Business and Occupation Tax. Washington's major business tax is the business and occupation (B&O) tax. The B&O tax is imposed on the gross receipts of business activities conducted within the state, without any deduction for the costs of doing business. Businesses must pay the B&O tax even though they may not have any profits or may be operating at a loss. A business may have more than one B&O tax rate, depending on the types of activities conducted. Major tax rates are 0.471 percent for retailing; 0.484 percent for manufacturing, wholesaling, and extracting; and 1.5 percent for services, and activities not classified elsewhere. Several lower rates also apply to specific business activities.
Tax Preferences. Washington has over 650 tax preferences authorized in law. A tax preference includes exemptions, deductions, credits and preferential rates. The B&O tax credits provide a dollar-for-dollar offset against tax liability.
Public Utility Tax. The public utility tax (PUT) is imposed on gross income derived from the operation of public and privately owned utilities, including businesses that engage in transportation, communications, and the supply of energy, natural gas, and water. The tax is in lieu of the B&O tax. This tax applies only on sales to consumers. There are also varying rates of the PUT, depending on the specific utility activity.
Tax Credit for Hiring Certain Groups. The federal government enacted the Work Opportunity Tax Credit that provides a tax credit for hiring various persons, including qualified veterans. In 2015, the Legislature authorized a B&O or PUT credit to qualifying businesses that hire unemployed veterans.
PUT or B&O tax credits are provided to businesses providing qualified employment positions to certain unemployed persons, such as persons convicted of a felony, recipients of certain federal or state benefits, and homeless persons.
Tax Credit Qualifications. A qualified employment position is a permanent, full-time employee who works at least 35 hours per week for two consecutive quarters.
Homeless person means an individual living outside or in a building not meant for human habitation, or which they have no legal right to occupy, in an emergency shelter, or in a temporary housing program which may include a transitional and supportive housing program if habitation time limits exist. This definition includes substance abusers, people with mental illness, and sex offenders who are homeless.
Person convicted of a felony means a person, including a juvenile, convicted of a felony under state or federal law who is hired within one year after the last date the person was convicted or released from a juvenile rehabilitation facility or prison.
Recipient of food benefits means a person between the ages of 18 and 39 who is a recipient of food benefits as provided under state law.
Recipient of Temporary Assistance of Needy Families (TANF) means a recipient of TANF as provided under state law.
Supplemental Security Income (SSI) recipient means a person receiving federal SSI benefits.
Vocational rehabilitation referrals means an injured worker referred for vocational rehabilitation services as provided for under state law.
Qualifying employee means a person who meets all of the following requirements:
Tax Credit. The tax credit is equal to 20 percent of wages and benefits paid up to a maximum of $1,500 for each qualified employment position filled by a qualifying employee hired on or after October 1, 2020. Unused credits can be carried over to the next fiscal year. No refunds may be granted for this credit. Qualifying businesses may not claim both B&O and PUT credits.
If an employer discharges a qualifying employee for whom the employer has claimed a credit, the employer may not claim a new credit under this act for one year from the date the qualifying employee was discharged, unless the qualifying employee was discharged for misconduct connected with the employee's work or discharged due to a felony or gross misdemeanor conviction, and the employer contemporaneously documents the reason for discharge. Credits may be earned for tax reporting periods through June 30, 2030, and no credits may be claimed after June 30, 2031.
Joint Legislative Audit Review Committee. The Joint Legislative Audit Review Committee (JLARC) must review the tax credits established by December 31, 2030. If JLARC finds the number of unemployed persons who meet the criteria of a qualified employee decrease by 30 percent, then the Legislature intends for the legislative auditor to recommend extending the expiration date of this tax preference. In order to obtain the necessary data, JLARC should refer to unemployment rates from the Employment Security Department and the Bureau of Labor Statistics.