Data Notice: Tax figures and thresholds related to business tax washington cited in this article are projected 2026 values based on IRS guidance and current legislation. Tax law is subject to change. Verify all figures with IRS.gov or a licensed tax professional before making decisions.

Business Tax in Washington: Complete Guide 2026

Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.

Washington State has no corporate income tax and no personal income tax, but it imposes a Business and Occupation (B&O) tax that is one of the most significant gross receipts taxes in the nation. The B&O tax applies to gross receipts (total revenue) rather than net income, with rates varying by business activity. This means even unprofitable businesses owe B&O tax if they have revenue. Washington also enacted a ~7.00% capital gains tax in 2021 that was upheld as an excise tax. Together, these mechanisms create a unique business tax environment.

Washington Business Tax Overview (2026)

Tax Type	Rate / Structure
Corporate income tax	None
Personal income tax	None
Business & Occupation (B&O) tax	~0.138% to ~3.30% of gross receipts
Capital gains tax	~7.00% on long-term gains over ~$250,000
Sales tax	~6.50% state + local
Property tax	~0.80% to ~1.20% effective rate
Workers’ compensation	Required (rates vary)

Business and Occupation (B&O) Tax

The B&O tax is Washington’s primary business tax. It applies to gross receipts with no deduction for expenses, cost of goods sold, or losses:

B&O Tax Rates by Classification

Business Activity	B&O Tax Rate
Retailing	~0.471%
Wholesaling	~0.484%
Manufacturing	~0.484%
Service and other	~1.50%
Financial services	~1.50%
Real estate brokerage	~1.50%
Government contracting	~0.484%
Insurance premiums	~2.00%
Gambling contests of chance	~1.63%
Travel agents (commissions)	~0.275%
International services	~0.138%
Royalties	~1.50%
Advanced computing (surcharge)	Up to ~3.30% (targeted at large tech companies)

B&O Tax Small Business Credit

Washington provides a small business B&O tax credit that effectively eliminates the tax for very small businesses:

Gross Income	B&O Tax Credit
Under ~$62,500/quarter	Full credit (no tax owed)
~$62,500 to ~$250,000/quarter	Partial credit (graduated phase-out)
Over ~$250,000/quarter	No credit

This means businesses with less than approximately ~$250,000 in annual gross receipts may owe little or no B&O tax.

The Gross Receipts Problem

The B&O tax is calculated on gross receipts, not profit. This creates challenges for certain business types:

Business Type	Revenue	Expenses	Profit	B&O Tax (Service Rate)
High-margin consulting	$1,000,000	$300,000	$700,000	~$15,000
Low-margin retail	$1,000,000	$900,000	$100,000	~$4,710 (retail rate)
Unprofitable startup	$1,000,000	$1,200,000	($200,000)	~$15,000 (service rate)

The unprofitable startup and the highly profitable consulting firm pay the same B&O tax despite vastly different financial positions. This is the fundamental criticism of gross receipts taxes.

Capital Gains Tax

Washington enacted a ~7.00% tax on long-term capital gains exceeding ~$250,000 per year, effective in 2022. The Washington Supreme Court upheld this as an “excise tax” rather than an income tax:

Parameter	Amount
Rate	~7.00%
Annual threshold	~$250,000 in long-term capital gains
Exemptions	Sale of primary residence, retirement accounts, certain small business sales

This tax primarily affects high-income investors and business owners selling appreciated assets. The ~$250,000 threshold exempts most taxpayers.

Comparison to Other No-Income-Tax States

State	Primary Business Tax	Mechanism	Rate
Washington	B&O tax	Gross receipts	~0.138% to ~3.30%
Texas	Franchise/margin tax	Margin-based	~0.375% to ~0.75%
Nevada	Commerce Tax + MBT	Gross receipts + payroll	~0.051% to ~0.331% + ~1.378%
Wyoming	None	N/A	N/A
South Dakota	None	N/A	N/A
Florida	Corporate income tax	Net income (C-Corps only)	~5.50%

Washington’s B&O tax service rate of ~1.50% is significantly higher than comparable taxes in Texas, Nevada, and other no-income-tax states. However, the retail and manufacturing rates (~0.471% and ~0.484%) are more competitive.

Advanced Computing Surcharge

Washington enacted a targeted surcharge on the B&O tax for “specified financial institutions” and “advanced computing” businesses with worldwide revenue exceeding ~$25 billion. This surcharge, which brings the effective B&O rate to approximately ~2.50% to ~3.30%, was designed to capture additional revenue from large technology companies headquartered in Washington (primarily Microsoft, Amazon, and similar firms).

Tips for Minimizing Washington B&O Tax

Classify your activity correctly. B&O rates vary dramatically by classification. Retailing (~0.471%) and manufacturing (~0.484%) are much lower than services (~1.50%). Ensure your business is classified in the correct (and most favorable) category.
Take the small business credit. Businesses with gross income below ~$250,000/quarter should ensure they are claiming the small business B&O tax credit, which can eliminate or substantially reduce the tax.
Claim the multiple activities tax credit (MATC). If you are taxed under multiple B&O classifications for the same transaction (e.g., manufacturing and selling), the MATC prevents double taxation.
Deduct interstate and foreign sales. B&O tax generally does not apply to sales delivered outside Washington. Properly documenting out-of-state deliveries reduces your taxable gross receipts.
Plan capital gains timing. The ~$250,000 annual threshold on capital gains is per year. Spreading realized gains across multiple tax years can keep each year’s gains below the threshold.
Consider the manufacturing classification. Some businesses that process or transform goods may qualify for the manufacturing rate (~0.484%) instead of the service rate (~1.50%). The savings can be substantial.

Key Takeaways

Washington has no corporate or personal income tax but imposes a B&O tax on gross receipts at rates from ~0.138% to ~3.30%
The B&O tax applies to total revenue, not profit, which disadvantages low-margin and unprofitable businesses
Service businesses face a ~1.50% rate, while retail and manufacturing businesses pay approximately ~0.47% to ~0.48%
The small business B&O credit effectively eliminates tax for businesses under approximately ~$250,000 in annual gross receipts
Washington’s ~7.00% capital gains tax applies to long-term gains exceeding ~$250,000 per year
The advanced computing surcharge targets large tech companies with rates up to approximately ~3.30%

Next Steps

Compare sales tax at Sales Tax in Washington 2026
See the estate tax at Estate Tax in Washington 2026
Read the full state guide at Taxes in Washington: State Tax Guide 2026
Explore no-income-tax alternatives at Business Tax in Wyoming 2026
Get professional help: Hire a Tax Professional