Starting a business in Washington: a tax on revenue, not profit
One $50 application opens your state business licence, your tax account, your unemployment account, a trade name and your city endorsements. One state return carries every local sales tax rate you collect. One insurer — the state — is allowed to sell you workers' compensation. Washington centralises almost everything, and the price of all that tidiness is the business and occupation tax, charged on gross receipts with no deduction for wages, rent or stock. A year in which you lose money still produces a bill.
Most states make you introduce yourself four times. The Secretary of State to exist, the revenue department to be taxed, the labour department to employ anyone, a city hall for permission to trade — four accounts, four logins, the same details retyped.
Washington asks once. The Business Licence Application costs $50 and is filed with the Department of Revenue's Business Licensing Service, and it is not a formality — this is one of the few genuine general business licences in the country. What it opens is the point:
The state business licence itself
Required to trade. $50 once, then $5 per location a year at renewal plus any endorsement fees. Adding a business location costs nothing.
Your tax account for B&O and sales tax
The same account carries both. There is no separate revenue registration to complete afterwards.
Your Employment Security Department account
Unemployment insurance rides along on the same form rather than starting a separate relationship with a separate agency.
A trade name, if you want one
$10, in the same session, rather than as its own filing.
City endorsements for cities in the state programme
Most Washington cities are in it, so their permission to trade is bought inside this application rather than from the city itself.
- Sales tax
- 6.5% state + Local rates add roughly 0.5%–4% on top local · typically About 8.5%–10.5% in the Puget Sound cities; DOR's address lookup is authoritative for any given location
- Local income tax
- None
- State business licence
- Washington State Business Licence (Business Licence Application) — $50 application fee
- Workers' comp from
- 1 employee — and it can only be bought from the state
- Formation approved in
- Articles are filed with the Corporations and Charities Filing System; the Secretary of State posts current turnaround rather than guaranteeing one. The Business Licence Application is a separate step at the Department of Revenue and takes its own time.
- First 90 days, all in
- $350–$1,400 · $210 of it to the state
Official portals: Washington Secretary of State — Corporations & Charities Filing System · Washington DOR — Business & occupation tax · Washington DOR — Apply for a business licence. Figures checked September 2026; the portal always wins.
The one thing it does not open is the Secretary of State's side: formation is $200 online and $180 by post — one of the very few states where paper is cheaper, though not by enough to be worth the wait — with a $70 annual report due at the end of your anniversary month. Two agencies, two calendar entries, and the one people forget is the report rather than the licence. The formation fees for all fifty states are on the hub page.
What that tidiness costs: a tax that ignores your profit
The business and occupation tax is the defining fact of trading here, and the thing to understand about it is not the rate. It is the base. B&O is charged on gross receipts — the money that arrived — with no deduction for wages paid, rent paid, or the cost of the goods sold. There is no arrangement of the arithmetic in which a bad year bills less than a good year on the same revenue.
Washington is not the only state to tax receipts; Ohio, Nevada and Delaware all do it in some form. What separates Washington is where it starts. Those states exempt everything below a multi-million-dollar threshold, so their gross-receipts tax is somebody else's problem for years. Washington's applies from the first dollar of taxable income, which makes it a first-year concern rather than a footnote for later.
| Year | Gross receipts | Profit | B&O before credit |
|---|---|---|---|
| Good year | $160,000 | $95,000 | $2,400 |
| Bad year — hired, lost money | $160,000 | –$14,000 | $2,400 |
Both figures are 1.5% of the same receipts, which is the entire point of the example. Whether either is actually payable depends on the small-business credit at your level; the arithmetic that produces the number does not change.
Your rate comes from your classification, and a business doing two things reports under two of them on one return. Since 1 October 2025 the service rate steps up with size, which is unusual — most gross-receipts taxes are flat:
| Prior-year taxable income | Service and other activities |
|---|---|
| Under $1 million | 1.5% |
| $1 million and above | 1.75% |
| $5 million and above | 2.1% |
Retailing is far lower at 0.471%, because a retailer's receipts include the cost of the goods and taxing that at 1.5% would be brutal. The spread between classifications is not a preference for one sector over another — it is a rough correction for how much of a sector's revenue is margin at all.
Before budgeting for any of it, look up the small business B&O credit. It reduces or entirely eliminates the tax below a certain amount of tax due, and at genuinely low revenue it wipes the bill out. It tapers rather than switching off at a cliff, so the honest answer to “when do I start paying B&O?” is a lookup in the Department of Revenue's tables rather than a number anyone can quote you.
The crack in the system: several dozen cities do it themselves
Everything above is centralised. This is the exception, and it is a large one. Washington has no income tax at any level, so cities wanting revenue from business do what the state does and levy their own B&O on gross receipts. Seattle, Tacoma, Bellevue and Everett are among them, and there are several dozen more.
None of it is administered by the Department of Revenue. Each city sets its own threshold, its own apportionment rules for revenue partly earned elsewhere, its own return and its own filing calendar, and you register with the city directly. Note the distinction that catches people: a city endorsement comes through the state application, but a city B&O tax is its own registration with its own deadlines. Holding the endorsement does not mean you are registered for the tax.
So the question to settle before you sign a lease or take on Seattle clients is not what the sales tax rate is there. It is whether that city runs its own B&O and whether your revenue apportions into it — because a business selling into a city without a physical presence may or may not be caught, and the rules on that are genuinely different from city to city.
The services that became taxable on 1 October 2025
Sales tax is 6.5% at state level with local rates adding roughly 0.5% to 4%, so the Puget Sound cities commonly sit between 8.5% and 10.5%. Every one of those local rates is collected on the same state return, and the Department of Revenue's address lookup is the only authority for a given location — city names are not a reliable guide.
What changed recently is who has to collect it at all. Under ESSB 5814 a list of services became subject to retail sales tax from 1 October 2025:
- Advertising services
- A category broad enough to catch agencies, media buyers and freelancers who had never touched sales tax.
- IT services and support
- Including technical support and network work.
- Custom website development
- Building a site for a client is now a retail sale in Washington.
- Custom software and customisation
- Both writing it and customising something existing.
- Live presentations
- In person or online — training, seminars, workshops.
- Temporary staffing services
- Placing people, rather than employing them for a client.
- Investigation, security and armoured car services
- The security category in full.
One insurer, and a premium counted in hours
Washington is monopolistic for workers' compensation. Cover comes from the Department of Labor & Industries and nowhere else, because state law does not permit private carriers to write it here — which means the insurer behind your national payroll provider cannot cover your Washington employees whatever their sales page implies. Only three other states work this way, and two of them, North Dakota and Wyoming, are on the same map as this one.
Two features of how L&I charges are unusual enough to change your payroll arithmetic rather than just your paperwork:
- Premium is per hour worked
- Not a percentage of payroll. The rate is per employee hour in your risk class, so a $22-an-hour worker and a $60-an-hour worker in the same class cost the same in premium. That makes L&I comparatively cheap on skilled staff and comparatively expensive on low-paid hours.
- The employee can be charged part of it
- Three of the four funds — Medical Aid, Stay at Work and Supplemental Pension — may be split with the worker, up to half. Only the Accident Fund is entirely on the employer. This is a payroll deduction that does not exist in most states, and it has to be set up correctly from the first payslip.
- Coverage starts at the first employee
- There is no small-employer exemption, and the account must exist before anyone works.
- Unemployment insurance rides along
- The Employment Security Department account opens through the same Business Licence Application. Liability attaches to covered employment rather than to a dollar threshold of the kind most states use; the 2026 rate schedule and taxable wage base were not confirmed from a state source at this check, so get them from ESD before your first payroll.
Common questions
What does the $50 Washington business licence actually get me?
The state business licence, your tax account for B&O and sales tax, your Employment Security Department account, a trade name if you register one ($10), and endorsements for every city inside the state programme — all from one Business Licence Application filed with the Department of Revenue. Renewal is $5 per location a year plus any endorsement fees, and adding a location costs nothing.
Do I owe B&O tax if my business lost money?
Yes. The business and occupation tax is charged on gross receipts with no deduction for wages, rent or cost of goods, so profitability never enters the calculation. The small business B&O credit can reduce or eliminate the bill at low revenue, but it works on the amount of tax due rather than on whether you made a profit.
What is the B&O rate for a service business?
Since 1 October 2025 the service and other activities rate is 1.5% for businesses with under $1 million of prior-year taxable income, 1.75% from $1 million and 2.1% from $5 million. Retailing is 0.471%, because a retailer's receipts include the cost of the goods sold.
Does my city endorsement mean I'm registered for Seattle's B&O tax?
No, and that is the trap. City endorsements come through the state Business Licence Application, but a city B&O tax is a separate registration made with the city itself. Seattle and several dozen other Washington cities levy their own B&O on gross receipts with their own thresholds, apportionment rules, returns and deadlines, none of it administered by the Department of Revenue.
Why is Washington workers' comp charged per hour?
Washington rates premium per employee hour worked in a risk class rather than as a percentage of payroll, so two workers in the same class cost the same premium regardless of pay. Uniquely, the employee may be charged up to half the cost of three of the four funds — Medical Aid, Stay at Work and Supplemental Pension — as a payroll deduction; only the Accident Fund is entirely the employer's.
Can my payroll provider's insurer cover my Washington staff?
No. Washington is monopolistic: the Department of Labor & Industries is the sole source and no private carrier may write workers' compensation in the state, which includes the carrier behind a national payroll provider. Confirm what your provider can actually deliver here before your first hire, because the account must exist before anyone works.
Do I have to charge sales tax on web development in Washington?
Custom website development became subject to retail sales tax on 1 October 2025 under ESSB 5814, along with advertising, IT services and support, custom software and customisation, live presentations, temporary staffing, and investigation, security and armoured car services. Check the Department of Revenue's notice against what you actually sell before changing your invoices.
B&O is charged on revenue. Watch the revenue.
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