How Washington Business Taxes Work
Washington Business Tax
Washington has a business and occupation tax, sales tax, and use tax that affect most businesses in Washington State. The Washington Department of Revenue is the agency responsible for administering and collecting these taxes from you.
What is the Washington B & O tax and how does it affect my new business?
Washington has a gross receipts tax. The claim is that we don’t have an income tax, which you could say is technically true, but you pay the B&O tax on your gross income. This means you pay taxes on the total amount of revenue you pull in for your business. There are no deductions, except for income you make and pay tax to a different state for. (Meaning if you went over and did work in Portland Oregon, you would pay Oregon income tax for that and would thus be able to claim a deduction for the gross receipts you made in Oregon.
|The B & O tax rate|
|Services and Sales (What most businesses fall into):||.015|
It is possible to declare your income into different categories. What this means is that most Washington businesses fall under the 1.8% of your gross income tax rate. So roughly $15 for every $1000 of income. That may sound high to some of you, but let’s say you lived in Idaho where there’s 8% personal income tax. You’ll pay a CPA to file your tax return with the IRS and pay somewhere between 20-25% to the IRS, and then pay another 8% to the Idaho Department of Revenue. If you have a profitable business, it will be way cheaper to pay gross tax than paying 8% of your net income.
If you have a small business, there is a tax credit for you. One of the best things about Washington State. It basically comes out to about your first $42,000 of gross income is tax free, and it’s on a sliding scale after that to about $55,000 to the full 1.8%.
The technical details on the small business tax credit are: $71 for monthly taxpayers, $211 for quarterly taxpayers and $841 for annual tax payers.
When you file your business license application, they will probably automatically put you into the quarterly filing category. If you want to request that to be monthly or annually, you can call the Department of Revenue at: 509-327-0200 .
How do I know how often I will need to report my Washington business taxes?
|Annual Filers:||Less than $1,050 in tax liability for the year ($70,000 in gross income)|
|Quarterly Filers:||$1,050 to $4,800 in tax liability for the year ($320,000 in gross income)|
|Monthly Filers:||Over $4,800 in tax liability for the year (Over $320,000 in gross income)|
When are Washington business taxes due?
- Quarterly filers are due on the last day of the month of regular business quarters.
- Annual filers are due every January 31st following the calendar year.
- These taxes can be filed online. When we form businesses for people, we set up your Master Business License and your account with the Department of Revenue.
What is Washington use tax?
Use tax is a tax law written to tax the heck out of everyone. Let’s say you buy a desk at a garage sale for your office. Technically you should have to pay sales tax for that, but no garage sale person or someone on Craigslist is going to charge you sales tax. So… Washington has a law called use tax governed under Chapter 82.12 of the Revised Code of Washington.
The use tax is always going to be the same as the sales tax in your local area. The rate is usually 6% to the state but every county charges a tax as well, so it totals out to about 7.5-11% throughout most of Washington.
So, in theory, if you bought a desk for $100 at a garage sale, you should report that and pay use tax because you couldn’t pay sales tax.
The big loophole to sales tax is someone going out and buying a $750,000 excavator in Oregon or Montana where there’s no sales tax and bringing it into Washington State to work with it. If they get caught with it in Washington State, the Department of Revenue will charge that person or business “use tax” which comes out to the same as the sales tax. This is a states way of closing sales tax avoidance loopholes.
Use tax affects personal individuals also. If a Washington resident went to Portland to buy school supplies or make a big purchase and bring it back to their home in Washington they are supposed to report that personally to the Washington Department of Revenue and pay sales tax on that.
Will I have to charge sales tax on services I provide in Washington State?
Yes. Washington businesses must charge sales tax on all services and goods sold. The sales tax you must charge, collect, and pay the state depends on what County you’re in. The interesting part of this, is because Washington has an income tax on your gross receipts, they will always know what your gross sales are, and thus, automatically calculate the sales tax that you should have collected and owe the state .
So, if you screw up and don’t collect the right amount of tax, you still will owe the right amount to Washington.
Is there personal property tax in Washington State?
Of course!! The most communist tax of them all. A true double tax in every definition.
You pay sales tax to buy a desk for your office, and then you’ll pay business personal property tax EVERY year you own it. And if you don’t pay the tax??? They will come and seize your desk. Isn’t there just something wrong about business personal property tax?
Personal property tax returns are due with your county assessor by every April 30th.
You will be taxed on your current market value of all your assets you use for business. The funny thing about business personal property tax is that the codes are written that they can change the rate each year. So let’s say you have a $50,000 commercial saw to make lumber with, but they are going at auctions for $15,000 right now because of the economy. You can claim $15,000 as the value, but if you paid a 1% tax rate last year, and the county doesn’t have enough money, they are just going to raise the tax rate to cover the gap. People see this all the time with their home property taxes. The value went down over the last couple years, but their taxes didn’t!
LLC vs Corporation vs Sole Proprietorship vs DBA:
A sole proprietorship and DBA is not an actual business. It is you operating as a DBA. If you operate personally as a business you face just the same Washington state taxes as a Washington LLC or a Washington Corporation. You might as well hire a Washington Registered Agent and form a real business entity to have some liability protection for your business.
If you’d like us to help you start your business in Washington, we would love to help you out. It’s all we do, and we try to do it better than any other National incorporation site you’ll find. Plus we actually live here, pay taxes here, and work here, so we might actually know what we’re talking about.