Washington Business Taxes at a Glance
Washington does not tax wages, and it has no corporate income tax. Instead, the state taxes businesses on gross receipts through the business and occupation (B&O) tax, relies on a broad retail sales tax, and taxes certain individuals on long-term capital gains. Recent legislation changed several of these rules at once. BOMCAS helps Washington businesses and individuals understand where they now stand and keep filings with the Department of Revenue accurate.
How the B&O Tax Works
The B&O tax is measured on gross income from business activities in Washington, with no deduction for labor, materials, or other costs. A business that loses money can still owe B&O tax. Each activity falls into a classification, such as retailing, wholesaling, manufacturing, or service and other activities, and each classification has its own rate. Many businesses report under more than one.
Since October 1, 2025, the Service and Other Activities classification has three rates. The rate depends on the business's taxable income in that classification in the prior calendar year, with higher rates for larger businesses. Affiliated groups are measured together for this purpose, and the Department of Revenue lists a few exceptions.
Small businesses may qualify for the small business B&O tax credit, and some activities have deductions or exemptions. Getting the classification right matters more than almost anything else in Washington. It drives the rate, whether sales tax applies, and how a sale is reported.
Services Newly Subject to Sales Tax
Under ESSB 5814, a group of services became retail sales on October 1, 2025. Sellers must now charge retail sales tax on them, and the income generally moves to the retailing B&O classification. The Department of Revenue's list includes:
- Advertising services, with listed exclusions such as certain print, broadcast, and out-of-home advertising
- Information technology services such as help desk, network support, IT training, and data processing
- Custom website development and custom software, including customization of prewritten software
- Live presentations such as workshops and webinars with real-time interaction
- Investigation, security, and armored car services
- Temporary staffing, with listed exclusions
Sales of these services between members of an affiliated group are generally not treated as retail sales. The Department has issued interim guidance by service type and on how existing contracts are treated.
For agencies, IT firms, and staffing companies, this was a major change. We help review service lines against the guidance, update invoicing, report under the right classifications, and keep the documentation the Department expects.
Retail Sales and Use Tax
Washington's retail sales tax combines a state rate and local rates, and it is generally sourced to where the buyer receives the goods or services. Sellers who deliver to customers across the state need rates by location, not just the rate at their own address. Buyers who purchase taxable items without paying sales tax, including from out-of-state vendors, generally owe use tax.
Resellers need a reseller permit to buy items for resale without tax. We help with registration through the Department's business licensing system, the combined excise tax return, rate lookups, and reconciliation of collected tax to the books.
Local Business Taxes
Some Washington cities levy their own B&O tax or business license taxes, and a few have additional taxes on large employers' payroll. These are filed with the city or through a shared filing portal, separately from the state return. We identify which cities apply based on where you have offices and where you do business.
Capital Gains Tax for Individuals
Washington taxes individuals on the sale or exchange of certain long-term capital assets, such as stocks and bonds, through a capital gains excise tax. Real estate and several other categories are excluded, and there is an annual standard deduction. Starting with 2025, gains above a higher tier are taxed at an additional rate.
The return is filed with the Department of Revenue, generally alongside the federal individual return timeline. For founders, executives with equity, and investors selling a concentrated position, the tax deserves attention before the sale. We prepare the state return and work with you on timing and records.
Estate Tax
Washington has its own estate tax, separate from the federal one, with a much lower exclusion amount. Legislation in 2025 raised the exclusion and the top rate for deaths on or after July 1, 2025. Executors should check the Department's estate tax tables for the figures that apply.
Washington Payroll Programs
Washington employers do not withhold state income tax, but payroll is still detailed:
- Paid Family and Medical Leave: premiums shared between employers and employees, reported quarterly to the Employment Security Department
- WA Cares Fund: a long-term care premium withheld from employee wages unless the employee has an approved exemption
- Unemployment insurance: reported quarterly to the Employment Security Department
- Workers' compensation: most employers buy coverage through the Department of Labor & Industries rather than a private insurer, and part of the premium may be deducted from workers' pay
We set up each account, run payroll with the right deductions, and file the quarterly reports.
Bookkeeping Built Around B&O
Because B&O is a tax on gross receipts by classification, Washington bookkeeping works best when revenue accounts follow the reporting categories. We map your chart of accounts to the classifications you report, separate taxable and exempt sales, and track deductions such as sales for resale and interstate sales. That makes the excise tax return a summary of the books rather than a separate exercise.
Working With BOMCAS in Washington
Service businesses adjusting to sales tax on newly covered services, sellers filing B&O by classification, and individuals facing the capital gains tax can contact BOMCAS for a remote review. Pages for individual Washington cities and services will follow under this section. Return to the BOMCAS home page or see our United States services. This page summarizes Washington rules and is not advice for your situation.
Talk to BOMCAS About Your Washington Taxes
Have a question about your Washington filings, payroll or bookkeeping? Contact BOMCAS or use the contact form below, and we will get back to you as soon as possible. You can also browse all United States services.