Income Taxes on Business Income in Washington

April 13, 2006

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The state of Washington does not assess an income tax. Therefore, whether you are a regular corporation, S corporation, limited liability company (LLC), or an individual business owner, you will not have to pay income tax. However, the state of Washington does assess a Business and Occupation Tax. This tax is imposed for the act or privilege of engaging in business activities in the state.

The Business and Occupation Tax is measured by a specific tax rate against the value of products, gross proceeds of sales, or gross income of the business. There are many specific activities that are exempt from the tax — for example, certain farm and horticultural products are exempt from the tax. You'll want to check and see if you are exempt from the tax. If you are not exempt, you'll need to check the tax rate for your business and area.

Every person engaging in any taxable business is required to register with the Department of Revenue. No fee is required. A separate permit is required for each place of business.

For small businesses, a credit in the maximum amount of $35 multiplied by the number of months in the reporting period is allowed against the business and occupation tax. If the amount of business and occupation tax due is equal to or less than the maximum credit, a credit equal to the amount of tax otherwise due is allowed. If the amount of business and occupation tax otherwise due exceeds the maximum credit, a reduced credit is allowed equal to twice the maximum credit, minus the tax otherwise due, but not less than zero.