Move to Washington from almost any other state and someone will tell you, correctly, that there’s no personal or corporate income tax here. What they usually don’t mention is the Business & Occupation tax — a tax nearly every Washington business owes, calculated on a basis most new business owners have never dealt with before: gross receipts, not profit.
This guide explains how the B&O tax actually works, at the state level and in the handful of cities that add their own layer on top, using rates and thresholds we verified against the Washington Department of Revenue and each city’s own finance department. Where a figure couldn’t be confirmed from an official source, we say so rather than guess — wrong tax numbers cost real money.
The short version
Washington’s B&O tax is a tax on gross receipts, with no deduction for business expenses. The state rate depends on your business classification — 0.471% for retailing, 0.484% for wholesaling and manufacturing, and a tiered rate for Service & Other Activities that runs from 1.5% to 2.1% depending on your revenue. A Small Business B&O Tax Credit can reduce or eliminate what you owe if your tax liability is small enough. Roughly half of Washington’s larger cities — Seattle, Tacoma, Bellevue, Vancouver, Olympia, Bellingham, Renton, and Kent among them — add their own separate city B&O tax on top of the state one; several others, including Spokane, Kirkland, Redmond, and the Tri-Cities, charge no general city B&O tax at all.
What the B&O tax actually is
Most states with a business tax calculate it on net income — revenue minus deductible expenses. Washington’s B&O tax is calculated on gross receipts: the total amount your business brings in, before you subtract rent, payroll, materials, or anything else. A business that grosses $500,000 and nets $10,000 after a brutal year still owes B&O tax on the full $500,000, not the $10,000.
This is the single most common surprise for business owners moving to Washington from a state with a conventional corporate or franchise tax. It also means B&O tax is owed even in a loss year, which matters for cash-flow planning in a way that a profit-based tax doesn’t.
Washington doesn’t have one flat B&O rate. Instead, the state assigns your business to one of more than 50 classifications based on what you actually do, and each classification carries its own rate. Get the classification wrong, and you’re either overpaying or underpaying — both are problems, just in different directions.
Current state B&O tax rates by classification
These are the rates for the classifications most small businesses fall under, current as of this writing:
| Classification | Rate |
|---|---|
| Retailing | 0.471% |
| Wholesaling | 0.484% |
| Manufacturing | 0.484% |
| Service & Other Activities — prior-year gross income under $1 million | 1.5% |
| Service & Other Activities — $1 million to just under $5 million | 1.75% |
| Service & Other Activities — $5 million and above | 2.1% |
The Service & Other Activities tier took effect October 1, 2025, replacing what had been a flat 1.5% rate for everyone in that classification regardless of size. Hospitals and certain advanced-computing businesses are carved out and stay at 1.5% regardless of revenue. Separately, a 0.5% surcharge applies to businesses with more than $250 million in Washington taxable income per year, effective January 1, 2026 — well outside the range of almost every small business, but worth knowing it exists if you’re ever curious why a large company’s effective rate looks different from the table above.
Most professional-services businesses — consultants, agencies, freelancers billing for their time — fall under Service & Other Activities. Most businesses selling physical goods to the end consumer fall under Retailing. If you’re not sure which applies to you, that’s a conversation worth having before you file, not after.
The Small Business B&O Tax Credit
Washington doesn’t just apply the rate table and stop there. A Small Business B&O Tax Credit can reduce — or fully eliminate — your state B&O bill if your calculated tax is small enough, based on a monthly net-tax figure:
- Service-heavy businesses (50% or more of taxable income from Service & Other Activities, gambling, for-profit hospitals, scientific R&D, or real estate commissions): monthly net B&O tax under $160 is fully credited — you owe $0. The credit phases out completely by $320 a month.
- All other businesses: monthly net B&O tax under $55 is fully credited. The credit phases out by $110 a month.
Quarterly and annual filers use proportionally larger versions of the same bands. The credit is calculated automatically when you file, but a lot of very small businesses and side-hustle filers don’t realize it exists and assume they owe the full rate-table amount when they may owe nothing at all.
City B&O tax: the layer most guides skip
Here’s what a lot of general “Washington B&O tax” articles miss entirely: the state B&O tax is not the whole story. Washington cities are allowed to levy their own additional B&O tax, on top of the state one, and whether yours does — and at what rate — varies enormously from city to city. There is no statewide uniform city rate.
Cities that currently levy their own city B&O tax (verified against each city’s own finance department, current as of 2026):
| City | Structure |
|---|---|
| Seattle | 0.342% (retail/wholesale/manufacturing) or 0.658% (service), $2,000,000 threshold — raised from $100,000 under the 2026 “Seattle Shield” measure |
| Tacoma | 0.153%–0.4% depending on classification |
| Bellevue | Flat 0.1596% across all classifications, $215,000 (2026) threshold |
| Vancouver, WA | New for 2026: 0.1% on retail sales/service only, $50,000/year threshold |
| Olympia | 0.15% (retail) or 0.20% (other), $500,000 (2026) threshold |
| Bellingham | 0.17%–0.44% depending on classification, $20,000/year threshold |
| Renton | 0.070% (retail) or 0.121% (other), $500,000 threshold |
| Kent | Gross receipts tax plus a separate square-footage tax, whichever is greater — confirm current rates directly with the city |
| Everett | Flat 0.1% regardless of classification |
Cities that, as far as we could verify, charge no general city B&O tax on ordinary business activity — relying instead on a business license fee — include Spokane, Kirkland, Redmond (covered together here), Kennewick, Pasco, and Richland (the Tri-Cities), and Yakima.
If you operate in more than one city, or you’re not sure whether your city has its own B&O tax, this is exactly the kind of thing that gets missed by a preparer who only knows the state form. A business physically located in, say, Kent, and making deliveries into Seattle, may have filing obligations most people never think to check for.
Common mistakes small businesses make with B&O tax
Assuming “no income tax” means no business tax. It doesn’t. B&O tax applies from your very first dollar of gross receipts, in a loss year or a good one.
Using the wrong classification. A business doing both retail and service work may need to report income under multiple classifications on the same return, each at its own rate — not the highest or lowest rate applied to everything.
Missing the Small Business B&O Tax Credit. Plenty of very small filers pay the full rate-table amount without realizing a credit could zero it out.
Not realizing their city has its own B&O tax — or forgetting it changed. Several cities changed their rates or thresholds for 2025 or 2026 alone. A return prepared the same way as last year can be wrong even if nothing about your business changed.
Treating B&O tax as a substitute for sales tax, or vice versa. They’re separate taxes with separate rules; a retail business generally owes both.
How to get your classification and filing right
Washington’s Department of Revenue publishes a full list of B&O classifications with descriptions of what activities fall under each — it’s worth reading the actual description for your closest match rather than guessing from the name. If your business operates in a city with its own B&O tax, that city’s finance or tax department publishes its own current rates and thresholds separately from the state’s — always check both, since they change independently of each other.
If any of this sounds like more moving pieces than you want to track by hand, that’s precisely the kind of setup work worth getting right from the start with business formation and ongoing bookkeeping support, so your B&O classification and city obligations are correct from day one instead of discovered on an audit notice.
Frequently asked questions
Is Washington’s B&O tax based on profit or revenue?
Revenue — specifically gross receipts. There is no deduction for business expenses, payroll, or cost of goods sold when calculating B&O tax, which is different from how most states’ business taxes work.
Do I owe B&O tax if my business lost money this year?
Generally yes. Because B&O tax is calculated on gross receipts rather than net income, a loss year doesn’t eliminate the tax the way it would with a profit-based tax. The Small Business B&O Tax Credit may still reduce or eliminate what you owe if your calculated tax is small enough, regardless of profitability.
How do I know if my city has its own B&O tax?
There’s no shortcut — city B&O tax is set independently by each city, and roughly half of Washington’s larger cities have one while the rest don’t. Check your specific city’s finance or tax department page, or see our Washington city-by-city guide for the cities we’ve verified.
What’s the difference between B&O tax and sales tax?
B&O tax is charged to the business on its gross receipts. Sales tax is charged to the customer on the purchase and collected by the business on the state’s behalf. Most retail businesses owe both, calculated separately, and one is not a credit against the other.
Can the Small Business B&O Tax Credit really bring my bill to $0?
Yes, if your calculated monthly net B&O tax falls under the applicable threshold — $160 for service-heavy businesses, $55 for others — the credit fully offsets it. The credit phases out gradually above those thresholds rather than disappearing all at once.
Does the B&O tax rate change based on how much my business makes?
For Service & Other Activities, yes — the rate itself increases at $1 million and again at $5 million in prior-year gross income, effective October 1, 2025. Retailing, wholesaling, and manufacturing rates don’t currently scale with revenue the same way, though the very largest businesses face a separate surcharge above $250 million in Washington taxable income.
This article reflects our research of official Washington Department of Revenue and city finance department sources as of August 2026. Several of the figures above changed in 2025 and 2026 rate-setting cycles and can change again — confirm your exact classification, rate, and threshold with the Washington Department of Revenue, your city’s finance office, or on a consultation before filing. This is general information, not tax advice, and reading it doesn’t create a client relationship. For a review of your specific classification and filing obligations, book a free consultation with IMAAR Associates CPA, PLLC, the professional practice of a Washington State Licensed CPA.