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 taxpayer may have more than one B&O tax rate, depending on the types of activities conducted.  Major B&O tax rates are 0.471 percent for retailing; 0.484 percent for manufacturing, wholesaling, and extracting; and 1.5 percent (businesses with taxable income of less than $1 million) or 1.75 percent (businesses with taxable income of $1 million or more) for services and for activities not classified elsewhere.  Several preferential rates also apply to specific business activities.

In addition, a taxpayer may be eligible to utilize other tax preferences, including credits and deductions, to reduce their tax liability.  

Tax Rates Applicable to Child Care Services.
In general, businesses providing child care for periods of less than 24 hours are subject to a preferential tax rate of 0.484 percent of gross receipts.  However, income received by nursery schools, preschools, child care providers, and privately operated kindergartens for the care or education of children who are under 8 years of age and not enrolled in or above the first grade is exempt from the B&O tax.

Tax Preference Performance Statement.
State law provides for a range of tax preferences that confer reduced tax liability upon a designated class of taxpayer.  Tax preferences include tax exclusions, deductions, exemptions, preferential tax rates, deferrals, and credits.  Legislation that establishes or expands a tax preference must include a Tax Preference Performance Statement that identifies the public policy objective of the preference, as well as specific metrics that the Joint Legislative Audit and Review Committee can use to evaluate the effectiveness of the preference.  All new tax preferences automatically expire after 10 years unless an alternative expiration date is provided.

Child Care Licensing Fees.  
Generally, any person or entity that provides child care or early learning services outside of a child's own home must obtain a license from the Department of Children, Youth, and Families (DCYF).  The DCYF is required to charge fees for obtaining a child care license.  The fee may be waived when, in the discretion of the DCYF, the fee would not be in the best interest of public health and safety, or would be to the financial disadvantage of the state.  

The DCYF rules establish an annual fee of $125 for child care centers for the first 12 children, plus $12 for each additional child.  For family home providers, the established annual fee is $30.  The DCYF was prohibited from imposing child care licensing fees from July 25, 2021, to June 30, 2023.

From October 1, 2024, until January 1, 2035, the current B&O tax exemption for child care services is extended to apply to amounts received for the care and supervision for periods of less than 24 hours of children who are under the age of 13, or who are under the age of 19 and have a verified special need or are under court supervision.

A tax preference performance statement is required, with the stated public policy objective of reducing the costs associated with providing child care by expanding the B&O tax exemption for child care services to include income derived from the child care and education of children up to age 12.

Additionally, the Department of Children, Youth, and Families is prohibited from charging fees to obtain a child care license.