Washington B&O Tax Guide: Rates (0.471%, 0.484%, 1.5% to 2.1%), Classifications and Credits

Washington has no corporate income tax, no personal income tax on wages and no franchise tax. Instead, virtually every business pays the state business and occupation (B&O) tax, a gross receipts tax that applies to what your business takes in, not to what it keeps. If you are forming an LLC, opening a corporation or running a sole proprietorship here, the B&O tax is one of the first state tax obligations you will need to plan for. This guide covers the 2026 rates, how activity classifications work, the rate change coming on January 1, 2027, and how the small business credit can reduce what you owe.

This guide is informational content, not legal or tax advice. Rates, thresholds and deadlines can change, and your result depends on your activities, income and business structure. Confirm figures with the Washington State Department of Revenue (DOR), and talk with a qualified CPA or attorney before you make decisions based on this page.

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How the Washington B&O Tax Works

The B&O tax is a gross receipts tax. DOR taxes the gross income of your business by activity, and there is no deduction for labor, materials or other costs. You owe the tax on gross income even if your business made no profit that year. You report and pay it on the DOR excise return.

Consider what that means in practice. At the 1.5% service rate, a business with $300,000 in gross income owes $4,500, even if its expenses left only $10,000 in profit. Because the tax follows revenue, a slow year with thin margins still produces a tax bill.

Cities add their own layer. About 54 Washington cities levy a local B&O tax on top of the state tax, and DOR does not administer those local taxes. Check each city where you operate before you file, and confirm the local rules with that city.

2026 B&O Tax Rates

The table below shows the rates in effect for 2026. Find the row that matches your main activity. If your business has several activities, each one can fall into a different classification with a different rate.

Activity	2026 rate	Authority or note
Retailing	0.471%	RCW 82.04.250
Manufacturing	0.484%	RCW 82.04.240
Wholesaling	0.484%	RCW 82.04.270
Service and other activities	1.5%, 1.75% or 2.1%	RCW 82.04.290, tiered by prior-year gross income
Real estate commissions	1.5%	Confirm citation with DOR
Child care	0.484%	Confirm citation with DOR
Travel agents and tour operators	0.275% or 0.9%	Tiered by prior-year gross income

Service and Other Activities Tiers

The service and other activities rate under RCW 82.04.290 depends on your prior-year gross income:

1.5% if prior-year gross income was under $1 million.
1.75% if prior-year gross income was from $1 million to under $5 million.
2.1% if prior-year gross income was $5 million or more. This 2.1% rate has applied since October 1, 2025.

Affiliated businesses are aggregated when you measure income against these thresholds. Splitting one operation into several related companies does not change the tier that applies to the combined income.

Travel Agents and Tour Operators

Travel agents and tour operators pay 0.275% if prior-year gross income was $250,000 or less. Above that level, the rate is 0.9%.

Some older articles list a 1.5% to 2.5% range for Washington B&O tax. That range is out of date. Use the rates in this guide, and confirm them on the DOR website before you file.

The January 1, 2027 Rate Increase

Under 2025 ESHB 2081, the rates for retailing, wholesaling and manufacturing all rise to 0.5% on January 1, 2027. If your business sells products, build that change into your pricing, cash flow and budget projections now. This guide does not list any other 2027 changes, so confirm the full 2027 schedule with DOR before you set your budget for that year.

Activity Classifications

The B&O tax sorts business activity into more than 50 classifications. Each classification carries its own rate, and your DOR excise return requires you to report gross income under the classification that matches the activity that produced it. Classification is where most filing errors start, because one business can earn income that belongs in more than one category.

A few practical habits keep classification manageable:

Separate sales of goods you sell at retail from the services you perform. They generally fall under different classifications and rates.
Keep gross income for each classification in its own ledger account from the first day of operation. Reconstructing it at year end is slow and error prone.
When income does not fit neatly into one category, get a written answer from DOR or a CPA before you file rather than guessing.

DOR's published guidance is the official source for the classification list. Check your activity against it before you choose a rate.

The Small Business Credit

Washington's small business credit can wipe out or substantially reduce the B&O tax for qualifying small filers. Eligibility depends on your gross income and how your filings are structured, so do not assume you qualify based on size alone. Our separate guide on the small business credit explains how it works. Before you count on the credit in your numbers, check the current eligibility rules and claim process with DOR.

Step-by-Step: Setting Up B&O Compliance

Form the entity if you need one. An LLC files a Certificate of Formation with Initial Report through the Corporations and Charities Filing System (CCFS) for a $180 filing fee. A corporation files Articles of Incorporation with Initial Report for the same $180 fee. Every business must also name a registered agent with a physical street address in Washington.
Register any trade name. If you operate under a name other than your legal name, register it with the Business Licensing Service (BLS) for $5 per trade name, plus the non-refundable processing fee. Trade names are not registered with the Secretary of State or the county.
Apply for the state business license. The Business License Application issues your 9-digit Unified Business Identifier (UBI). The processing fee to open a business is $50, plus separate endorsement fees. You need the license if your business owes any tax or fee to DOR, has gross income of $12,000 per year or more, sells anything subject to sales tax, or plans to hire employees within 90 days, among other triggers. Corporations and LLCs must file with the Secretary of State before they submit the application. Sole proprietors do not file with the Secretary of State.
Add city and state endorsements. Online applications generally take about 10 business days. Add 2 to 3 weeks if city or state endorsements need approval, and expect up to six weeks for a mailed application.
Track gross income by classification. Build your bookkeeping around the classifications that apply to your activities.
File the excise return. Report and pay on the DOR excise return. Confirm your filing frequency and due dates in your DOR account, because this guide does not list them.

Filing, Recordkeeping and Sales Tax

Keep invoices, contracts, sales records and bank deposits that support every figure you report. Confirm with DOR or your CPA how long you must keep them, because the retention period is not set out in this guide.

Sales tax is separate from B&O. The Washington state sales tax rate is 6.5%, and local rates can add to it. Collecting sales tax from customers does not change what you owe in B&O tax, and B&O is owed on gross income whether or not sales tax was collected.

Common B&O Mistakes

Using the outdated 1.5% to 2.5% range from older articles.
Assuming that no profit means no B&O tax. The tax applies to gross income.
Checking only the state rate and skipping city B&O taxes. About 54 cities levy their own.
Reporting all income under one classification, especially when retail sales and services are mixed.
Assuming the 0.5% rate for retailing, wholesaling and manufacturing applies now. It takes effect January 1, 2027.
Registering a trade name with the Secretary of State or the county instead of through BLS.

When to Talk to a Professional

Talk with a CPA if you have several activities, income near the $1 million or $5 million service thresholds, related companies that must be aggregated, or questions about the small business credit. Talk with an attorney if a classification question also affects your entity structure or a contract. The Washington Small Business Development Center can help you think through the basics before you meet with either professional.

Official Resources

Reminder: this guide is informational only and is not legal or tax advice. Verify current rates and requirements with the agencies above before you file.