Do you remember last November, when the Washington State Department of Revenue sent out a notice to service companies mentioning a B&O (AKA excise) tax surcharge?
There has been a recent amendment to this law. If your service organization makes less than $1 million in gross taxable income, we have good news for you: Your surcharge was repealed retroactively, so it never actually went active! Instead of owing an additional B&O surcharge, you will continue to pay the same rates you did last year (barring further legislation).
If your organization made $1 million or more in gross taxable income in the category of “Service & Other Activities” in 2019 (we’ll call these “select businesses”), keep reading.
What Changes Were Made to the WA State Workforce Education Surcharge?
The Workforce Education Surcharge has been simplified by an amendment dated Feb 10, 2020. While the repeal of the old surcharge was retroactively effective Jan 1, 2020, the new surcharge is effective on April 1, 2020. Instead of listing 43 separate service activities, the new rate affects only select businesses. Instead of there being three tiers of affected businesses, there is one single new rate that affects all select businesses.
The base B&O rate is 1.5%. For select businesses, the new rate will be 1.75%.
Unfortunately, there will be some service businesses that will owe more in taxes based on this amendment because they are “caught in the middle” between $1MM and $25MM in gross revenue.
Did You Get a Letter?
The Department of Revenue blasted out an email communication to many organizations notifying them of this new change. They intend to separately notify businesses that they expect will fall under the select business category. We are not sure when the Department of Revenue will be sending this separate email.
Even if you don’t receive a separate email from the Department of Revenue, you may still owe the additional tax. It’s all about whether you made more, or less, than $1 million in “Service & Other Activities” revenue in 2019.
TL;DR: If you have a service business that made less than $1 million in annual service revenue in 2019, then you can expect to pay the same B&O tax rate that you did a year ago. On the other hand, if you made more than $1 million in “Service & Other Activities” revenue in 2019, there is a new 1.75% B&O rate for you starting in Q2 of 2020.