The state of Washington has no actual income tax and it is the 11th best tax climate for businesses in the U.S., according to The Tax Foundation. There are other taxes, though, that affect most businesses in the state, such as the business and occupation tax, the use tax and the sales tax. Below, you will find a short tutorial on how business taxes work in the state of Washington.
Business and Occupation Tax
Your gross income is taxed in the state of Washington with a business and occupation tax. This means that the amount of money your business pulls in each year is taxed – regardless of whether or not you make a profit. Most businesses in the state will pay a gross receipts tax rate of 1.5 percent. Other categories of the B and O tax rate include manufacturing at .484 percent, wholesaling at .484 percent and retailing at .471 percent.
The tax amount is per $1,000. While it may seem high to owe $14 per $1,000 of income, it is actually cheaper to pay this type of tax than 8 percent of your net income for personal income tax. Should your business operate in more than one category, then you will likely need to file in multiple categories. There are also some cities that charge a city building and occupation tax.
Business and Occupation Tax Credit
There are no deductions for expenses related to business. One of the great things about the state taxes in Washington is the tax credit for small business. It works like this: If your gross income is in under a certain threshold, you won’t pay any business and occupation tax. The higher your income, the smaller the credit becomes. Here’s an example. If your income from your business is $56,000, it is tax-free. If your business income is $122,000 or more, the full 1.5 percent is due.
The county in which you transact business determines the sales tax that you must charge, collect and pay. The state of Washington will always know just how much your gross sales are and will automatically determine the sales tax that you should have collected. If you made a mistake when you collected the sales tax, the money you owe to the state will still be right. The Washington state sales tax rate is 6.5 percent and then a local sales tax rate is added on top of that. The Tax Rate Lookup Tool provided by the state helps businesses determine sales and use tax.
The use tax in your local area is the same amount as your sales tax. The sales tax on an item in Washington is determined where you made the purchase. Use tax is different. It is determined by the sales tax rate where the item was first used.
Personal property tax is a double tax. You will pay sales or use tax on an item and then you’ll also have to pay property tax for every year it’s yours. The assets you use for business are taxed at a changing rate. For example, if the tax rate on an item ends up being 1 percent in the previous year and the county is lacking money, the tax rate can be increased to cover the gap. One area where people often see this is with the property taxes on their home. In many cases, a homeowner will see their property value drop but their taxes rise.
Paying Taxes in Washington
The Combined Excise Tax return can be used to pay your business and operations and use taxes. The state’s Department of Revenue e-file system can help you get a Master Business license, which is the same as your registration with the Department of Revenue. Then you will get an information packet that will walk you through the process of paying your taxes.
When Are Business Taxes Due in Washington?
Annual returns are due on Jan. 31. Quarterly returns are due on the very last day of the last month of the business quarter. Monthly returns are due on the 25th day of the following month.
The business taxes in Washington state are complex and it’s in your best interest to seek out help to avoid problems. Even though state income tax is not required in Washington, there are plenty of other taxes that will work hard to keep your hard-earned money.