Washington — Corporate Income / Franchise Tax

## Direct answer

Washington State does not impose a corporate income tax or a corporate franchise tax on businesses.

Source: Washington Department of Revenue — Income tax

## Why this matters

Unlike most U.S. states, Washington has no tax measured by corporate net income. Washington also does not impose a franchise tax (a tax on the privilege of doing business in the state, sometimes measured by net worth or capital).

Source: Washington Department of Revenue — Income tax

Instead, Washington imposes a Business & Occupation (B&O) tax, which is a gross receipts tax. The B&O tax is measured on the gross income from business activities — there are no deductions for labor, materials, taxes, or other costs of doing business. This is fundamentally different from a corporate income tax, which is measured by net income (gross income minus deductible expenses).

Source: Washington Department of Revenue — Business & occupation tax

The B&O tax applies to virtually all business entities engaged in business in Washington, including corporations, limited liability companies, partnerships, and sole proprietors. The tax rate varies depending on the business activity classification (retailing, wholesaling, manufacturing, service and other activities, etc.).

Source: Washington Department of Revenue — Business tax structure in Washington State

## What this guide covers

Because Washington does not have a corporate income tax or franchise tax, this guide covers Washington's B&O tax as it applies to corporations and other business entities. The B&O tax is Washington's primary tax on business activities and serves as the functional equivalent of a business tax in other states, though it is structured as a gross receipts tax rather than an income tax.

Source: Washington Department of Revenue — Business & occupation tax

Practitioners should note that the absence of a net income tax creates significant structural differences in tax planning, compliance obligations, and the treatment of losses, deductions, and apportionment. Because the B&O tax is measured by gross receipts, businesses with low profit margins may face higher effective tax burdens than in income-tax states.

## Caution / review status

Not yet human confirmed. This section addresses the foundational question of whether Washington imposes corporate income or franchise tax; the answer is definitively no, and that answer is supported by official Washington Department of Revenue publications. Subsequent sections will address the B&O tax in detail.

Washington's Business & Occupation tax applies different rates depending on the business activity classification. The B&O tax is measured by gross receipts with no deductions for costs of doing business.

Major B&O tax classifications and rates (as of May 2026):

Retailing: 0.471% of gross proceeds from retail sales. Effective January 1, 2027, the rate increases to 0.5%.

Source: RCW 82.04.250

Wholesaling: 0.484% of gross proceeds from wholesale sales. Effective January 1, 2027, the rate increases to 0.5%.

Source: RCW 82.04.270

Manufacturing: 0.484% of the value of products manufactured. A Multiple Activities Tax Credit may eliminate duplicate taxation when the same business both manufactures and sells goods in Washington.

Source: RCW 82.04.240

Service and Other Activities: Effective October 1, 2025, this classification has three graduated rates based on prior calendar year taxable income under this classification (including affiliated group income):

• Less than $1 million: 1.5%
• $1 million to $4,999,999.99: 1.75%
• $5 million or more: 2.1%

Hospitals and select advanced computing businesses remain at 1.5% regardless of income level. Real estate brokers report commissions separately but follow the same tiered structure for other service income.

Source: Washington Department of Revenue — Service and Other Activities rate changes

The Service and Other Activities classification is a residual category that includes professional services, personal services, and business activities not classified elsewhere. Income that does not fit into retailing, wholesaling, manufacturing, or another specific classification is generally taxable under this classification.

Washington has over 30 specialized B&O tax classifications with varying rates for specific industries, including lower preferential rates for semiconductor manufacturing (0.275%), financial institutions, insurance producers, and certain natural resource activities.

Source: Washington Department of Revenue — B&O tax classification definitions

An out-of-state business has substantial nexus with Washington for B&O tax purposes if it had more than $100,000 of cumulative gross receipts from Washington in either the current or immediately preceding calendar year. This economic nexus threshold applies regardless of physical presence in the state.

Cumulative gross receipts include all gross income of the business attributed to Washington, combining receipts from all B&O tax classifications (retailing, wholesaling, service and other activities, apportionable income, and other classifications). Businesses organized or commercially domiciled in Washington, or individuals who are Washington residents, automatically have substantial nexus without needing to meet the $100,000 threshold.

The $100,000 economic nexus standard took effect January 1, 2020.

Source: RCW 82.04.067

Washington B&O tax returns are filed monthly, quarterly, or annually based on the filing frequency assigned by the Department of Revenue. Monthly returns are due on the 25th of the following month (e.g., the June return is due July 25). Quarterly returns are due by the end of the month following the quarter (e.g., the Q1 return covering January–March is due April 30). Annual returns are due April 15. If any due date falls on a weekend or legal holiday, it extends to the next business day.

Source: Washington Department of Revenue — Filing frequencies & due dates; WAC 458-20-22801

Effective July 1, 2025, Washington repeals the prior sliding-scale small business B&O tax credit (RCW 82.04.4451) and replaces it with a new flat credit for smaller businesses. Under Substitute House Bill (SHB) 2081 (2025), the state provides a flat $250,000 annual B&O tax credit to taxpayers with annual gross receipts under $2.5 million. This change eliminates the old phased-out monthly credits ($55 or $160 per month, with phaseouts) and instead allows businesses under the gross receipts threshold to fully offset their B&O tax liability up to the new, much higher cap. Taxpayers with annual receipts at or above $2.5 million do not qualify for the credit and must compute and pay B&O tax without this relief.

Further legislation (SB 6346, enacted March 2026) increases the size of the credit and the exemption threshold again, effective January 1, 2029, contingent on legal validation of Washington’s new income tax system. Until that date, and absent further legislation or court order, the flat $250,000 credit and $2.5 million receipts cap structure will apply for B&O reporting periods beginning on or after July 1, 2025.

The Washington Department of Revenue is expected to issue updated guidance and tables before the effective date. Practitioners should monitor the DOR’s publications for updated forms and detailed transition procedures, especially for returns straddling the July 1, 2025, implementation date.

Source: SHB 2081 (2025), repealing RCW 82.04.4451 and establishing flat small business B&O credit Source: Washington Department of Revenue – Small business B&O tax credit update (anticipated 2025 guidance publication placeholder)

Washington B&O tax sourcing rules determine where receipts are attributed for purposes of calculating Washington taxable income. The sourcing framework differs fundamentally based on whether the receipts fall under retail/wholesale classifications or apportionable service and other activities income.

Retail and wholesale sales sourcing (tangible personal property and retail services)

Retail sales of tangible personal property, digital goods, digital codes, digital automated services, and certain other services defined as retail sales are sourced under the destination-based sourcing hierarchy in RCW 82.32.730. This same sourcing statute applies to B&O retailing and wholesaling tax as well as retail sales tax collection. The cascading sourcing rules are:

1. Seller's business location: The sale is sourced to the seller's business location where the purchaser receives the product or service.

1. Location of receipt: If not received at the seller's business location, the sale is sourced to the location where the purchaser (or purchaser's donee) receives the product or service, including the location indicated by delivery instructions known to the seller.

1. Purchaser's address in seller's records: If the above do not apply, the sale is sourced to the address for the purchaser available from the seller's business records maintained in the ordinary course of business, when use of this address does not constitute bad faith.

1. Address obtained during sale: If the above do not apply, the sale is sourced to the address for the purchaser obtained during the consummation of the sale, including the address of the purchaser's payment instrument if no other address is available and use does not constitute bad faith.

1. Origin sourcing (default): If none of the above apply, the sale is sourced to the address from which the tangible personal property was shipped, from which the digital good or software was first available for transmission, or from which the service was provided.

Source: RCW 82.32.730

Apportionable income sourcing (service and other activities classification)

Businesses with substantial nexus in Washington that earn apportionable income taxable in another state must use single-factor receipts apportionment under RCW 82.04.462. Apportionable income includes receipts from service and other activities (RCW 82.04.290), royalties, and other specified classifications when the taxpayer is taxable in another state. The receipts factor is Washington-attributed receipts divided by total receipts from all states.

Apportionable receipts are attributed to Washington based on where the customer receives the benefit of the service, using a cascading method under WAC 458-20-19402:

Tier 1 – Benefit of service received (primary rule):

• If the taxpayer can reasonably determine the amount of a specific receipt that relates to a specific benefit received in a state, attribute that receipt to that state. This may be determined by a reasonable proportional method.

• If the customer receives the benefit in multiple states but the taxpayer can reasonably determine that more than 50 percent of the benefit is received in one state (the state where the benefit is "primarily" received), attribute the entire receipt to that state.

Tier 2 – Where benefit is received (detailed framework):

The determination of where the customer receives the benefit depends on the nature of the service:

• Services related to real property: Benefit is received where the real property is located.

• Services to business customers not related to real property: Benefit is received at either the customer's market or the customer's business location, depending on the nature of the service. Services that promote the customer's products, assist in determining or reaching the customer's market, or are purchased for resale are attributed to the customer's market. Services purchased for internal business operations are attributed to the customer's business location.

• Services to individual consumers (not acting as a business): Benefit is generally received at the individual's residence unless the service relates to real property or requires physical presence at a specific location.

Tier 3 – Fallback attribution rules (if benefit cannot be determined):

If the taxpayer cannot determine where the benefit is received after reasonable effort, the following hierarchy applies:

1. Where the customer ordered the service.
2. Where the bill is sent (billing address).
3. Where the customer sends payment from.
4. The customer's address maintained in the seller's records.

Source: RCW 82.04.462; WAC 458-20-19402

Throwout rule

Receipts from apportionable activities performed at least partially in Washington are excluded from the receipts factor denominator (but not the numerator if attributed to Washington) if the receipts are attributed to a state where the taxpayer is not taxable and does not meet Washington's substantial nexus standards for that state. This "throwout" rule prevents receipts from disappearing from the apportionment formula when the destination state cannot or does not tax the income.

Source: RCW 82.04.462(3)(c)

Distinction between sourcing frameworks

Practitioners must distinguish between the two sourcing regimes. Retail sales of services (such as custom software development services that meet the retail sale definition, or advertising services meeting the retail definition effective July 1, 2025) are sourced under RCW 82.32.730's destination-based hierarchy. Service income that is not a retail sale and falls under the service and other activities classification is sourced under the benefit-of-service attribution rules in RCW 82.04.462 and WAC 458-20-19402. Misclassification of a transaction's B&O tax classification directly determines which sourcing framework applies.

Washington imposes a temporary Business & Occupation (B&O) tax surcharge of 0.5% on that portion of a taxpayer’s Washington taxable income that exceeds $250 million in a calendar year. This surcharge is in addition to the standard B&O tax otherwise applicable to the taxpayer’s classification and is set to apply from January 1, 2026, through December 31, 2029.

Threshold and Rate:

• The surcharge is calculated as 0.5% of Washington taxable income above $250 million per year per taxpayer or affiliated group (as defined by RCW 82.04.288(12)), in addition to regular B&O tax.

Exclusions from the Surcharge Calculation: Under RCW 82.04.288(2) and Department of Revenue guidance, the following are excluded from surcharge calculation:

• Retail sales of automobiles
• Sales by mutual savings banks and savings and loan associations
• Income subject to the extractive activities tax
• Income reported under the radioactive waste cleanup classification
• Income primarily engaged in advanced computing (subject to a different graduated surcharge under RCW 82.04.299)

Change effective July 1, 2026:

• As of July 1, 2026, wholesale sales of food and food ingredients by wholesalers who are not affiliated with the manufacturer or retailer are exempt from the surcharge. This exemption does not include sales of soft drinks, bottled water, or dietary supplements. This exemption reflects a material statutory update enacted via legislative amendment and confirmed by a DOR Special Notice (June 29, 2026).

Effective Dates and Sunset:

• The surcharge applies to taxable periods beginning January 1, 2026, and sunsets after December 31, 2029, unless reauthorized by future legislation.

Authority and Department Guidance:

• This surcharge is codified at RCW 82.04.288, enacted originally via ESSHB 2081 (2025) and subsequently amended to add new exemptions. The Department of Revenue has issued special notices, including publication of the July 2026 food wholesaler exemption.

Source: RCW 82.04.288 Source: Washington Department of Revenue – Surcharge for High Grossing Businesses Special Notice Source: Washington Department of Revenue – High grossing business surcharge: New exemption (Special Notice, June 29, 2026)

When a Washington business manufactures and then sells (wholesale or retail) the same product within the state, both manufacturing and selling activities are, in principle, taxable under separate B&O tax classifications. To prevent duplicate taxation of the same product, Washington allows a Multiple Activities Tax Credit (MATC) under RCW 82.04.440. This statutory mechanism ensures businesses are not taxed twice as a product moves from production to sale.

Eligibility Requirements and Key Prongs

• The MATC applies only if the same taxpayer (as defined; e.g., legal entity) performs two or more taxable activities—such as extracting, manufacturing, wholesaling, or retailing—the same product. Each activity must be reported under its proper B&O classification. (RCW 82.04.440(1)(a-b))
• The MATC covers both (1) internal multiple activities, where all are subject to the Washington B&O tax, and (2) external multiple activities, where a similar gross receipts tax has already been paid to another jurisdiction on the same product before a taxable Washington activity is performed (WAC 458-20-19301(3)).

Calculation and Application

• Credit is limited to the lesser of (a) the prior activity’s B&O tax or qualified out-of-state gross receipts tax, or (b) the B&O tax due on the subsequent activity in Washington for the same product. (RCW 82.04.440(2))
• The credit is claimed on Schedule C of the Washington Combined Excise Tax Return. Credits are taken in the period incurred; there is no carryforward or refund.

External MATC: What Qualifies as a Gross Receipts Tax? — 2021/2022 Update

• For external credits, the out-of-state tax must be a true gross receipts tax with no deduction for costs of doing business (WAC 458-20-19301(7)). The Department of Revenue’s ETA 3085.2021 (October 2021) updated the list: Ohio’s Commercial Activity Tax is now recognized as qualifying. Oregon’s Corporate Activity Tax and the Texas Franchise Tax are confirmed as not qualifying for the credit, as they permit deduction of substantial costs.
• Routine corporate net income, franchise, or sales/use taxes generally do not qualify. Practitioners should consult the current ETA for up-to-date qualifying status on specific state taxes.

Examples from Regulation

• If a business manufactures goods in-state and sells them at wholesale, it reports both activities and takes a MATC for the lesser tax liability (see WAC 458-20-19301(6)(a)).
• The regulation discusses contract manufacturing, consignment sales, and multi-jurisdictional production. Special fact patterns, such as sale on consignment where the principal and agent are distinct legal entities, may preclude MATC eligibility due to the “same taxpayer” rule.

Recordkeeping and Documentation

• Adequate records must substantiate that the same product was subject to both activities by the same taxpayer and that any external tax was actually paid (WAC 458-20-19301(8)). Failure to retain such records may result in disallowance of the credit.

The MATC remains central to maintaining tax neutrality and preventing pyramiding in the B&O structure. Practitioners should monitor for new interpretive statements or amendments that update the list of qualifying external taxes.

Source: RCW 82.04.440; WAC 458-20-19301; WA DOR – Multiple Activities Tax Credit official guide; WA DOR – ETA 3085.2021

Washington businesses with gross receipts under $100,000 attributed to the state (and no physical presence or commercial domicile) generally do not have a Washington B&O tax filing or payment obligation. The $100,000 gross receipts threshold, established by RCW 82.04.067 (effective January 1, 2020), is both the economic nexus trigger and the functional threshold for registration and filing for businesses that are not physically present in the state. There is no separate or lower small business exemption that independently relieves B&O tax filing or registration duties below this threshold.

If a business is organized, commercially domiciled, or physically present in Washington, it has substantial nexus regardless of its receipts and must generally register and file B&O tax returns. However, for taxpayers whose annual Washington gross business income is under the Department of Revenue's "active non-reporting" threshold ($125,000 annual, for 2023 and later years; the DOR may periodically update this threshold), the DOR may place their account in active non-reporting status, which waives regular filing requirements for so long as receipts remain below that level. This is not a substantive exemption, but an administrative accommodation: if a business exceeds the active non-reporting threshold or the nexus threshold, it must begin filing returns.

For small businesses that do have nexus and must file, the Small Business B&O Tax Credit (RCW 82.04.4451) may reduce or eliminate actual tax liability but does not exempt the business from registration or return filing once nexus is triggered.

Source: RCW 82.04.067; WAC 458-20-101; WA DOR – Active non-reporting accounts; RCW 82.04.4451

Many Washington cities impose their own local Business & Occupation (B&O) taxes in addition to the state B&O tax. These city-level B&O taxes are administered independently by each city, requiring separate registration, filings, and payments by businesses with sufficient presence or activity in the city.

Seattle

• Effective January 1, 2026, Seattle’s B&O tax exemption threshold rises to $2 million in annual taxable revenue. Businesses with receipts above the threshold may apply a $2 million standard deduction. All businesses, even those below the threshold, must file a B&O tax return. Rates vary by classification: for 2026–2032, retailing is 0.342%, services and other business activities are 0.658%.

Source: Seattle Department of Finance and Administrative Services — Business taxes and licenses, Seattle Department of Finance and Administrative Services — tax rates and classifications

Bellevue

• Bellevue exempts businesses with $215,000 or less in taxable receipts for 2026 from the gross receipts B&O tax, but filing is still required. Businesses with 250 sq ft or less in taxable space are exempt from Bellevue’s square-footage B&O tax but must still file. The square-footage tax rate for 2026 is approximately $0.3297475 per square foot per quarter.

Source: City of Bellevue — Business & Occupation tax, Bellevue B&O square footage tax

Tacoma and Other Cities Tacoma also levies its own B&O tax, but specific thresholds and current rates could not be confirmed from primary city sources as of this review. Many other cities (including Renton and Everett) operate similar locally administered B&O tax systems.

Filing and Payment Businesses must register and file returns with each city where they do business. Major cities—including Seattle, Bellevue, Tacoma, Everett, and Renton—participate in FileLocal, a joint online portal for filing multiple city B&O tax returns. However, legal liability is per city.

Source: Washington Department of Revenue — Local city B&O taxes

Caution / review status: Not yet human confirmed. Tacoma’s local B&O tax thresholds and rates could not be confirmed from city-published primary sources as of 2026-06-15.

Washington’s Business & Occupation (B&O) tax on manufacturing has undergone several rate changes since its enactment, and understanding this history is essential for audit defense, refund analysis, and retroactive compliance.

Timeline of historic B&O manufacturing tax rate changes:

• 1935: B&O tax was enacted. The rate for manufacturers was 0.25% of gross income.
• 1951: Manufacturer rate increased to 0.3%.
• 1967: Rate increased to 0.35%.
• 1970: Rate increased to 0.41%.
• 1981: Rate raised to 0.484%.
• 1997–2026: Manufacturing rate remains at 0.484%, unless subject to industry-specific reductions (e.g., semiconductor manufacturing) or special legislative schedules.
• 2027 and after: Standard manufacturing rate will increase to 0.5% effective January 1, 2027, pursuant to 2025 legislation amending RCW 82.04.240. Practitioners with activity spanning the year-end 2026–2027 boundary should confirm the applicable rate using RCW effective-date notes and Department of Revenue guidance.

Where available, practitioners should consult session laws or RCW effective-date notes for the exact months when a mid-year rate change applied; the DOR’s historical timeline generally identifies only years, not months.

Statutory notes: The manufacturing B&O rate is codified at RCW 82.04.240. The Department of Revenue’s official tax history document provides the authoritative chronology of every statutory rate change since 1935 by year and percentage. Future scheduled changes are reflected in RCW and DOR notices.

Practical use: This historic rate summary applies to standard manufacturing classification activities. Preferential rates and narrow exceptions for specific industries (such as semiconductor manufacturing) are not included in this listing and should be confirmed in contemporaneous statutes or DOR guidance. For periods straddling a rate change (especially 1981 or earlier), practitioners should confirm the actual effective date in the DOR session law chart or RCW notes.

Source: Washington Department of Revenue — Washington's Tax History (2022), p. 28, “Business & Occupation Tax – Manufacturing” Source: RCW 82.04.240 (incorporating scheduled 2027 rate increase)

Not yet human confirmed. Historic rates and scheduled future rates cited as they appear in official DOR and RCW materials as of June 2026.

Washington’s Business & Occupation (B&O) tax rates for non-manufacturing major classifications—retailing, wholesaling, and service/other activities—have historically changed at specific, legislatively defined points and have undergone a new wave of reforms in 2025–2027. This timeline is essential for audit defense, refund review, and period-correct compliance.

Historic timeline of B&O rates (major non-manufacturing classifications):

Retailing

• 1935: 0.25%
• 1951: increased to 0.30%
• 1967: increased to 0.35%
• 1970: increased to 0.41%
• 1981: raised to 0.471%
• 1998–2026: 0.471%
• 2027 and after: 0.5% (effective January 1, 2027, per 2025 legislative change amending RCW 82.04.250)

Wholesaling

• 1935: 0.25%
• 1951: increased to 0.30%
• 1967: increased to 0.35%
• 1970: increased to 0.41%
• 1981: raised to 0.484%
• 1998–2026: 0.484%
• 2027 and after: 0.5% (effective January 1, 2027, per 2025 legislative change amending RCW 82.04.270)

Service and Other Activities

• 1935: 0.5%
• 1951: increased to 0.75%
• 1959: increased to 1.5%
• 1970: increased to 1.8%
• 1981: increased to 2.0%
• 1998: reduced to 1.5%
• 2025 and after: Moves to a three-bracket graduated rate starting October 1, 2025:
• Less than $1 million (prior year taxable income): 1.5%
• $1M to <$5M: 1.75%
• $5M and above: 2.1%

(See RCW 82.04.290 as amended; DOR Special Notice published 2025)

Other 2026–2027 major changes:

• Payment Card Processing classification: New B&O category effective January 1, 2026, subject to a 3.1% rate under RCW 82.04.291 and DOR special notice. Not relevant for general retail/wholesale/service, but critical for payment processors.

Authority and context

• Timeline and historic data through 2022 is documented in Washington Department of Revenue’s official “Washington’s Tax History” (pp. 28–30). Future scheduled increases and payment processing classification are documented in RCW 82.04.250, .270, .290, DOR special notices, and session/bill summaries from 2025–2027. For audit defense involving specific transactions straddling threshold years, practitioners should reference session laws, effective-date notes in the RCW, or DOR’s own official rate-change notices. This summary does not cover preferential or industry-specific exceptions — each rate or deduction must be separately confirmed in the RCW or DOR resources for the period in question.

Source: Washington Department of Revenue — Washington’s Tax History (2022), Table, pp. 28–30 Source: RCW 82.04.250 Source: RCW 82.04.270 Source: RCW 82.04.290 Source: Washington Department of Revenue – B&O tax classification changes and graduated rates (2025–2027) Special Notice Source: Washington Department of Revenue – New Payment Card Processing Tax Classification (2026) Special Notice Source: 2025 Washington Legislative Session Law/Bill Report, SHB 2081, summary