Washington Small Business Tax Guide for 2026

Washington, the Evergreen State, with its world-class cities of Seattle, Vancouver, and Spokane, is a popular place to establish a business. While the overall tax burden is high, there is no personal or corporate income tax, and sweeping tax changes passed in 2025 and 2026 are the largest in state history.

Thriving in such a unique and challenging environment takes effort, planning, and a strategic approach to business tax liability. Small business owners, freelancers, and LLC owners operating in the state can use this blog as their guide to small business taxes in Washington.

Washington State Small Business Taxes

Washington is not considered a tax-friendly state, which may be surprising, given that there's no corporate or income tax. Washington collects other taxes, including property and sales taxes.

What you'll pay in property taxes varies by region, but the average across the state is usually 1% of the property's market value. State sales tax is 6.5%, which can inflate to 10.6% when local sales tax is factored in.

Significant legislation passed in 2025 and 2026 (ESSB 5814, HB 2081) changed what's taxed and at what rate, and small businesses must plan for them.

Key 2025-2026 Washington Tax Law Changes

Recent tax changes were driven primarily by a push to reduce the state's reliance on regressive sales and use taxes, offset the statewide affordability crisis, and fund infrastructure through transportation and environmental bills.

Some of the most significant Washington tax law changes include:

• Since October 2025, sales tax applies to a wide range of services.

• Service-classification B&O rates are now tiered by gross income: 1.5% under $1 million, 1.75% between $1 million and $5 million, and 2.1% above $5 million.

• Since January 2026, a 0.5% surcharge applies to businesses with more than $250 million in Washington taxable income.

• Standard B&O rates for retailing, wholesaling, and manufacturing are scheduled to rise from 0.471%/0.484% to a flat 0.5%, effective January 1, 2027.

Small Business License in Washington State

You should register your business with Washington's Department of Revenue (DOR) if it meets any of the following requirements:

• Your business will require endorsements from the city, county, or state.

• Your business must pay taxes or fees to the DOR.

• Your business meets the threshold for nexus reporting requirements.

• Your business is a buyer or processor of specialty wood products.

• You are doing business using a name other than your full legal business name.

• You're planning to hire employees within 90 days.

• You sell products or services that require you to collect sales tax.

• Your business's gross income is $12,000 or more per year.

Business and Occupation Tax in Washington State

Washington's B&O tax is a gross receipts tax that measures the value of products, gross proceeds of sale, or gross income of your business.

This tax does not allow deductions for labor, materials, and other operating costs because it is calculated based on gross income. However, credits and exemptions are available.

Service-classification B&O rates are now tiered by gross income.

Say a Washington-based consultant made $100,000 in gross revenue for the year. They would be subject to a rate of 1.5%, meaning they would owe a maximum of $1,500 to the state on that revenue. The final amount will be less after applying the Small Business B&O Tax Credit.

Small Business Tax Credits

You are entitled to a Small Business B&O Tax Credit depending on how your revenue is classified, with a maximum credit of $160 or $55. The DOR publishes credit tables by filing frequency (monthly, quarterly, annual). Your credit will phase out as your business's gross receipts rise.

B&O Surcharge Exemptions In Washington State

Activities that can help your business qualify for B&O tax exemptions and deductions include:

• Caring for children under eight years old and below the first grade.

• Care by a church is exempt from property taxes for periods of less than 24 hours.

• Health or social welfare services funds received.

Local Business And Occupation Taxes

Like the Washington state sales tax, many localities charge a B&O tax specific to their region, including Seattle, Tacoma, Bellevue, and Everett. This local B&O tax is in addition to the tax charged by the state of Washington, but there have been notable changes.

Effective January 2026, Seattle's threshold increased from $100,000 to $2 million, meaning businesses with city-sourced gross receipts of $2 million or less are completely exempt from Seattle's B&O tax. Vancouver and Oak Harbor also adopted local B&O taxes around this same period.

FileLocal portal is an efficient way to file multiple city B&O returns in a single place.

Retail Sales and Use Tax in Washington State

The retail sales tax combines Washington's 6.5% tax rate with the local sales tax, which varies by up to 10.6% in some areas.

Services Now Subject to Sales Tax (Effective October 1, 2025)

Washington state expanded its retail sales tax to include several previously exempt services. If your freelance or small business is impacted, you must apply the state retail sales tax.

Expanded services subject to this tax include:

• IT support and technical consulting

• Custom software and website development

• Advertising services

• Security services

• Temporary staffing

• Data processing

While traditional professional services like legal, accounting, and consulting generally remain exempt, the line can be unclear. Year-round tax advisory support can clear up confusion and clarify your Washington tax obligations.

Sales Tax Exemption Programs

Most sales of tangible personal property to consumers are subject to sales tax. These include:

• Greeting cards and postcards

• Stationery supplies

• Office supplies

• Packing supplies

Certain items, such as postage stamps, are exempt.

Local Sales and Use Taxes

To determine the local sales and use tax rate, the DOR offers this tax rate lookup tool.

Personal Property Tax in Washington State

Most of the property you use while conducting business is subject to the personal property tax, including all your assets and supplies. Your inventory held for sale is exempt. Items that qualify for the personal property tax include:

• Chairs

• Mirrors

• Washing sinks

• Hair dryers

• Styling tools

Payroll Taxes in Washington State

Running payroll for Washington-based businesses differs from other states because there is no state or local income tax. However, other withholdings should be made, including unemployment insurance and workers' compensation contributions.

Unemployment insurance and workers' compensation rates update annually. Current figures are set by the WA Employment Security Department.

Business Entity and Small Business Taxes in Washington State

Regardless of how your business is formed, it will almost certainly be subject to the B&O tax. Entities subject to this tax include:

• C corporations

• S corporations

• Limited Liability Companies

• Partnerships

• Sole Proprietorships

Depending on the nature of your business, you may also be subject to personal property and sales and use taxes in the state. While entity choice also affects federal tax treatment, it doesn't affect whether a business owes Washington B&O tax, which applies regardless of structure.

Do LLCs and S Corps Get Any Washington Tax Break?

While electing S corp status can reduce the federal 15.3% self-employment tax, it does not reduce or exempt a business from Washington B&O tax. This is a common point of confusion among LLC and S corp owners based in the state.

To stay in good standing, there is an LLC Annual Renewal filing requirement that costs $60. Learn how to file your annual report with this guide.

Small Business Taxes: Due Dates for Washington State

Business tax due dates in the state of Washington are as follows:

• Monthly. These returns are generally due by the 25th of the following month.

• Quarterly. Returns submitted quarterly are due by the last day of the month for a typical quarter.

• Yearly. Annual returns are due by January 31st of the following year.

A “No Business Return” is required for assigned filing periods with zero activity. Missing the deadline can trigger penalties even when nothing is owed.

FAQs About Washington Small Business Taxes

Does Washington have a corporate or personal income tax?

Washington does not levy a personal or corporate income tax. Instead of taxing net profits or individual wages, the state funds public services through alternative revenue streams like sales taxes and gross receipts taxes. The state also imposes a unique capital gains tax on certain high-value long-term assets.

What is the B&O tax, and who has to pay it?

The B&O tax is a gross receipts tax measured by the total value of products or services sold. It is paid directly by the business owner and cannot be added to a customer's invoice as a separate line item like sales tax. Virtually any individual, corporation, or entity conducting business activities in Washington must pay this tax once they meet the appropriate thresholds.

How much is the sales tax for a small business in Washington?

The baseline state retail sales tax rate is 6.5%. Local city and county governments add their own rates on top of this base percentage. Because of these localized additions, the total sales tax rate small businesses must collect can reach up to 10.6% depending on the exact location of the sale.

What services became taxable in Washington starting October 2025?

Washington expanded the retail sales tax to several previously exempt categories. Newly taxable services include advertising, IT support, custom software or website development, live presentations and webinars, temporary staffing, and security and investigation services. This shift reclassifies these services from standard service categories into the retailing tax framework.

Do LLCs and S corps pay B&O tax in Washington?

Yes, both LLCs and S corporations are subject to Washington's B&O tax. Because the B&O tax applies to the privilege of doing business based on gross receipts, your formal business structure does not exempt you from liability. All entity types must report and pay this tax regardless of whether the business turns a profit or experiences a financial loss.

What is the Small Business B&O Tax Credit?

The Small Business B&O Tax Credit is non-refundable and designed to reduce or eliminate tax liabilities for very small businesses. The state calculates this credit based on your total gross taxable income across different classifications. If your business’s overall tax liability falls below the state's minimum threshold, the credit completely offsets the B&O tax you owe for that filing period.

Do I need to file a return if my business had no income?

Yes, you must still file a tax return even if your business earned zero income during the reporting period. You must report your active status by entering zeros for all gross income categories on your combined excise tax return. Failing to submit this return by the deadline can result in late-filing penalties and complicate your standing with the Washington DOR.

Let the Accounting Experts Help

Washington offers numerous opportunities to small businesses and freelance professionals who comply with the state's ever-changing tax rules. While doing it yourself may work in the meantime, one mistake could wipe out any savings. When tax management becomes too time-consuming and costly mistakes add up, it's time to consider professional tax support.

If you're ready to work with a year-round partner who understands your industry and Washington's regional nuances, explore 1-800Accountant's full-service small business accounting solutions to see how dedicated support streamlines processes and ensures compliance.