Almost all businesses doing business in Washington State are subject to the state business
and occupation (B&O) tax. This includes corporations, partnerships, sole proprietors and nonprofit
organizations. The B&O tax is a gross receipt tax; it applies to the gross income of the business.
This means there are no deductions from the B&O tax for labor, materials, taxes or other costs of
doing business. Different tax classifications with different rates apply for the various business
activities.
The state B&O tax is reported on the Department of Revenue's
Excise Tax Return. A business is assigned by the Department to file
these returns on a monthly, quarterly, or annual basis, depending on the estimated
yearly tax due and the type of business.
B&O Tax Classifications Common to the Lodging Industry
The most common B&O tax reporting classifications for hotels and other lodging providers are
retailing, and service and other activities. Businesses performing more than one activity may
be subject to tax under one or more B&O tax classifications.
Retailing B&O Tax Classification
Income from conducting activities defined as retail sales or sales at retail is
subject to B&O tax under the retailing classification. Businesses in the lodging
industry making retail sales or providing services that are defined as retail
sales must also collect the retail sales tax. ( See "
Collection
of Sales Tax.") The retailing B&O tax applies to the gross proceeds of the
sale.
What are retail sales?
The definition of a "retail sale" or "sale at retail" includes various activities. The following are
retail sales:
Transient Lodging
Provision of sleeping accommodations for periods of
less than 30 consecutive days.
-
"No show charge"
is a term commonly used to describe the charge to a customer who purchases lodging
but fails to arrive and actually occupy lodging accommodations. This situation generally occurs when
the agreement between the lodging provider and the customer requires that the customer guarantee full
payment of the lodging rate whether or not the customer actually shows. Assuming the customer has
purchased lodging for a period of less than 30 continuous days, the no show charge is subject to
retailing B&O, retail sales, and any applicable special hotel/motel taxes. If the customer has purchased
lodging for a period of 30 or more continuous days, including the period covered by the no show charge,
the no show charge is exempt of these taxes.
Deposit Forfeitures
In this context, a deposit
is a payment made by a customer to reserve lodging accommodations, generally
up until a specified check-in time. These payments are generally applied towards
the selling price of lodging, or refunded if the customer does not purchase
lodging. With some businesses, the deposit is nonrefundable if the person
does not timely cancel the reservation and the retained deposit is taxable
under the service and other activities B&O tax classification and sales tax
does not apply.
Early and Late Departure Fees
Hotels and motels sometimes charge customers
fees for leaving earlier than they originally contracted to stay or if they check out later than the
agreed upon time. These charges are taxable as sales of lodging.
Attrition Fees
When a block of rooms is reserved for a customer at a bargain
price, but the customer does not use the full block of rooms, the hotel may not honor the bargain price
and charge an attrition fee (additional amount) for the rooms that are used. These charges are taxable
as lodging (a retail sale).
Sales of tangible personal property to consumers
A consumer is generally any
person who uses tangible personal property or receives services defined as retail sales.
Food Service
Charges for prepared meals are taxable as retail sales. This
includes food service at restaurant facilities and food provided via room service.
Banquet/Meeting Rooms
Charges by hotels for banquet and meeting rooms are
taxable as retail sales.
Service and Other Activities B&O Tax Classification
Income from personal and professional services and activities not otherwise classified
in
Chapter
82.04 RCW is subject to B&O tax under the service and other activities classification.
Hotel businesses may receive income taxable under this classification as follows:
- Commissions for allowing placement of coin-operated machines at the hotel. This includes cigarette
machines, candy, amusement devices, etc.
- Commissions for acting as a laundry agent for guests when someone other than the hotel provides the
laundry service.
- Commissions from long distance telephone service providers.
- Commissions from coin-operated telephones. Refer to the Collection of Sales Tax section for a further
discussion of telephone charges.
- Fees for permitting a satellite antenna to be installed on the premises.
- Commissions for permitting a broadcaster or cable operator to make sales to hotel guests.
City Taxes
In addition to the state B&O tax, some Washington cities impose a B&O/public utility
tax. The Department of Revenue does not administer these city taxes. Consequently,
you should contact
each city or town in which you conduct business regarding their specific taxes.