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Washington B&O tax: a plain-English guide for Seattle small businesses

Washington's Business & Occupation tax — usually just "B&O" — confuses almost every new business owner, because it doesn't behave like the income tax they're expecting. Here's what it actually is, who pays, and the traps that catch Seattle small businesses most often.

What B&O actually is

B&O is a gross receipts tax. Washington taxes the total amount your business brings in — not your profit. There are no deductions for cost of goods sold, no deductions for payroll, no deductions for rent. You owe B&O on your gross revenue, even in a year when your business loses money.

That's the part that surprises people. A federal income tax cares about your bottom line. B&O cares about the top line.

Who has to pay

If you're "doing business" in Washington, you're in scope. That's a wide net: it includes sole proprietors, single-member LLCs, partnerships, S-corps, C-corps, and nonprofits. It includes online sellers based here, service providers, contractors, retailers, manufacturers, and almost anyone receiving payment for goods or services with a Washington nexus.

You register with the Washington Department of Revenue through the Business Licensing Service. Most small businesses register once and then receive a unique UBI (Unified Business Identifier) number to use on filings.

How the rates work

There isn't one B&O rate. The rate you pay depends on your classification, which is loosely "what kind of business activity is this." The main ones are:

• Retailing — selling goods to consumers.
• Wholesaling — selling goods to resellers.
• Service and other activities — most services fall here, including bookkeeping, consulting, hair salons, web design, and so on.
• Manufacturing — producing tangible goods.
• Various specialized classifications — printing, public road construction, royalties, gambling, and more.

Classifications carry different rates, and a single business can have revenue in multiple classifications. A bakery that sells to consumers (Retailing) and also wholesales to a coffee shop (Wholesaling) reports both — at different rates — on the same return.

Filing frequency

How often you file is set by DOR based on your expected annual revenue. There are three cadences:

• Monthly — for higher-volume businesses.
• Quarterly — most active small businesses.
• Annual — for very small businesses.

DOR assigns your frequency when you register, and they'll change it if your revenue moves into a different bracket. You file (and pay any sales tax owed at the same time) through the DOR online portal.

The Small Business B&O Tax Credit

Washington offers a credit that reduces or eliminates B&O for small businesses below a revenue threshold. The credit phases out as gross income rises. If your business is genuinely small, you may owe little or no B&O once the credit is applied — but you still have to file to claim it.

Mistakes we see most often

• Not registering at all. The penalty for failing to register and file is steeper than the tax itself for most small businesses.
• Wrong classification. Coding service revenue as retailing (or vice versa) produces wrong rates and headaches if audited.
• Forgetting the Small Business Credit. The credit isn't automatic on every filing portal field — you apply it on the return.
• Confusing B&O with sales tax. They're separate taxes, filed on the same form. Sales tax is collected from customers and remitted. B&O is paid by your business on top.
• Treating B&O as a deduction. Many owners forget B&O isn't deductible against income tax in the way they expect — talk to your CPA about how it flows through.

Information drawn from publicly available guidance at the Washington Department of Revenue. Rates, brackets, and credits change — verify current figures with DOR or with us before relying on this for specific decisions. For help with B&O filings or registration, talk to us.

Source: Washington Department of Revenue