Washington has no corporate income tax and no personal income tax on wages, but its businesses pay one of the country's broadest taxes on revenue: the business and occupation (B&O) tax. Because it applies to gross receipts rather than profit, businesses pay even when they lose money. Sales taxes are among the highest in the country, and a capital gains tax applies to large gains.
This guide covers Washington's business taxes for 2026, with worked examples and comparisons with Oregon and Idaho.
Washington business taxes at a glance
A Washington business pays B&O tax on gross receipts, at about 0.5% for retail, wholesale and manufacturing and 1.5% to 2.1% for services. Owners pay no state tax on wages or business profit. Customers pay a 6.5% state sales tax plus local taxes, often above 10% in combined rate. Investors pay 7% to 9.9% on large capital gains. Seattle adds its own B&O tax and a payroll expense tax on large employers. LLCs pay $180 to form and $70 a year.
Business and occupation (B&O) tax
| Activity | State rate (approx.) |
|---|---|
| Retailing | 0.471% |
| Wholesaling | 0.484% |
| Manufacturing | 0.484% |
| Service and other activities (most businesses) | 1.5% |
| Service and other (receipts above $1 million) | 1.75% |
| Highest service rate (largest firms) | 2.1% |
- No deductions for costs: The tax applies to gross receipts, with limited deductions.
- Small business credit: Reduces or eliminates tax for businesses with low B&O liability.
- Apportionment: Service income is apportioned based on where the customer receives the benefit.
- Local B&O: Seattle, Tacoma, Bellevue, Everett and other cities charge their own B&O taxes.
No personal income tax on wages
- Sole proprietors, LLC members, partners and S corporation shareholders pay no state income tax on business profit.
- Wages are untaxed.
- Capital gains tax: 7% on long-term gains above an annual deduction of about $278,000, and 9.9% on gains above $1 million. Real estate is exempt.
- Millionaires' income tax: A 9.9% tax on household income above $1 million is enacted from 2028.
Sales and use tax
| Component | Rate |
|---|---|
| State sales tax | 6.5% |
| Local taxes | Up to about 4% |
| Average combined rate | About 9.57% |
| Seattle | 10.35% |
- Groceries are exempt.
- Services: Some services, including construction, repairs, landscaping and some digital services, are taxable. Recent legislation expanded the tax to more services.
- Remote sellers with more than $100,000 of Washington sales must collect.
Payroll and property taxes
- Unemployment insurance: Employers pay on a wage base above $70,000, one of the highest nationally.
- Paid family and medical leave: Premium of about 1% of wages, shared between employers and employees. Employers with fewer than 50 employees don't pay the employer share.
- WA Cares long-term care: Employees pay 0.58% of wages.
- Seattle payroll expense tax: Applies to businesses with Seattle payroll above about $8 million, on employees earning more than about $180,000.
- Property tax: Real and personal property are taxed at moderate rates.
Forming a business in Washington: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $180 | $180 |
| Annual report | $70 | $70 |
| Business license | Required through the Business Licensing Service | Required |
| Registered agent | Required | Required |
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| Washington income tax | $0 |
| Federal tax at 21% on $500,000 | $105,000 |
| Total income tax | $105,000 (21%) |
The business would also pay B&O tax on gross receipts. A consulting firm with $2 million of revenue at 1.75% would pay about $35,000 of state B&O tax, plus any city B&O, regardless of whether it made $500,000 or a loss. For a single LLC owner with $150,000 or $75,000 of profit, Washington income tax is $0, though their business pays B&O tax.
How Washington compares with its neighbors
Washington and Oregon are mirror images: Washington has no income tax but high sales taxes, while Oregon has a high income tax and no sales tax. Many people in the Portland area live in Vancouver, Washington, to avoid Oregon income tax and shop in Oregon to avoid Washington sales tax, though Oregon taxes wages earned in Oregon regardless of residence.
Choosing an entity in Washington
- LLC: The most common choice. No income tax, but B&O tax applies to the business.
- S corporation: Federal payroll tax savings with no state income tax.
- C corporation: Only the 21% federal rate applies.
Entity choice doesn't affect B&O tax, which applies to all business forms, including sole proprietorships.
Washington taxes by business type
Software and technology. Companies selling software and digital services pay B&O tax at retail or service rates and may need to collect sales tax on digital products. Seattle's large technology employers also pay the city's payroll expense tax.
Low-margin businesses. Grocers, distributors and contractors with thin margins pay B&O on gross receipts, which can take a large share of profit.
Startups. Pre-profit startups with revenue still owe B&O tax, unlike in income tax states. The small business credit helps at low revenue levels.
Investors and founders. Founders selling shares in a company can face the 7% to 9.9% capital gains tax, though qualified family-owned small business sales have an exemption.
Doing business across Washington
The Seattle metro area dominates Washington's economy, with Amazon, Microsoft, Boeing, Costco and thousands of technology companies. Spokane in the east is a regional hub for health care and agriculture. Vancouver, across the Columbia River from Portland, has grown as a lower-tax alternative for Oregon workers and businesses. Central Washington's agricultural economy produces most of the country's apples and much of its hops and wine grapes.
Tax planning tips for Washington businesses
Classify your activities correctly. B&O rates vary widely by activity. A business with both retail and service income should report each at the correct rate.
Claim the small business credit. Businesses with low B&O liability can eliminate much or all of it.
Plan for capital gains. Founders and investors planning to sell appreciated assets should consider timing, the annual deduction and exemptions, such as the one for qualified family-owned small businesses.
Who pays the most in Washington
Washington's tax system relies heavily on sales and gross receipts taxes, so low-income households pay a much larger share of their income in state and local tax than high earners, a pattern that has made Washington one of the most regressive states. Low-margin businesses pay B&O on revenue regardless of profit, and large service firms now pay the higher B&O rates. Wealthy investors pay the capital gains tax, and from 2028 high earners may pay the new tax on income above $1 million.
Recent changes for 2025 and 2026
- B&O rates increased for large service businesses and some industries.
- Sales tax extended to more services.
- Capital gains tax rate of 9.9% added for gains above $1 million.
- Millionaires' income tax enacted for 2028, likely to face court challenges.
Is Washington a good state for business?
Advantages
- No personal income tax on wages or business profit
- No corporate income tax
- Large technology and aerospace economies
- Access to Pacific ports and Asian markets
Drawbacks
- B&O tax on gross receipts, even when unprofitable
- Some of the highest sales taxes in the country
- Capital gains tax and a future income tax on millionaires
- High costs in the Seattle area
Compliance checklist
- File a Certificate of Formation with the Secretary of State.
- Apply for a business license through the Business Licensing Service.
- Register with the Department of Revenue for B&O and sales tax.
- Register with the Employment Security Department for unemployment insurance and paid leave if you hire.
- File the annual report each year.
- File B&O and sales tax returns monthly, quarterly or annually as assigned.
Compare Washington with its neighbors below or estimate your taxes in the United States calculator. See LLC taxes for more.