Tax Costs of Doing Business in Washington State

Today, I’d like to discuss four main taxes with which business owners in Washington State must contend.

B & O Tax

While Washington doesn’t have an income tax, businesses are subjected to a Business and Occupation (or B & O) tax. This tax is a gross receipts tax measured on either the value of products, the gross proceeds of sale, or a business’s gross income. Since it is calculated on gross income of activities, items such as labor, materials, taxes, or other costs of doing business cannot be deducted from the B & O tax.

The rate for the B & O tax differs by business type, and there is a credit for which some small businesses may be eligible.

Sales Tax

The Sales Tax is nothing new to the consumers in most states, and Washington is largely no different. Washington businesses charge sales tax on most goods and services sold, save for most food and prescription drugs, which are sales tax exempt.

For businesses, however, the process of calculating sales tax is streamlined by the tax on gross receipts. Since the state revenue agency already knows the reported gross sales numbers, they automatically calculate the sales tax that should be collected and the amount that is owed. Depending on how it is viewed, this is a good or a bad thing. Even if the amount of tax collected is incorrect, the State still knows the correct amount that is owed.

Use Tax

The Washington State Use Tax serves to tax goods or services when sales tax was not paid. For instance, if Ren, a lawn care professional, purchases a mower from a Craigslist seller, he should then pay a use tax, as it is unlikely that any Craigslist seller will require him to pay a sales tax.

Aside from online sales, the use tax also takes aim to curb out-of-state purchases.

The rate of use tax is the same as the sales tax rate; however, unlike the sales tax where the rate relies on the location of purchase, the use tax rate depends on the primary location the good or service is to be used.

Personal Property Tax

The final business tax we will cover today is the Personal Property Tax, which is based on the current fair market value of items and assets used in a business. For example, if a business owner purchases a computer for use with the business, she must pay sales tax when the purchase takes place (or use tax depending on the circumstance) and then pay a personal property tax for every year the computer is in use by the business. This double taxation gives the personal property tax its unpopularity.

Another poorly-received aspect of the personal property tax is the propensity for the rate to change annually, in accordance with the state’s budgetary requirements. If the county needs money, it can raise the taxation rate, akin to what happens with real property taxes.

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Robert V. Boeshaar Attorney at Law, LL.M.,PLLC

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.