Business and Occupation Tax. The state business and occupation (B&O) tax is Washington's primary business tax. It is a gross receipts tax measured on the value of products, gross proceeds of sale, or gross income of the business. There are no deductions from the B&O tax for labor, materials, taxes, or other costs of doing business. 
 
The B&O tax rate varies by classification (activity). The major rates are: 

• 0.471 percent for retailing activities;
• 0.484 percent for manufacturing and wholesaling activities; and
• 1.5 percent or 1.75 percent for service and other activities, depending upon the amount of annual gross income of the business. 
   

The state B&O tax includes a number of preferential tax rates, credits, exemptions, and deductions as well as several increased rates or surcharges. 

Business and Occupation Tax on Child Care Services.  A preferential rate of 0.484 percent is provided for persons providing child care for periods of less than 24 hours. The service and other business activities B&O tax classification applies to child care services provided for periods in excess of 24 hours. 

Income received by nursery schools, preschools, child care providers, and privately operated kindergartens for the care or education of children who are under eight years of age and not enrolled in or above the first grade is exempt from B&O tax.  

Tax Preferences. 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. Washington has over 700 tax preferences, including a variety of sales and use tax exemptions. 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 the Joint Legislative Audit and Review Committee (JLARC) can use to evaluate the effectiveness of the preference. All new tax preferences automatically expire after ten years unless an alternative expiration date is provided.

Child Care License Fee. Generally, any person or entity that provides child care or early learning services outside a child's own home must obtain a license from the Department of Children, Youth, and Families (DCYF). There are some exemptions from the general licensing requirement. DCYF is required to charge fees for obtaining a child care license. These fees are due with an applicant's initial license application and annually thereafter. The annual fee is as follows:

• $30 for family home early learning programs; and
• $125 for center early learning programs for the first 12 children plus $12 for each additional child, up to the maximum number of children the facility is licensed to care for.
   

The DCYF was prohibited from imposing child care licensing fees from July 25, 2021, to June 30, 2023.

The bill expands the B&O tax exemption for child care services to include income derived from the care and education of children up to age 12 and children up to age 17 who have a verified special need or are under court supervision..

The tax exemption does not expire and is not subject to review by JLARC.  
 
The bill eliminates the annual license fee imposed and collected by DCYF for a child care license.

• Changes the effective date from July 1, 2024, to October 1, 2024.
• Waives the annual child care licensing fee for child care providers.
• Expands the tax exemption to include the care of children up to age 18 who have a verified special need or are under court supervision.
• Makes the exemption permanent and removes the requirement for JLARC to review the tax preference.

The committee recommended a different version of the bill than what was heard.  PRO: The rising cost of childcare in the state of Washington has been a real concern for all working parents. According to current research, the average annual cost for childcare for toddlers in Washington is $14,355. There is a gap in supply and demand for childcare as evident from long waitlists in childcare centers across the state, which increases the price further. The bill will encourage more people to open childcare centers, reduce the supply and demand gap, and consequentially reduce the childcare pricing in Washington.

The lack of affordable, accessible and quality childcare is one of the biggest barriers to community members, current employees, and those who are seeking employment. The bill helps address that issue for families and then for Washington's economy.