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 for businesses with taxable income of less than $1 million or 1.75 percent for businesses with taxable income of $1 million or more, 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.

Public Utility Tax.  The Public Utility Tax (PUT) applies to the gross operating income of public service businesses, including businesses engaging in transportation. The PUT is in lieu of the B&O tax and, similar to the B&O tax, applies to the gross receipts of a business without deductions for the costs of doing business.

Six different rates apply, depending upon the specific utility activity. The rates, including permanent surtaxes, are:

• telegraph companies, distribution of natural gas, and collection of sewerage—3.852 percent;
• generation or distribution of electrical power—3.8734 percent;
• urban transportation and watercraft vessels under 65 feet in length—0.642 percent;
• motor transportation, railroads, railroad car companies, and all other public service businesses—1.926 percent; 
• distribution of water—5.029 percent; and
• log transportation—1.3696 percent.

Retail Sales and Use Tax.  Retail sales taxes are imposed on retail sales of most articles of tangible personal property, digital products, and some services.  A retail sale is a sale to the final consumer or end user of the property, digital product, or service.  If retail sales taxes are not collected when the user acquires the property, digital product, or service, then use tax applies to the value of property, digital product, or service when used in this state.  The state, all counties, and all cities levy retail sales and use taxes.  The state sales and use tax rate is 6.5 percent; local sales and use tax rates vary from 0.5 percent to 4.1 percent, depending on the location.

Credit Unions. Credit unions doing business in Washington may be chartered by the state or federal government. The Department of Financial Institutions (DFI) regulates state-chartered credit unions. State law provides for the organization, regulation, and examination of state-chartered credit unions. The Director of the DFI (Director) may, by rule, provide relief from certain state laws and rules to small credit unions, which are defined as credit unions with up to $10 million in total assets. State-chartered credit unions have all of the powers and authorities held by federal credit unions on December 31, 1993, or a subsequent date not later than July 28, 2019. State-chartered credit unions may have all of the powers and authorities held by federal credit unions after that date if the Director finds that the exercise of the power and authority serves the convenience and advantage of credit union members and maintains the fairness of competition and parity between state-chartered credit unions and federal credit unions. State-chartered credit unions also have all powers and authorities of out-of-state credit unions, except membership, subject to certain requirements. 

Tax Preferences.  State law requires a periodic review of most tax preferences to determine if their continued existence or modification serves a public policy objective. Tax preferences include tax exclusions, deductions, exemptions, preferential tax rates, deferrals, and credits.  The enabling legislation assigns specific roles in the review process to two different entities. The job of scheduling tax preferences, holding public hearings, and commenting on the reviews is assigned to the Citizen Commission for Performance Measurement of Tax Preferences (Commission). The responsibility for conducting the reviews is assigned to the staff of the Joint Legislative Audit and Review Committee (JLARC).

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 JLARC can use to review the effectiveness of the preference in achieving its stated public policy objectives.  JLARC generally reviews tax preferences once every ten years, unless state statute requires otherwise, and makes recommendations to the Legislature on whether a tax preference should be continued, eliminated, or modified, including clarifying the public policy objective of the preference.  A review report may include comments from the Commission and note whether the Commission endorses JLARC's recommendations. 

All new tax preferences automatically expire after ten years unless an alternative expiration date is provided.

Insurance Producers, Title Insurance Agents, and Surplus Line Brokers Preferential Business and Occupation Tax Rate.  Insurance producers, title insurance agents, and surplus line brokers receive a preferential B&O tax rate of 0.484 percent on income received, rather than the service and other activities B&O tax rate of 1.5 percent or 1.75 percent. 

Precious Metals and Bullion Tax Exemptions.  Sales of precious metals and monetized bullion are exempt from B&O and sales and use taxes.  Bullion dealers are subject to B&O tax under the service classification on amounts received in commissions for buying and selling bullions on behalf of customers. 

Home Energy Assistance Public Utility Tax Credit.  A light and power business or a gas distribution business may take a credit against the PUT for up to 50 percent of billing discounts provided to low-income households or qualified contributions to a low-income home energy assistance fund.  To qualify for the credit, the business must give billing discounts or qualifying contributions in excess of 125 percent of those given in fiscal year 2000—or the first year the business provided billing discounts or qualified contributions.  The total amount of credits available for all businesses is $2.5 million annually. 

International Services Business and Occupation Tax Credit.  Businesses providing international services and located in an eligible geographical area may receive a B&O tax credit of up to $3,000 per year for each new job created.  An eligible geographical area is a community empowerment zone (CEZ); or a city, or a group of neighboring cities, with a population of at least 80,000 having the same characteristics as a CEZ.  Eligible international services include computer, legal, accounting and tax preparation, engineering, architectural, business consulting, business management, public relations and advertising, surveying, geological consulting, real estate appraisal, and financial services.

Public Safety Standards and Testing. Nonprofit corporations providing public safety services and information to Washington receive a B&O tax credit for these services. The state must request the services. Qualifying nonprofit corporations must not have any direct or indirect industry affiliation and must not charge the state for the provided services.

Credit Unions. Federal and state-charted credit unions are exempt from B&O tax. 

Rental of Real Estate. The rental of individual self-service storage space at self-storage facilities is considered a rental of real property and is exempt from B&O tax when customers have direct access to individual storage units and the space is rented for 30 days or longer. The customers are not charged retail sales and use tax on the amount of their rent.

Tax Preference Repeals.  Beginning January 1, 2026, the following tax preferences are repealed or sunset:  

• insurance producers preferential B&O tax rate;
• precious metals and bullion B&O and sales and use tax exemptions;

• home energy assistance PUT credit;

• international services B&O tax credit; and
• public safety standards and testing B&O tax deduction.

State-Chartered Credit Unions.  Beginning October 1, 2025, if a state-chartered credit union merges with or acquires a bank regulated by the DFI, the credit union is no longer exempt from the B&O tax. The B&O tax will be 1.2 percent of the gross income of the state-chartered credit union.

Business and Occupation Tax on Storage Units.  Beginning April 1, 2026, the rental or lease of individual self-service storage space at self-storage facilities, regardless of duration, is subject to B&O tax at the services and other activities classification at a rate of 1.5 or 1.75 percent.