Washington B&O Tax Explained for New Business Owners (2026 Update)

Washington doesn't have a personal income tax, but it does have the Business & Occupation (B&O) tax. For many new business owners, it's the most confusing tax they face. Here's how it works.

What is the B&O tax?

The B&O tax is a tax on the gross receipts of businesses operating in Washington. It's based on your total revenue, not your profit. You generally can't deduct the cost of materials, labor, rent or other expenses to calculate it.

That means a business can lose money and still owe B&O tax, although the small business credit and filing thresholds keep many small businesses from owing much, if anything.

Classifications and rates

Your B&O rate depends on your business activity, not your industry label. Common classifications include:

• Retailing: selling goods or retail services to end consumers
• Wholesaling: selling to other businesses for resale
• Service and other activities: most professional and personal services
• Manufacturing: making products

Many businesses report under more than one classification. A contractor who sells and installs products, for example, may have retailing income. Rates differ by classification and have changed in recent years, so check the current rates on the Department of Revenue website.

What changed in 2026

Washington lawmakers passed legislation in 2026 that is good news for small businesses:

• The annual filing threshold doubled from $125,000 to $250,000. Below that level, many businesses don't need to file B&O returns, as long as they don't have other filing obligations such as collecting sales tax.
• The small business B&O credit increased effective July 1, 2026, to up to $375 per month for service businesses and $125 per month for non-service businesses.

The credit offsets B&O tax dollar for dollar and phases out as tax liability rises. Even if you're above the filing threshold, it may reduce your B&O tax to little or nothing.

Because these rules just changed, confirm your status with the Department of Revenue before you stop filing anything.

Filing frequency

When you register, the Department of Revenue assigns you a filing frequency: monthly, quarterly or annually, usually based on your expected tax. Returns are filed online through your My DOR account. You must file on time even if you owe nothing (unless you've been placed in a non-filing or reduced status).

City B&O taxes are separate

Several Washington cities, including Seattle and Bellevue, impose their own B&O taxes with their own thresholds and returns. Seattle significantly raised its small business threshold starting in 2026. If you do business in a city with its own B&O tax, file there separately.

Common B&O mistakes

• Thinking you only owe tax on profit
• Reporting all income under one classification when it should be split
• Not filing "zero" returns and getting penalized
• Forgetting about city B&O taxes
• Not reconciling B&O-reported revenue with the revenue on your federal return

The bottom line

The B&O tax is a revenue tax with generous relief for small businesses, especially after the 2026 changes. Know your classification, file on the schedule the state assigns you, and make sure the numbers match your books.

---

Need help getting this right? TRIG Bookkeeping & Tax Services helps new business owners in Washington with company registration, monthly and annual bookkeeping, and government compliance. Contact us to talk about your business.

This article is general information, not legal or tax advice for your situation. Tax rules and fees change, so confirm current details with the IRS, the Washington Department of Revenue, or a qualified professional.