As a business that provides child care services, you may qualify for exemptions or deductions from Washington State taxes. In fact, you may not have to register with the Department of Revenue. This information explains the taxes you may be required to pay or collect.

For additional information or answers to any questions about Washington excise taxes, please contact us.

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Contents

Registering with the Department of Revenue Registering with Other State Agencies Reporting the Business and Occupation Tax Deductions/Exemptions from the Business and Occupation Tax Retail Sales and Use Tax Property Tax

Leasehold Excise Tax Exemptions from the Property Tax and Leasehold Excise Tax Day Care Monitors and Resource and Referral Agencies Table for Child Care Providers

Registering with the Department of Revenue

You do not need to register with the Department of Revenue if your business:

• Makes less than $12,000 a year before expenses;
• Does not make retail sales (most child care businesses don't); and
• Is not required to pay or collect any taxes administered by the Department of Revenue.

Registering with Other State Agencies

You will still have to fill out a Business License Application if you:

• Plan to hire employees;
• Register a trade name for your business; or
• Are required to obtain a renewable license through the Unified Business Identifier (UBI) program administered by the Department of Licensing. Your child care provider license issued by the Department of Social and Health Services is not included in this definition. For information on other renewable licenses, please contact the Department of Licensing at (360) 664-1400.

If you must register with the Department of Revenue, you will be asked to file a excise tax return on a monthly, quarterly or annual basis. Businesses with higher income report more often than businesses with smaller incomes.

Reporting the Business and Occupation Tax

One of the major taxes reported on the excise tax return is the business and occupation (B&O) tax, calculated on a business' gross receipts. Income from the care of children is taxable under the Royalties; Child Care B&O tax classification. If the B&O tax due is below certain amounts, you are entitled to the small business B&O tax credit. This credit may reduce or eliminate your B&O tax liability. These amounts are:

Monthly - $71
Quarterly - $211
Annually - $841

To help you figure out your credit, the Department sends a Small Business B&O Tax Credit Table along with each excise tax return.

Deductions/Exemptions from the Business and Occupation Tax

Your business may qualify for deductions or exemptions from the B&O tax for:

• Care of children under eight years old and below the first grade;
• Care by a church that is exempt from property tax, for periods less than 24 hours; or
• Funds received for health or social welfare services.

Care of Children Under Eight Years Old

You may deduct amounts received for providing child care to children under the age of eight and who are not enrolled in first grade or above from your gross income. If you provide child care for children of all ages, you will need to carefully record the income received for each child to claim the deduction. If you take a deduction, you must include the amount as part of your gross income. When taking deductions, you must identify the reason on the Deduction Detail pages of the excise tax return.

Care Provided in Church Facilities

Regardless of the children's ages, the B&O tax does not apply to income from day care provided by a church that is exempt from property tax under RCW 84.36.020. You do not need to report this income on the excise tax return and you may not need to register with the Department of Revenue.

Care Paid by Federal or State Government

Nonprofit corporations qualifying as health or social welfare organizations may take a B&O tax deduction for amounts received from federal, state or local government as compensation for providing health and social welfare services, such as day care. For information about health or social welfare organizations, please refer to Washington Administrative Code (WAC) 458-20-169.

Retail Sales and Use Tax

Child care is not considered a retail sale, so you don't need to collect sales tax from your customers on the income you receive for the care of children.

All child care organizations are responsible for paying retail sales tax on goods used in the business. The tax is paid directly to the retailer from whom the items are purchased. This includes furniture, diapers, toys and other items used to care for children. It does not include the purchase of unprepared food. Food that is not prepared is not subject to Washington's retail sales tax. However, the retail sales tax does apply to prepared food.

Use tax is due when goods are acquired without paying Washington's retail sales tax. For example, use tax is due if you buy playground equipment in Oregon for your business in Washington. You may report and pay use tax on the excise tax return or the Consumer Use Tax Return (pdf). The use tax rate is the same as the retail sales tax, and depends on your location. The List of Sales and Use Tax Rates contains current sale/use tax rates and is sent to monthly and quarterly filers once a quarter. Annual filers receive the list with their annual return at the end of the year.

Property Tax

Property taxes are administered by the county. Taxes are imposed each year on real or personal property based on the market value of property and the combined levy rates of all taxing districts which apply at that location. Property is classified as real or personal, and the same tax rate applies to each type. You will pay real property tax if you own or are purchasing your child care facility. Real property includes land and buildings, and is valued by the county assessor's office.

Personal property (pdf) includes:

• business equipment
• desks
• chairs
• toys
• books
• appliances
• supplies

If you use this kind of property in your business, you will owe personal property tax. You must file an affidavit with the county assessor by April 30 of each year listing the personal property used in your business.

After determining the value of real and/or personal property, the assessor mails owners a "Change of Value Notice." The notice is not a tax bill. The county treasurer mails property tax statements during February of each year. To avoid late payment penalties you must pay the first half of your property taxes to the county treasurer by April 30 and the balance by October 31.

Questions about assessed property values, appeals, personal property or relief programs should be directed to your county assessor's office. Questions about tax statements or payments should be directed to your county treasurer's office.

Leasehold Excise Tax

You will owe leasehold excise tax if you lease any facilities, equipment or other property from a governmental entity. The leasehold excise tax takes the place of the property tax. Businesses leasing property from governmental entities are responsible for paying the leasehold excise tax on the fair market rental value of the property or the actual rent paid. The state, counties, cities and other Washington public entities are required to collect the tax from you and remit it to the Department of Revenue. If you lease federal property, you are responsible for registering and remitting the tax directly to the Department of Revenue. Please contact the Department at (360) 570-3265 for more information on the leasehold excise tax.

Leasehold Excise Tax form

Exemptions from the Property Tax and Leasehold Excise Tax

Nonprofit organizations (pdf) may be eligible for an exemption (doc) from both the property tax and the leasehold excise tax. Typical organizations receiving the exemption are schools, churches, social service agencies, hospitals and child care organizations. To apply for a nonprofit organization exemption, you must file an application with the Department of Revenue's Property Tax Division.

Sole proprietors also may be eligible for a property tax exemption on $3,000 of their personal property's assessed value. To request this exemption, check the "head of household" box on the personal property tax affidavit you file with the county assessor. The assessor will determine if you qualify.

Day Care Monitors and Resource and Referral Agencies

Monitors of home day care operators are working under one or more federal nutrition programs for the US Department of Agriculture (USDA). The monitors receive funds from the Office of the Superintendent of Public Instruction (SPI), which works with the monitors to ensure all federal regulations are met.

• Income received by monitors is reported under the Service and Other Activities classification on the excise tax return.
• The majority of income received by monitors through the SPI from the USDA is passed directly on to the child care operators for providing meals and is considered a reimbursement. Such income is deductible from the B&O tax. All deductible income must first be reported in column 1 of the excise tax return before it is taken as a deduction in column 2.
• Monitors of home child care operators who qualify as health or social welfare organizations may take a deduction for the amount they receive as monitoring income from the SPI. Child care resource and referral agencies also may incur business and occupation tax liability. Taxable income of resource and referral agencies includes:
  
  
  • Day care monitor funds from the Superintendent of Public Instruction.
  • Payments from businesses.
  • Payments received from other resource and referral agencies.

Resource and referral agencies pay Service and Other Activities B&O tax on gross income. They may not deduct amounts paid to other resource and referral agencies. The receiving agency must pay tax on amounts received from other resource and referral agencies. Nonprofit organizations providing child care resource and referral services are not required to pay B&O tax on the amounts they receive from these services.

Table for Child Care Providers

Please refer to the following tables for an example of taxes owed by three different child care businesses. Because it does not cover every situation, please call the Department of Revenue if you have any questions.

Child Care A: A small, in-home day care. The child care business makes approximately $2,000 per quarter for two preschool-aged children and $500 per quarter for two children over eight years old. The business does not make retail sales. The home is being purchased by the child care business.

Child Care B: A Pasco child care facility with 25 children, including those requiring all-day care and after-school care, ranging from six months to 10 years old. The day care makes approximately $4,500 from children under eight and $5,250 from older children each month. The owner purchased a $500 piece of playground equipment in Oregon without paying Washington sales tax. The business is purchasing the land and building.

Child Care C: A nonprofit church child care operator provides care in a facility qualifying for exemption from property tax. The business makes $12,000 per year for the care of children over eight and $2,000 per year for the care of younger children. The business does not make retail sales.

	Child Care A	Child Care B	Child Care C
Need to register with the Department of Revenue?	No. The business makes approximately $2,500 per quarter or $10,000 per year in gross income. This is less than the $12,000 per year minimum gross amount.	Yes. The child care facility's gross income is approximately $9,750 per month or $117,000 per year, exceeding the minimum gross amount.	No. Income from day care provided in a property tax exempt church facility is exempt from B&O tax. Registration with other state agencies may be required.
Pay Business and Occupation (B&O) tax?	No. This business is not required to be registered with the Department of Revenue.	No. The tax due qualifies for the Small Business B&O Tax Credit. The business must still report the tax due before the credit is taken against the amount owing.	No. Income from day care provided in a property tax exempt church facility is exempt from B&O tax.
Pay retail sales or use tax?	Yes. Retail sales or use tax must be paid on all goods, except unprepared food products, used by the business.	Yes. Retail sales or use tax must be paid on all goods, except unprepared food products, used by the business. Use tax is due on the equipment bought without paying Washington sales tax.	Yes. Retail sales or use tax must be paid on all goods, except unprepared food products used by the child care facility.
Pay property tax on buildings and real estate?	Yes. The home is being purchased.	Yes. The business is buying its facility.	No. The business filed an application with Revenue's Property Tax Division and was granted an exemption.
Pay personal property tax?	Yes, on the equipment, furniture, etc., used in the business. However, the business, as a sole proprietorship, may be eligible for a $3,000 head of household exemption.	Yes. The business is responsible for personal property tax on items used in the business.	No. The business filed an application with Revenue's Property Tax Division and was granted an exemption.