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 and wholesaling; and 1.5 percent (businesses with taxable income of less than $1 million), 1.75 percent (businesses with taxable income of $1 million to $5 million), and 2.1 percent (businesses with taxable income over $5 million) for services and for activities not classified elsewhere.  There are many specialized B&O tax rates and preferential rates that apply to specific business activities.

An additional B&O tax is imposed on businesses in Washington with at least $250 million in Washington taxable income. The tax is 0.5 percent of the business's annual Washington taxable income in excess of $250 million and is in addition to the other B&O taxes imposed on the income. This surcharge expires December 31, 2029.

Beginning January 1, 2027, the rate for the following business activities increases to 0.5 percent:

• Standard  manufacturing, extracting, wholesaling, and retailing;
• Retail or wholesale sales of digital goods, digital codes, and digital automated services;
• Childcare;
• Radioactive waste cleanup;
• Research and development by non
• profits;
• Insurance agents;
• Treatment of chemical dependency;
• Salmon canners;
• Manufacturing, wholesaling, and retailing of commercial airplanes or components of such airplanes;
• Manufacturing and retailing of tooling, specifically for use in manufacturing of commercial airplanes or components of such airplanes;
• Printing materials, other than newspapers, and of publishing periodicals and magazines;
• Highway contractors and government contractors;
• Cold storage warehousing; and
• Radio and television broadcasting.

In addition, the B&O tax rate for contests of chance is increased to 1.8 percent.

A taxpayer may be eligible to utilize other tax preferences, including credits and deductions, to reduce their tax liability.  For example, a taxpayer engaging in activities subject to different B&O tax rates may be eligible for a Multiple Activities Tax Credit.  A taxpayer may also be eligible for a small business credit that will either eliminate or reduce their B&O tax liability.  The credit is $160 per month for taxpayers that report at least 50 percent or greater of their total B&O taxable amount under service and other activities, real estate brokers, and contests of chance and $55 per month for all other businesses, multiplied by the number of months in the reporting period.  The amount of the credit available phases out based on the business's gross receipts.

A business does not have to file an annual B&O tax return if the business does not owe other taxes or fees to the Department of Revenue (DOR) and has annual gross proceeds of sales, gross income, or value of products for all B&O tax classifications of less than $125,000 per year.

Banking, lending and other financial businesses located in 10 states or less may deduct interest received on investments or loans secured by first mortgages or trust deeds on non-transient residential properties.  This deduction includes the portion of fees charged to borrowers, including points and loan origination fees. 

Wildfire Response, Forest Restoration, and Community Resilience Account and Reporting.
In 2021, the Legislature created the Wildfire Response, Forest Restoration, and Community Resilience Account (Account).  Account funds must be appropriated and used to monitor, track, and implement certain wildfire preparedness, prevention, and protection purposes.  Funds in the account may not be used for emergency fire costs or suppression costs.   The Department of Natural Resources (DNR) may solicit recommendations on how to use funds in the account from the Forest Health Advisory Committee and the Wildland Fire Advisory Committee (Advisory Committees).  The Advisory Committees must use environmental justice or equity focused tools to identify highly impacted communities when making recommendations for investments from the Account. 

This act is to be known and cited as the Wildfire Alleviation Support Act. 

The requirement that the financial institution be located in 10 or more states is removed, so financial institutions no longer need to meet that threshold in order to be required to pay the B&O tax on interest income received on investments or loans secured by first mortgages or trust deeds on non-transient residential properties.

Beginning October 15, 2027, the Department of Revenue (DOR) must annually estimate the increase to the State General Fund in revenue collections due to the removal of this threshold.  Beginning November 1, 2027, the State Treasurer must transfer the amount estimated by the DOR to the Wildfire Response, Forest Restoration, and Community Resilience Fund.