How to Start a Software or Tech Company in Washington: Sales Tax on Software Since 2025, 1.5% to 2.1% B&O Tiers and the 2028 Income Tax

Washington is a workable state for a software company. Census 2023 counted 860 software publishers in Washington with 98,089 employees. The state has no corporate income tax and no personal income tax on wages, but it does not run a simple tax system. Washington taxes gross receipts through the business and occupation (B&O) tax, and since October 1, 2025, some custom software and IT services carry retail sales tax. This guide covers how to start a software company business in Washington, in the order you should do it, with the fees, deadlines and tax rules that apply today.

Disclaimer: This article is informational only. It is not legal, tax or accounting advice. Tax laws change, and how they apply to your product, revenue and ownership depends on facts this article cannot cover. Talk with a qualified Washington business attorney and a CPA before you form your company or make tax decisions.

Materials You Need Before You File

Gather these items first. Several later steps depend on them.

• A business name that is not already on record with the Secretary of State. An LLC name must include Limited Liability Company, Limited Liability Co., L.L.C., or LLC.
• A registered agent with a physical street address in Washington. PO Boxes and private mailbox addresses are not accepted.
• Owner and officer information, including names and addresses of members, directors or officers.
• A federal Employer Identification Number (EIN) from the IRS. You will use it on your bank account and tax filings.
• A revenue estimate. Your B&O rate depends on prior-year gross income, and your sales tax treatment depends on what you sell and how you deliver it.
• A payment method for the state filing fees.

Step 1: Choose Your Legal Structure

Your structure determines what you file with the state and how far your personal liability reaches. Washington offers these main options:

• Sole proprietorship or general partnership. You do not file with the Secretary of State. You still register with the Department of Revenue if the rules in Step 5 apply to you. Most founders who plan to raise money or hire staff outgrow this form quickly.
• Limited liability company (LLC). You file a Certificate of Formation with Initial Report. An LLC generally separates your personal assets from business debts, but it does not protect you from your own negligence or from a personal guarantee you sign.
• Corporation. You file Articles of Incorporation with Initial Report. Founders who expect to issue stock to outside investors often choose this form.

An LLC or corporation costs $180 to file. Settle your ownership plan with an attorney before you file, because changing structures later costs time and money.

Step 2: Search and Reserve Your Business Name

Search the Secretary of State business database at https://ccfs.sos.wa.gov/#/BusinessSearch. Your name must be distinguishable from every other business name on record. Under RCW 23.95.305, a name may not include bank, banking, banker, trust, cooperative, any combination of industrial and loan, or any combination of two or more of building, savings, loan, home, association and society.

Search close variations of your name too, and check the domain and social handles you want. If you need time to finish branding or paperwork, you can reserve the name for 180 days for a $30 fee.

Step 3: File Your Formation Document Through CCFS

File your Certificate of Formation or Articles of Incorporation, with the Initial Report, through the Corporations and Charities Filing System at https://ccfs.sos.wa.gov/. The filing fee is $180. The Secretary of State does not publish a standard turnaround for online filings. Filings are worked in the order received, and expedited filings are generally processed within three business days.

Expedited service costs $100 per business entity. You can select it online at checkout, or mail your filing with the envelope marked EXPEDITE. The fee schedule also lists same-day service at $150 per entity. For now, the Corporations Division charges the $100 expedited rate for front-counter same-day transactions received before 3:30 p.m., and it says it will post 30 days notice on its website before the $150 fee takes effect. Confirm current pricing at https://www.sos.wa.gov/corporations-charities before you pay.

Step 4: Appoint a Registered Agent

Every domestic entity and registered foreign entity in Washington must designate a registered agent under RCW 23.95.405. The agent must consent to serve, supply an email address and have a physical street address in Washington. You can serve as your own noncommercial agent if you have a qualifying address, or you can hire a commercial agent registered with the Secretary of State. Changing your registered agent or registered office costs nothing, so you can switch later if your situation changes.

Step 5: Get Your State Business License Through the Business Licensing Service

Washington has a general state business license. The Business Licensing Service (BLS), part of the Department of Revenue, issues your 9-digit Unified Business Identifier (UBI) and any city or state endorsements through one Business License Application at https://dor.wa.gov/open-business/apply-business-license. Corporations, LLCs, LLPs and partnerships must file with the Secretary of State before they submit this application, so Step 3 comes first.

Most software companies need this license. You need it if you plan to hire employees within 90 days, sell anything subject to sales tax, expect gross income of $12,000 or more per year, operate under a name other than the owner's full legal name, or owe a tax or fee to the Department of Revenue. The processing fee to open a business is $50, plus separate endorsement fees if you need them. Online applications take about 10 business days. City or state endorsements can add 2 to 3 weeks. Mailed applications can take up to six weeks.

Build that wait into your launch date. Do not schedule your first payroll or commit to a lease until you have your UBI.

Step 6: Register a Trade Name If You Need One

If you will sell under a name other than your legal name, register a trade name through the BLS. Trade names are not filed with the Secretary of State or your county. Each trade name costs $5, plus the BLS processing fee. That fee is $50 when you open a business and $10 when the filing is for another purpose, such as adding a trade name to an existing business. Register at https://dor.wa.gov/manage-business/grow-business/register-trade-names.

Step 7: Understand the B&O Tax and Software Sales Tax

The B&O tax is a gross receipts tax. It applies to nearly every business, uses more than 50 activity classifications, and allows no deduction for wages, materials or other costs. Most software businesses report under the service and other activities classification, but confirm your classification with the Department of Revenue because it depends on what you sell.

Under RCW 82.04.290, the service and other activities rate depends on your prior-year gross income:

Prior-year gross income	B&O rate
Under $1 million	1.5%
$1 million to under $5 million	1.75%
$5 million or more	2.1%

The 2.1% tier took effect October 1, 2025. A new company has no prior-year income, so ask the Department of Revenue how it sets your rate in the first year.

Sales tax is the newer issue. Since October 1, 2025, custom software, customization of prewritten software, custom website development, and IT services and training are subject to retail sales tax and retailing B&O under ESSB 5814. The state sales tax rate is 6.5%, and local rates can be higher. If you sell custom builds, implementation work or training, collect sales tax where required and include the sales tax account in your BLS application. Whether a subscription or hosted product is taxable depends on how it is delivered, so confirm that with the Department of Revenue before you set prices.

ESSB 6346, enacted in 2026, repeals the sales tax on those services, other than advertising, effective January 1, 2029. Until then, the sales tax applies, so put it into your quotes and contracts.

Step 8: Plan for the 2028 Income Tax and Other Changes

ESSB 6346 also imposes a 9.9% tax on individual income above $1 million, starting in 2028, with first payments in 2029. This tax falls on individuals, not on the company's B&O receipts. If you expect large personal income from the company, ask a CPA how the tax would apply to your ownership, salary and distributions. Do not assume it does or does not reach you without professional advice.

Two other rules matter mainly to very large companies. From January 1, 2026 through December 31, 2029, an extra 0.5% B&O surcharge applies to Washington taxable income above $250 million. Washington also has no current B&O research credit. RCW 82.04.4452 expired in 2015, so do not budget for one.

Step 9: Set Up Employer Accounts Before Your First Hire

Hiring creates separate obligations. Before your first payroll, confirm workers' compensation coverage with the Department of Labor and Industries (L&I) at https://lni.wa.gov/. Register for unemployment insurance with the Employment Security Department at https://esd.wa.gov/. Both agencies publish their own current rates and fees, which this guide does not list, so check those pages directly.

Step 10: Check City, County and Local Tax Requirements

Washington has 39 counties and 281 incorporated cities and towns. Your city may require its own business license or registration. About 54 cities also levy their own B&O tax, and the Department of Revenue does not administer those local taxes. Seattle has a separate B&O tax and a payroll expense tax, so check seattle.gov for current rates and rules before you sign a lease or hire in the city.

Most software companies do not need an occupational license. If your work involves a regulated profession, such as real estate or health care, check with the responsible agency, such as DOL or DOH, before you start.

Step 11: Put Your Ownership and IP Paperwork in Order

Sign these documents before your team writes production code. For an LLC, prepare an operating agreement. For a corporation, prepare bylaws and issue stock according to your plan. Use founder IP assignment agreements so code and designs created before formation belong to the company. Open a business bank account with your EIN and formation documents. An attorney should review your customer terms and contractor agreements, especially if you use freelancers or offshore developers.

Your Recurring Deadlines

The annual report costs $70 and is due by the last day of the month in which your LLC or corporation was originally formed or registered, every year. You may file it up to 180 days early. A late filing carries a delinquency fee, for a total of $95. Put the date on your calendar the day you file the formation. B&O and sales tax returns follow the filing schedule that the Department of Revenue assigns to your account.

Common Mistakes to Avoid

• Assuming no income tax means no state tax. B&O applies to gross receipts, so you can owe it even in a year when the company loses money.
• Filing the business license first. Entities must file with the Secretary of State before the BLS application.
• Using a PO Box for your registered agent. PO Boxes and private mailboxes do not qualify.
• Missing the annual report. A late filing adds a delinquency fee, bringing the total to $95.
• Overlooking sales tax on custom work. Custom development, customization of prewritten software, custom websites, and IT services and training have been subject to sales tax since October 1, 2025.
• Forgetting local B&O. Your city may levy its own tax, and Seattle has a payroll expense tax in addition to its B&O tax.
• Looking for a trade name at the wrong agency. Trade names are registered through the BLS, not the Secretary of State or the county.
• Skipping IP assignments. Code written before formation may not belong to the company unless you document the transfer.

Expected Results

If you complete these steps in order, you should be able to form the entity, obtain a UBI and register your tax accounts in a matter of weeks. The exact timeline depends on Secretary of State and BLS processing volume, endorsement approvals and whether you choose expedited service. Founders who keep the annual report and tax calendar current may avoid late fees, though results vary by company. Nothing in this guide guarantees profitability or that you will avoid tax issues.

Next Steps

Before you file, talk with a Washington business attorney about structure and IP ownership. Ask a CPA how the B&O tiers, the sales tax on your specific products and the 2028 income tax apply to your plans. For planning help, the Washington Small Business Development Center at https://wsbdc.org/ offers business advising, and the SBA's Seattle district office is at https://www.sba.gov/district/seattle.