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Federal Taxes aren’t the only taxes?! B&O Explained.

At what point do I have to register my side business or freelance work?

A business registration is a simple form to license your business with the state. Various states require this at different asset or income levels. Washington State does not have an income tax, but it does have Business & Opponency(B&O) tax along with Personal Property taxes.

Step one is registering your business with the Department of Revenue(DOR). Yes, you need to register with the State of Washington, if any of the points apply to your business:

  • Your business is required to collect sales tax
  • Your gross income is $12,000 per year or more
  • Your business is required to pay taxes or fees to the DOR
  • You are a buyer or processor of specialty wood products

The common reason for registration is the $12,000 or more in gross income. If you are looking at this number and thinking that you have been over that for the last couple of years, you have some more work to do. (Get in touch with me and I can help you, or you can use the Voluntary Disclosure Program)

Registering your Business, it is a fast process online. When you are done they will send you an Unified Business Identification(UBI) number for your business. This number will be needed when you go to pay your different taxes.

The DOR will send you information on Washington B&O taxes in a nice booklet, though it is a bit long. I’ve provided the main gist of information here:

Washington B&O Tax is based on the classification of your business. The common ones are the following:

B&O Classification Tax Rate

Retailing:                                           .00471
Wholesaling:                                   .00484
Manufacturing:                              .00484
Services & Other Activities:    .015

There are also a few different credits that are available. One is a small business credit, which is based on how much B&O tax you owe. There are tables to calculate this, but if you are filing electronically it automatically calculates this. I do recommend electronically filing as it simplifies the process.

Example time: You are a service organization and made $50,000 of gross income this year. You are a small business and get the small business credit. The tax calculation is simple:
50,000 x .015 = $750

Based on the table the small business credit is $750, so you won’t owe any B&O tax for Washington State.

Now, let’s say your business grows to $100,000 in gross income. The new tax calc is:
100,000 x .015 = $1,500

Based on the table the small business credit is $150, so your tax is $1,350.

Washington Personal Property Tax (What does that even mean?)

Every year you fill out a form with your equipment and you pay a tax based on its value. An example of personal property would be that computer that you use in your business.  This is done with your county department of assessments. Click on the Assessor for your county, then find the eform online. The process isn’t hard but it does mean you need to keep track of your business assets. When you file this online, they will tell you how much you owe.

Seattle B&O Tax

The State isn’t the only one with B&O taxes – Seattle requires them as well. If you do business in Seattle, you must have a Seattle Business license and file the business license tax return, which is the B&O tax. You only have to pay tax if your gross revenue is $100,000 or more. It is another online filing, which should be pretty quick

Links are available to all of the online forms and tables in this post to make it easier to keep all of this information in one place.

TL;DR: You have to register your business and pay taxes at 3 levels: State, County, and City