Types of business taxes in Washington
As an employer in Washington, you may be responsible for reporting and paying other business taxes in addition to withholding payroll taxes from your employees' paychecks. From federal to state and local levels, understanding the different tax programs and their impact on your business’s finances is important.
Federal taxes
You'll be responsible for federal taxes in whatever state you open a business in. Unfortunately, there are dozens of federal tax forms with unique due dates and requirements. Using an accountant or small business accounting software can be helpful in avoiding mistakes that can lead to overpayment or penalties.
As a business owner, you have both personal and business tax filing obligations. Here’s what you need to know:
Personal tax filing
Federal income tax returns:
Every individual is required to file and pay federal personal income tax. This forms the foundation of your overall tax responsibility.
Business tax filing
Business owners have additional filing requirements, depending on the business structure:
- Sole proprietorship: Income and expenses are reported on your personal tax return using Schedule C (Form 1040).
- Partnership: A partnership must file an information return (Form 1065) to report income, deductions, and other relevant details, while each partner reports their share of income on their personal return.
- Corporation: A corporation files a corporate tax return (Form 1120), paying taxes on its profits.
- S corporation: An S corporation files an informational return (Form 1120S). Its income, losses, and deductions pass through to shareholders, who report them on their personal returns.
- Limited liability companies (LLCs): LLCs are not classified separately for federal tax purposes and are taxed based on their ownership structure. Single-member LLCs default to sole proprietorship taxation or may elect corporate taxation, while multi-member LLCs default to partnership taxation or may elect corporate taxation.
Self-employment tax
If you work for yourself and earn more than $400 a year, you pay toward Social Security and Medicare programs through a self-employment tax. The Social Security system provides retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
Employment taxes
As an employer, you are responsible for withholding and depositing federal income tax and the employee contribution to Social Security and Medicare taxes. You must also pay the employer portion of Medicare and Social Security and pay federal unemployment tax (FUTA).
State taxes
Washington doesn't have state income taxes, but it does have business and occupation taxes, sales and use tax, and public utility tax rates your business may have to pay. Washington state also has a payroll tax, which is different from a personal income tax. QuickBooks offers payroll services for businesses.
Washington franchise tax
There are no franchise taxes in Washington. Instead, companies have to pay the business and occupation (B&O) tax rate based on their gross receipts. Washington does have a couple of alternative tax types.
What is the franchise tax rate?
Sole proprietorships, LLCs, partnerships, and corporations are subject to a B&O tax in Washington. It calculates this amount based on what you do in the state. The tax rate for businesses in Washington varies by industry. Here is a breakdown of the different rates in 2025:
- Retailing: 0.471%
- Wholesaling: 0.484%
- Manufacturing: 0.484%
- Other services: 1.5%
Different rates or taxes may apply based on your business and the specific types of goods you sell or services you provide. There are also various deductions to consider that can help you lower your total tax liability.
Be sure to stay mindful of your tax recordkeeping, and consult with an accountant if you have questions.
How is the franchise tax calculated?
The B&O tax is calculated on the gross income from business activities, without deductions for labor, materials, taxes, or other costs of doing business.
Who may be liable for the franchise tax?
Virtually all businesses operating in Washington are subject to the B&O tax, including corporations, limited liability companies (LLCs), partnerships, and sole proprietors, whether they are nonprofit or for-profit entities.
Excise taxes
Excise taxes are special taxes imposed on specific goods or services. In Washington, these taxes apply to a wide range of products and activities, including:
Public utility tax: In Washington, businesses that provide transportation, supply energy, natural gas, water, or public communications services are subject to public utility taxes. Here’s a breakdown of how the public utility tax in Washington applies to different activities:
- Water distribution: .05029%
- Electricity distribution: .038734%
- Urban transportation and watercraft vessels under 65-feet long: .00642%
- Railroad services: .01926%
- Log transportation services: .013696%
- Telegraph companies, distribution of natural gas, and collection of sewerage: .03852%
Real estate excise tax (REET): REET is a tax on the sale of real property, typically paid by the seller. Washington implements a graduated REET rate structure based on the property's selling price:
- $525,000 or less: 1.10%
- $525,000.01 - $1,525,000: 1.28%
- $1,525,000.01 - $3,025,000: 2.75%
- $3,025,000.01 or more: 3.00%
Tobacco products: Washington imposes an excise tax on tobacco products. The rates are:
- Moist snuff for cans with net weight of 1.2 ounces or less: $2.526 per can
- Moist snuff for cans with net weight greater than 1.2 ounces: $2.105 per ounce
- Cigars (except little cigars): 95% of taxable sales price, not to exceed $0.65 per cigar
- Little cigars (cigars that have a cellulose acetate integrated filter): $0.15125 per stick ($3.025 per pack of 20)
- All other tobacco products: 95% of taxable sales price
Marijuana: A 37% tax imposed on the retail sale of marijuana products. This tax is collected from consumers at the point of sale and is in addition to standard sales taxes.
Spirits: Washington imposes both a spirits sales tax and a spirits liter tax on the sale of liquor. The spirits sales tax rates are 20.5% for the general public and 13.7% for on-premises retailers (e.g., restaurants and bars). The spirits liter tax rates are $3.7708 per liter for the general public and $2.4408 per liter for on-premises retailers.
Unemployment tax
In Washington, employers are required to pay both federal and state unemployment insurance (UI) taxes. The state UI tax is applied to each employee's wages up to a specified annual limit, known as the taxable wage base.
For 2025, the taxable wage base is $72,800. Tax rates vary based on the employer’s experience rating. Employers are assigned to one of 40 rate classes, with rates ranging from 0.24% to 6.00% for qualified employers. Employers with delinquencies face higher rates, which can increase by 0.5% to 2%, depending on the level of delinquency.
For full rate tables and more details, visit the Employer Security Department.
Local taxes
In addition to federal and state taxes, many cities, counties, and other jurisdictions in Washington levy other kinds of local taxes to fund essential services and infrastructure such as schools, roads, police, and fire protection.
For example, many cities impose a local B&O tax, which is separate from the state B&O tax. Some of these cities include:
- Bainbridge Island: Businesses with gross revenue in the city of more than $150,000 are subject to a B&O tax rate of 1/10 of 1% (0.001)
- Shelton: B&O tax is calculated on gross receipts at a rate of 0.2% for all classifications. Businesses with gross receipts of less than $20,000 annually or $5,000 quarterly are not subject to B&O tax
- Mercer Island: The city collects an annual B&O tax on gross revenues. The first $150,000 per year is exempt, and revenues above that are taxed at a rate of 0.0010
Local jurisdictions may also impose other taxes, such as lodging taxes, rental car taxes, and transportation benefit district taxes, to fund specific local projects or services. For detailed information on all local taxes in Washington, refer to the Local Tax Reference Guide.
Sales and use tax
Washington imposes a 6.5% sales tax. Washington uses a destination-based sales tax system, meaning the tax rate is based on the location where the customer receives the merchandise or service. The combined state and local tax rates vary across different areas, for example:
- King County: 10.2%
- Mercer Island: 10.2%
- DuPont: 9.6%
- Ellensburg: 8.6%
Utilize the Washington Department of Revenue’s Tax Rate Lookup Tool to find specific rates for any location in the state
Use tax applies to purchases that do not have sales tax or have a sales tax lower than Washington's. It can apply to taxes made in-person or online.
Remote seller tax considerations
Remote sellers are required to register, collect, and remit sales tax in Washington if they meet the following threshold in the current or previous calendar year:
- Has more than $100,000 in combined gross receipts sourced or attributed to Washington.
- Is organized or commercially domiciled in Washington
This rule applies to all types of business income, including retail, wholesale, and service-related sales.
Once a remote seller meets the threshold, The seller must register for a business and occupation (B&O) tax account and start collecting Washington sales tax. The requirement starts on the first day of the month at least 30 days after passing the threshold.
Property taxes
For most properties used for business purposes, owners have to pay a personal property tax. This tax includes the property and all supplies used to operate the business, such as furniture and tools. Property tax rates vary significantly across Washington State and are determined by local jurisdictions.
The state requires county assessors to appraise all commercial and industrial property at 100% of its true market value. In industrial businesses, machinery and equipment can be considered part of the property when they are physically attached to the property.
