Overview
Washington's Business and Occupation (B&O) tax serves as the state's primary method of taxing business activities since Washington does not levy a corporate income tax. The B&O tax is defined as a tax on "the value of products, the gross income of the business, or the gross proceeds of sales, as the case may be." This tax serves as Washington's alternative to the corporate income tax, ensuring that businesses operating in the state contribute to public revenues based on their gross receipts, rather than their net profits.
If your business is obligated to remit sales tax in Washington, you'll also need to address B&O tax obligations. Both B&O tax and sales tax use identical nexus classification standards to determine tax obligations. Whether you have physical presence in Washington or meet economic nexus thresholds, the same rules apply to both taxes. Additionally, both taxes are filed together on Washington's Combined Excise Tax Return. For more information, see Washington's B&O tax explained.
Small business considerations
Washington recognizes that B&O tax can disproportionately impact small businesses, so the state provides a small business tax credit. Businesses with gross income below certain thresholds pay no B&O tax, while the credit gradually reduces as gross receipts increase until businesses reach the point where they pay the full tax amount.
However, this relief is limited to very small businesses. Once a business meets Washington's economic nexus threshold, it's no longer eligible for the small business tax credit. The specific revenue threshold for paying full B&O tax varies by industry classification. For more information, see Washington's Small Business Tax Credit Tables.
Compliance through Anrok
For businesses using Anrok for return filings, B&O tax management is integrated into the standard sales tax filing process. Since Washington combines B&O tax with sales tax returns, Anrok handles both obligations simultaneously. This means that if Anrok is already filing your sales tax returns for Washington, your B&O tax compliance is automatically included without requiring additional action on your part. On your return in Anrok, this tax will appear in the Filing record section under Retailing, services, and other activities business and occupation tax. See Best practices for reviewing filed returns.
Additionally, Anrok will automatically determine whether your company falls under the small business category and will calculate your credit based on your B&O taxable income. This ensures that you receive the maximum tax savings available while eliminating the complexity of determining eligibility and calculating credits across different business classifications. On your return in Anrok, this credit will appear in the Filing record section under State discounts.