Taxes to Consider When Opening a Business in Washington State

Your dream to open your own business is nearly upon you. You’ve perfected your business plan, picked an ideal location, paid for the applicable licenses, and handpicked your all-star staff. Your witty radio advertisement on your favorite morning show and the viral marketing you initiated are drumming up loads of interest. Now, the last step before you can open your doors is to figure out the taxes you will need to pay. In this blog, I will discuss the general tax requirements for opening a new business in our state, including federal and state requirements.

Federal Tax

Internal Revenue Service

There are three general types of federal business taxes that businesses face. Be sure to refer to the IRS’s Business Structures page to determine the specific tax returns you must file based on how you established your business entity.

  • Income Tax – this is a pay-as-you-go tax and all businesses must file an annual income tax return, except partnerships which file an information return.
  • Estimated Tax – generally, this tax is paid in lieu of Income Tax by making regular payments of estimated tax during the year, usually monthly or quarterly.
  • Employment Tax – as an employer, you are responsible to file the proper forms and make the proper payments, which include Social Security and Medicare taxes, Federal income tax withholding, and Federal Unemployment (FUTA) tax.

State Tax

Department of Revenue

I have discussed the Business and Occupation (B&O) tax, the Sales Tax, and the Use Tax in “A Brief Look at Washington State Business Taxes.” In this entry, we will look a bit closer at how it applies to your business.

  • B&O Tax – this is a gross receipts tax based on the value of products, the gross proceeds of sales, or a business’s gross income. The rate for this tax varies between .138% – 1.63%, depending on your classification.
  • Public Utility Tax – this self-explanatory tax is based on gross income and ranges from .642% to 5.029%.
  • Sales Tax – this tax is based on gross receipts and is 6.5%, along with your local sales tax, and is usually calculated automatically by the Department of Revenue, as it already knows the reported gross sales figures.
  • Use Tax – this taxes goods or services when a sales tax was not paid, such as purchasing furniture or cookware from a Craigslist seller or an Internet purchase that didn’t charge Sales Tax. The rate is the same as the Sales Tax rate (6.5%).
  • Litter Tax – a .015% tax on businesses that contribute to litter in Washington State.

Employment Security Department

  • Unemployment Insurance (UI) Tax – provides funding to programs for unemployment compensation that assist eligible employees should they lose their jobs. This tax is mandatory if you have at least one employee, and your rate is dependent upon the North American Industry Classification System’s average UI tax rate for your industry. For more information, visit the Employment Security Department’s website here.

Department of Labor and Industries

  • Workers’ Compensation (L&I) – the Workers’ Comp premium rate is based on type of business and the claim history. You must carry this insurance if you have employees. For more information, visit the Washington State Department of Labor and Industries page here.

Know the Due Dates

The tax returns for B&O Tax, Public Utility Tax, Retail Sales Tax, Use Tax, and Litter Tax are filed with the Department of Revenue. An estimate of your yearly gross receipts determines how often you must file and if you are to pay annually, quarterly or monthly. If you pay annually, your tax and filings are due by January 31 of the following year. If you pay quarterly, your filings and payment are due by the last day of month following end of quarter. If you pay monthly, your filing and payment are due on the 25th of proceeding month.

UI Tax is due last day of month following end of quarter and is filed with the Employment Security Department.

As a new business owner, you may not have known about all these filing requirements. But now that you do know, you can avoid the interest and penalties imposed for filing the returns, and paying the taxes, late.

Written by Robert V. Boeshaar

Robert V. Boeshaar

Robert V. Boeshaar is a Seattle tax attorney committed to helping individuals and small businesses who are facing problems with the IRS. He believes in using his experience to serve others and to make a difference in their lives.