If you operate a business in Washington State whose purpose is to provide services (as opposed to goods), you may have recently received a letter (or e-letter) from the Department of Revenue announcing a surcharge to your regular B&O (aka excise) taxes.
This change will take effect in 2020; it will not affect any 2019 B&O tax returns.
Just What We Needed, a Surcharge…Okay, What’s the Damage?
Let’s cut to the chase and just tell you how much more money you will owe.
…but, unfortunately, it’s not the same for everyone. The Department of Revenue has implemented a three-tiered system for the surcharge, based on what kind of service(s) you offer.
As a reminder, the base B&O rate is 1.5%.
- Tier One entities will owe an extra 0.3% to total 1.8% B&O taxes.
- Tier Two entities will owe an extra 0.5% to total 2.0% B&O taxes.
- Tier Three entities will owe an extra 1.0% to total 3.0% B&O taxes.
So naturally, the next question is, “Which tier is my business in?”
Business Tiers
Keep in mind that the tier you fall into is based on how you earn the majority (over 50%) of your income.
- Tier One services: The Department of Revenue lists 43 different service activities that fall under Tier One, including the major categories of:
- Electric power
- Aerospace manufacturing
- Professional and commercial wholesalers
- Business-to-business electronic marketers
- Non-store retailers
- Information services
- Finance and Insurance
- Intangible assets
- Professional, scientific, and technical services
- Management of companies
- Healthcare (excluding hospitals)
- Business, Professional, Labor, Political, and Similar Organizations
- Government
- Tiers Two and Three are solely for advanced computing services, and they are differentiated by income amount. Tier Two is for businesses with gross receipts over $25 billion, and Tier Three is for businesses with gross receipts over $100 billion. Suffice to say, these businesses probably already know about the surcharge.
The Stated Purpose of This New B&O Surcharge
The Department of Revenue has stated that the purpose of this tax is to invest in Washington State students so that they will have the skills and edge needed to make it in the workforce.
What If I Didn’t Get a Letter?
If you didn’t get a letter, you’re still on the hook! The Department of Revenue has stated that you owe this surcharge even if they have overlooked your business. In that case, you have to add the surcharge yourself when filing your Q1 2020 Excise taxes.
In case you are curious, yes, we at TL;DR are subject to this new surcharge. We’re in the same boat!
TL;DR: If you have a service business, then there’s a chance you now owe an extra 0.3% on your Excise taxes. You may have received a letter from the Department of Revenue to this effect. Even if you haven’t received this letter, you may still owe the surcharge, but we can help.
