filer. You file twice per month. The due dates are the 25th of the month for the first half and the 10th of the following month for the second half.
New businesses usually start as quarterly filers. The state will notify you if your filing frequency changes.
You can file electronically through the Department of Revenue's online portal. Most businesses are required to file electronically. Paper filing is allowed only for very small businesses that request an exemption.
How the B&O tax compares to other states
Most states have a corporate income tax. Washington does not. The B&O tax is the replacement. Washington also has no personal income tax for most people. The state raises revenue from sales tax, property tax, and the B&O tax.
Compared to a corporate income tax, the B&O tax is harder on low-margin businesses. A grocery store with a 2 percent profit margin pays B&O tax on 100 percent of its revenue. A corporate income tax would only apply to the 2 percent profit.
Compared to other gross receipts taxes, Washington's rates are moderate. Ohio has a gross receipts tax with rates up to 0.26 percent, but it has a large exemption. Texas has a gross receipts tax with rates up to 0.75 percent, but it also has a large exemption. Washington has a lower exemption and higher rates for service businesses.
For a service business, the 1.5 percent B&O tax is significant. If you have $500,000 in revenue and a 20 percent profit margin, your profit is $100,000. Your B&O tax is $7,500, which is 7.5 percent of your profit. That is a meaningful hit.
For a retail business, the 0.471 percent rate is lower. If you have $1 million in revenue and a 5 percent profit margin, your profit is $50,000. Your B&O tax is $4,710, which is 9.4 percent of your profit.
Frequently Asked Questions (FAQ)
What is the business income tax in Washington state?
Washington does not have a business income tax. There is no state tax on corporate profits or LLC income. Instead, Washington has a business and occupation tax (B&O tax), which is a gross receipts tax on your total revenue, not your profit. Rates range from 0.471 percent for retail to 1.5 percent for services. You still pay federal income tax on your business profits.
What taxes does an LLC pay in Washington state?
An LLC in Washington pays the B&O tax on its gross revenue. The rate depends on the business classification, typically 0.471 percent for retail or 1.5 percent for services. LLC members pay no state income tax on their share of profits because Washington has no personal income tax. However, LLC members pay federal income tax on their share of profits. An LLC may also need to collect and remit sales tax, pay unemployment insurance tax, and withhold employee taxes if it has employees. There is no separate LLC franchise tax or annual fee in Washington, unlike many other states.
What is the B&O tax rate in Washington state?
The B&O tax rate depends on your business classification. Retailing is 0.471 percent. Wholesaling and manufacturing are 0.484 percent. Service and financial businesses are 1.5 percent. Public utilities range from 0.642 percent to 3.873 percent. Most small businesses pay either the retailing rate or the service rate.
What is the B&O tax rate for service businesses?
Service businesses pay 1.5 percent of their gross revenue. This includes consultants, accountants, lawyers, architects, cleaners, landscapers, repair shops, and most other businesses that do not sell physical goods. The rate is $15 per $1,000 of gross revenue.
What is the B&O tax rate for retail businesses?
Retail businesses pay 0.471 percent of their gross revenue. This includes stores, restaurants, gas stations, and online retailers selling to consumers. The rate is $4.71 per $1,000 of gross revenue. Restaurants pay this rate on food and beverage sales.
What is the B&O tax rate for manufacturers?
Manufacturers pay 0.484 percent of their gross revenue. This includes businesses that make products from raw materials. The rate is $4.84 per $1,000 of gross revenue. Manufacturers may also qualify for an exemption on products sold out of state.
Do I have to pay B&O tax if my business loses money?
Yes. The B&O tax is based on gross revenue, not profit. You pay the tax on every dollar that comes in the door, even if your expenses exceed your revenue. If you have $100,000 in revenue and $110,000 in expenses, you still owe B&O tax on the $100,000.
What is the small business credit for B&O tax?
The small business credit is $280 per year. You subtract this credit from your B&O tax liability. If your tax is $280 or less, you pay nothing. If your tax is $500, you pay $220. For service businesses at 1.5 percent, the credit covers the first $18,667 of revenue. For retail businesses at 0.471 percent, it covers the first $59,448 of revenue.
How often do I file B&O tax returns?
Your filing frequency depends on your tax liability. Quarterly filers owe less than $1,200 per year. Monthly filers owe between $1,200 and $4,800 per year. Semi-monthly filers owe more than $4,800 per year. New businesses usually start as quarterly filers.
What is the penalty for late B&O tax filing?
The late filing penalty is 5 percent of the tax due for each month the return is late, up to 25 percent. The late payment penalty is 0.5 percent per month with no maximum. Interest also accrues at 8 percent per year as of 2026. Filing late is expensive.
Do I pay B&O tax on sales to customers outside Washington?
You may not. Sales to customers outside Washington are generally exempt from the B&O tax because Washington cannot tax interstate commerce. However, you need to keep records showing that the customer was out of state. The rules are complex, especially for services delivered electronically.
How is the B&O tax different from sales tax?
The B&O tax is paid by the business on its gross revenue. The sales tax is collected by the business from customers and sent to the state. They are completely different taxes. A business pays B&O tax on its revenue. A business collects sales tax from customers on their purchases. Most businesses do both.