Washington stands apart from most states in the U.S. because it does not impose a personal or corporate income tax. Instead, it levies a Business & Occupation (B&O) tax, which is calculated on gross receipts rather than net income. This makes the Washington tax system unique, since businesses must pay tax based on gross income regardless of expenses, deductions, or costs incurred in operations.
The B&O tax applies to businesses across sectors, with specific rates depending on the activity. Compliance requires filing through the Combined Excise Tax Return, which may be submitted monthly, quarterly, or annually depending on the taxpayer’s profile. Washington also enforces penalties and interest for late payments or underpayments, ensuring that businesses meet their obligations on time.
This blog explains the Business & Occupation Tax, its classifications and rates, filing requirements, due dates, penalties, and interest rules.
Business & Occupation Tax (‘B&O Tax’)
Unlike states that rely on an income tax, Washington raises revenue through a gross receipts tax system. The B&O tax is imposed on the gross income of the business, without allowing deductions for labor, materials, taxes, or any other costs of doing business.
The B&O tax rates differ by business activity:
| B&O Classification | Rate |
| Retailing | 0.00471 |
| Wholesaling | 0.00484 |
| Manufacturing | 0.00484 |
| Service & other activities | 0.015 |
| Service & other activities (USD 1 million or greater in prior year) | 0.0175 |
These rates reflect the broad scope of the B&O system, which applies to nearly all businesses, from retailers and wholesalers to manufacturers and service providers. The higher rate for large service businesses recognizes the revenue scale of those exceeding USD 1 million in prior-year income.
Because the tax is assessed on gross receipts, businesses must plan carefully, as profitability does not reduce the tax burden. Even companies with high costs but modest profits remain liable for B&O tax on their gross income.
Filing Requirements: The B&O tax is reported and paid through the Combined Excise Tax Return (CETR). All businesses subject to B&O tax must use this filing system. Depending on the type of business and activities performed, additional attachments may be required.
Due Dates:
- Monthly returns: Due on the 25th day of the following month
- Quarterly returns: Due by the end of the month following the quarter
- Annual returns: Due by April 15 of the subsequent tax year
The frequency of filing — monthly, quarterly, or annually — is generally determined by the level of business activity and revenue. Businesses with larger revenues typically file more frequently.
This structure ensures that tax revenues flow consistently to the state while offering smaller businesses the option of less frequent reporting.
Washington imposes strict penalties and interest provisions for late or incomplete payments of B&O tax.
Penalties:
- A 9% penalty is imposed on unpaid tax, including partial payments.
- If unpaid tax is still outstanding after the last day of the month following the due date, a 19% penalty applies.
- If the liability remains unpaid after the last day of the second month following the due date, the penalty rises to 29%.
- Where a return is substantially underpaid, an additional 5% penalty may be assessed.
Interest:
Interest accrues daily on unpaid balances, starting from the first day of the month following the statutory due date until the tax is paid in full.
These penalty and interest provisions reinforce Washington’s expectation that businesses comply on time and in full. For companies with significant gross receipts, failure to file or underreporting income can lead to steep costs beyond the original tax liability.
Conclusion
Washington’s tax structure is unusual in that it relies on the Business & Occupation tax instead of income tax. This system broadens the tax base by applying to gross receipts rather than profits, ensuring that nearly every business contributes to state revenue.
The classification-based rates reflect differences between industries, but all businesses are subject to the B&O tax regardless of profitability. Filing through the Combined Excise Tax Return keeps reporting centralized, while the range of due dates accommodates businesses of different sizes.
At the same time, the penalties and interest provisions highlight Washington’s strict compliance culture. A missed filing or underpayment can quickly escalate in cost, making careful planning and timely reporting essential.
For businesses operating in Washington, understanding the B&O tax is critical to avoiding penalties and ensuring compliance. By managing cash flows to account for gross receipts taxation and adhering to filing schedules, businesses can navigate Washington’s unique system effectively.
