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New Business Tax Basics

ContentsBusiness tax basics . . . . . . . . . . . . . . . . . . .1Your rights and responsibilities . . . . . . . . . . . 2Tax return payment and reporting . . . . . . . . 20Accounting methods . . . . . . . . . . . . . . . . . . 20Paying your taxes . . . . . . . . . . . . . . . . . . . . 20Registering with the Department of Revenue . . 2Due dates . . . . . . . . . . . . . . . . . . . . . . . . . 20Helpful hints . . . . . . . . . . . . . . . . . . . . . . . 3Reporting no business activity . . . . . . . . . . . . 20Business and occupation (B&O) tax . . . . . . . . .4B&O tax rates . . . . . . . . . . . . . . . . . . . . . . . . 4Major B&O tax classifications . . . . . . . . . . . . . . 4Economic nexus . . . . . . . . . . . . . . . . . . . . . . 5Electronic filing (My DOR) . . . . . . . . . . . . . . . 20Correcting a previously filed return . . . . . . . . . 21Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . 21Audit process . . . . . . . . . . . . . . . . . . . . . . 22Exemptions, deductions and credits . . . . . . . . . 6Appeals process . . . . . . . . . . . . . . . . . . . . 23Reseller permit . . . . . . . . . . . . . . . . . . . . . .8Services and resources . . . . . . . . . . . . . . . . 23Retail sales tax . . . . . . . . . . . . . . . . . . . . . .9Other agencies to contact . . . . . . . . . . . . . . . 25Other taxes collected . . . . . . . . . . . . . . . . . . 10Rental of tangible personal property . . . . . . . . 10Tools to determine sales tax rates and codes . . . 11Contacts for specific taxes and programs . . . . . 24Appendices . . . . . . . . . . . . . . . . . . . . . . . 26A Combined excise tax return . . . . . . . . . . 27-28Retail sales tax deductions . . . . . . . . . . . . . . 11B Multiple activities tax credit . . . . . . . . . . 29-31Use tax . . . . . . . . . . . . . . . . . . . . . . . . . . 12D Confidential tax authorization . . . . . . . . . . 33Use tax exemption and credit . . . . . . . . . . . . . 13E Tax inquiry statement . . . . . . . . . . . . . . . . 34Report and pay use tax . . . . . . . . . . . . . . . . . 13F Buyers’ retail sales tax exemptioncertificate . . . . . . . . . . . . . . . . . . . . . 35-39Public utility tax . . . . . . . . . . . . . . . . . . . . 14G Common business activities table . . . . . . 41-44Special taxes and fees . . . . . . . . . . . . . . . . 15Local office locations . . . . . . . . . . . . . . . . . 46Tax incentives . . . . . . . . . . . . . . . . . . . . . . 17General manufacturing . . . . . . . . . . . . . . . . . 17Aerospace . . . . . . . . . . . . . . . . . . . . . . . . . 17Biofuel . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Food processing . . . . . . . . . . . . . . . . . . . . . 18Other incentives . . . . . . . . . . . . . . . . . . . . . 18Personal property tax . . . . . . . . . . . . . . . . . 19C Reseller permit . . . . . . . . . . . . . . . . . . . . 32

Business tax basicsThis basic tax guide is created to help you understandWashington’s tax structure. It’s intended to provide anoverview of the taxes that apply to various businessactivities in Washington.Washington does not have a corporate or personalincome tax. Most Washington businesses are subjectto three major state taxes, all administered oroverseen by the Department of Revenue:1. Business and occupation tax (B&O)2. Retail sales tax3. Use taxOther taxes may apply to your business, such as: Public utility tax Specialty taxes County and city taxesReminderState tax laws change regularly. The informationprovided is current at the time of the publication.QuestionsSpecialists are available to answer your tax questionsMonday through Friday from 8 a.m. to 5 p.m.Where the money comesfrom (in billions): 4.2Business andoccupation tax0.4Other localrevenues 11.0State retail salesand use tax 3.2Other statetaxes and fees 2.8State shareproperty tax 4.9Local retailsales anduse tax 11.0State retail sales and use tax 4.9Local retail sales and use tax 2.8State share property tax 3.2Other state taxes and fees 4.2Business and occupation tax 0.4Other local revenues 26.5 Total state taxesCall: 360-705-6705Live Chat: Go to dor.wa.gov, click Contact then clickon the Live Chat icon.ResourcesGo to dor.wa.gov, then click Get a Form or Publication Industry-specific tax guides Special Notices Tax Topic articlesMore servicesInformation on other services and publications canbe found at the back of this publication or on ourwebsite at dor.wa.gov.dor.wa.gov 360-705-67051

Your rights andresponsibilitiesYour rights as a taxpayer include: Written explanations when tax assessments,interest, and penalties are issued. Reliable, written advice and reportinginstructions provided by the Departmentspecifically to the taxpayer, and to haveinterest, penalties, and in some instances, taxassessments waived if complying with thatinformation worked against the taxpayer. Prompt administrative remedies when tax lawsor rules are found to be unconstitutional by thefinal decision of a court of record. Confidentiality of their financial and businessinformation in the Department’s possessionin accordance with the requirements of RCW82.32.330. Clear and current tax instructions, rules,procedures, forms, and other tax informationreceived upon request. Prompt and independent administrative reviewby the Department of a decision to revoke a taxregistration, and to a written determination thateither upholds the revocation or reinstates theregistration.Your responsibilities as a taxpayer include: Register with the Department of Revenue. Know their tax reporting obligations, and to askthe Department for instructions when they areuncertain. Keep accurate and complete business records. File returns and pay taxes on time. Provide accurate information on tax returns. Substantiate claims for refund. Pay all taxes on time after closing a business,and request cancellation of the registrationnumber. Respond to communications from theDepartment in a timely manner.2Registering withthe Departmentof RevenueRegister if: Your business is required to collect retailsales tax Your gross income is 12,000 per year or more You are a buyer or processor of specialty woodproducts Your business is required to pay any other taxesor fees to the Department of RevenueDo not register if: Your gross income is less than 12,000 peryear under both the business and occupationtax and the public utility tax, and you are notrequired to collect or pay any tax or fee to theDepartment of Revenue.

Helpful hintsCollecting sales tax, spirits liter tax and spiritssales taxSet up a separate account for sales tax, spirits litertax, and spirits sales tax (collected trust funds).Every time you collect these taxes, put the fundsin that account. This way, you won’t accidentallyspend these funds and they’ll be available toremit with your return.Changes to your business informationContact the Department of Revenue of anychanges, including: Your address (physical and mailing)Granting access to your accountOnly registered individuals on a business’ accountare allowed to see confidential tax information.If you choose to hire a representative, suchas a bookkeeper or attorney, and give thatperson access to your information kept bythe Department of Revenue, you and yourrepresentative must fill out a Confidential TaxInformation Authorization, dor.wa.gov/CTIAand submit it to us.For more informationIf you have questions, call us at 360-705-6705. Update a location address Add a new business location Close a tax account Close a business accountYou can update your business license and taxinformation online. By going to our website atdor.wa.gov, click log in, sign in using your SAWlog in. Don't have a SAW account? Click the Signup link to get started. Need to learn more. Go toour My DOR Help page (dor.wa.gov/myDORHelp).Once you are logged into My DOR, from the homepage, click the Accounts tab, under the I Want To.menu you will find options to add a new businesslocation, close a business account, update alocation address, click the View More for a full list.Avoid late payments File electronically through our secure electronicfiling system (My DOR). For online filinginformation see page 20. Mark your calendar. It is your responsibilityto ensure your excise tax return is postmarkedor filed electronically by the due date.Tip: You can sign up for email notifications usingour Listserv, dor.wa.gov/listserv. Our Listservwill automatically send an email reminder of yourfiling deadlines.dor.wa.gov 360-705-67053

Business andoccupation (B&O) taxThe state business and occupation (B&O) tax isa gross receipts tax measured on the value ofproducts, gross proceeds of sales, or gross incomeof your business. The B&O tax is part of a business’operating overhead and is levied upon the personor company engaged in the business activity. It isnot imposed on the purchaser or customer, likesales tax. Almost all businesses located or doingbusiness in Washington are subject to the B&O tax,including corporations, LLCs, partnerships, soleproprietors, and nonprofit corporations.The B&O tax is due on gross income from businessconducted in Washington. No deductions areallowed for labor, materials, taxes, or other costsof doing business. Your business may qualify forcertain exemptions, deductions, or credits.Unlike the sales tax, a sale does not have to occurfor a business to owe B&O tax. For example, if youextract or manufacture goods for your own use,you owe B&O tax.The B&O tax rate is based on the type of businessactivity. Your business can have multipleactivities (classifications). You are responsible fordetermining which classification(s) to report yourincome under. Contact us if you are unsure of theclassification(s) you need to report under.In addition to the major B&O tax classifications,there are several specific classifications. Some havethe same rate as the general classifications, but arereported on different lines on the return. Othershave their own unique tax rates.For a list of B&O tax classifications, visit dor.wa.govand click on Find Taxes and Rates. You can also viewthem in My DOR.B&O tax ratesThe most common classifications are:Retailing 0.471 percentWholesaling 0.484 percentManufacturing 0.484 percentService and other activities41.5 percentMajor B&O tax classificationsThere are nearly 40 B&O tax classifications forbusiness activities. Following are brief descriptionsof four major classifications. You may also refer tothe common business activities table on page 41.RetailingBusinesses that sell goods and certain servicesto consumers are retailers. Taxable retail servicesinclude:1. Improving real or personal property, such as: Custom construction Repairs to real or personal property2. Certain personal services, such as: Tanning Use of athletic and fitness facilities Recreational services Tattooing3. Specialized activities, such as: Lawn mowing, tree and shrub pruning,and trimming Escrow services Renting equipment with operators Extended warrantiesBusinesses making retail sales are subject tothe retailing B&O tax, even when the sales arenot subject to sales tax. For example, certainfood products are exempt from sales tax, butthe income from food sales is taxable under theretailing B&O tax.WholesalingWholesalers sell goods and services to businesseswho will resell them to others in the regularcourse of business. The B&O tax is calculatedon the wholesale selling price. If you are awholesaler, you must keep a reseller permit orother approved exemption certificate on file fromeach buyer to document the transaction as awholesale sale. Do not send reseller permits to theDepartment of Revenue.Retail sales tax is not collected on wholesaletransactions. Reseller permits are good as long asthe buyer and seller do business with each otheronce every 12 months. A sample of a resellerpermit is on page 32. For more information, seepage 9 or visit dor.wa.gov/resellerpermit.

Nexus standard for retail and wholesale salesThe test for determining whether an out-of-statebusiness is subject to Washington’s business andoccupation (B&O) tax changed July 1, 2017. Thechange extends Washington’s economic nexusstandard to businesses engaging in retailing and/or wholesaling activities. As a result, a businessengaged in retailing and/or wholesaling activitieshas nexus with Washington state either by havinga physical presence in this state or by exceedingan economic nexus threshold. (HB 2163, Chapter28, Laws of 2017, 3rd Special Session, Part III)Out-of-state businesses making retail sales intoWashington will be subject to retailing B&O tax ifthey meet any of the following thresholds in thecurrent year or the previous year: More than 285,000 of gross receipts sourced toWashington At least 25% of total receipts sourced toWashingtonOut-of-state businesses making wholesale salesinto Washington will be subject to wholesalingB&O tax if they meet any of the followingthresholds in the current year or the previousyear: More than 285,000 of gross receipts sourced toWashington More than 57,000 of payroll in Washington More than 57,000 of property in Washington At least 25% of total receipts sourced toWashingtonMeeting either one of these thresholdsestablishes nexus even if the out-of-statebusiness has no physical presence in Washington.In determining whether the business hasexceeded the receipts threshold, retailing incomeis included along with income taxable underthe wholesaling, service and other activities, orroyalties B&O tax classifications.ManufacturingThe manufacturing B&O tax is paid by firmsmanufacturing items in Washington.Manufactured products used by themanufacturer, but not sold or used prior to sale,also are subject to this tax. The manufacturingB&O tax is based on the value of the products,usually determined by the selling price. In caseswhen there is no sale, the value is the selling priceof similar products.The producer must also report under thewholesaling or retailing B&O tax. However,because of the multiple activities tax credit, onlyone tax is due. A multiple activities tax credit(Schedule C) must be completed to claim thecredit. See page 31.Service and other activitiesThis classification is for businesses that providepersonal and professional services. Any businessnot described under a particular classificationof the B&O tax must report under this catch allcategory. Types of businesses and services thatfall under this category include:Consulting sJanitorsTutorsGambling (less than 50,000 a year)If you need help figuring out your businessclassification, call 360-705-6705.Economic nexusWashington has an economic nexus standard forbusinesses that report under apportionable B&Otax classifications. For these classifications, yourbusiness doesn’t need a physical presence to havenexus and be subject to Washington tax.Apportionable income is earned from engagingin the following activities: Wholesaling (beginning September 1, 2015) Service and other activities Royalties Travel agents and tour operators International steamship agent, customs housebroker, freight forwarder, vessel and/or cargocharter broker in foreign commerce, and/or aircargo agent Stevedoring and associated activities Disposing of low-level waste Insurance producers, title insurance agents,or surplus line brokers Public or nonprofit hospitals Real estate brokersdor.wa.gov 360-705-67055

Research and development performed bynonprofit corporations or associations Inspecting, testing, labeling, and storing cannedsalmon owned by another person Representing and performing services forfire or casualty insurance companies as anindependent resident managing general agentlicensed under RCW 48.17 RCW Contests of chance Horse races International investment management services Aerospace product development Printing or publishing a newspaper (but onlywith respect to advertising income) Printing materials other than newspapers andpublishing periodicals or magazines (but onlywith respect to advertising income) Cleaning up radioactive waste and other byproducts of weapons production and nuclearresearch and development, but only withrespect to activities that would be taxableas an apportionable activity if this special taxclassification did not existIf your business earns income from anapportionable B&O classification in anotherstate or country and meets one of the followingthresholds within the prior calendar year, you areeligible to apportion your income attributable tothat state or country away from Washington. Pay business activities tax in the other stateor country Have more than 57,000 of payroll in theother state or country Have more than 57,000 of property in the otherstate or country Have more than 285,000 of gross incomein the other state or country Have at least 25 percent of your total property,payroll, or income in the other stateFor periods before September 1, 2015: Thetimeframe for determining whether a businessexceeds the economic nexus thresholds is thecurrent tax year.If you are eligible to apportion your income,it may reduce the amount of Washington taxyou owe. Businesses that apportion their incomemust file an annual reconciliation form byOctober 31 of the following year.More information and a video tutorial areavailable at dor.wa.gov/economicnexus.Exemptions, deductionsand creditsAlthough Washington’s B&O tax applies to mostbusiness income, some exemptions, deductions,and credits are available.ExemptionsThese four activities are exempt and are notsubject to B&O tax. There is no need to reportthese activities to the Department of Revenue onyour excise tax return.If your type of business, business income, orbusiness activities are listed below as exempt,and you do not owe or collect any other taxes forthe Department of Revenue, you do not need toregister with us.Nonprofit and social service organizationsIn Washington, nonprofit organizations aresubject to tax like any for-profit business, butthe organization may qualify for exemptions ordeductions. Qualifying activities include: Fundraising activities by qualified nonprofitorganizations. This does not include the regularoperation of a business enterprise such as abookstore, thrift shop, or restaurant. Auctions conducted by public benefitorganizations Child care provided by churches and child careresource and referral incomeGovernment County, city, school, and fire district income,except utility or enterprise operations incompetition with other businesses, which aremore than 50 percent funded by user fees State and federal grants received by politicalsubdivisions when no significant services areperformed in return Labor and services in preparing sand and graveltaken from pits that are owned or leased by a6

city or county, and used by the city or county forroad construction and repair Printing done by cities, counties, and schooldistricts for their own purposesFinancial International banking facilities Federally chartered credit unionsFarmingCertain farming activities ar

Business tax basics Where the money comes from (in billions): 11 0 State retail sales and use tax 4 9 Local retail sales and use tax 2 8 State share property tax 3 2 Other state taxes and fees 4 2 Business and occupation tax 0 4 Other local revenues 26.5 Total state taxes 11 0 State retail sales and use tax 3 2 Other state

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