B&O Tax Classifications Common to the Beauty Industry

Most persons in the beauty industry will report under one or more of the B&O tax classifications. The most common classifications for beauty salons are Retailing, Service and Other Activities, and Wholesaling.

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. Persons in the beauty industry making retail sales or providing services that are defined as retail sales must also collect the retail sales tax. The measure of tax under the Retailing classification is the gross proceeds of sale. Generally, this is represented by the selling price.

What are retail sales?

The definition of a "retail sale" or "sale at retail" includes various activities. The following are retail sales:

• 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. Salons and other persons in the beauty industry typically sell various health, hair and body care products, nutritional supplements, and other sundry items to their clients. The sale of these items to clients are retail sales.
  
  
• Services performed on personal property of consumers. Washing and styling of wigs, hairpieces, extensions, etc., is a retail sale.
  
  
• Steam and Turkish baths. Charges for spas and baths are subject to sales tax.
  
  
• Tanning and tattooing services. Tanning and tattooing services are specifically defined as retail sales.

Retailing B&O Tax Exemptions and Deductions

The law allows certain exemptions and deductions, many of which apply to both the Retailing B&O and the retails sales tax. However, there is no B&O deduction for the costs of doing business.

Here are a few examples of exemptions or deductions that apply to the beauty industry.

• Casual Sales: Sales of tangible personal property by a business that does not generally sell such goods. Such sales are generally related to a sale of capital assets. For example, a salon may remodel its business location by installing new fixtures, such as mirrors, chairs, sinks, etc. The salon sells the existing fixtures to another salon. The sale of these fixtures is a retail sale and subject to sales tax. However, the salon does not routinely sell fixtures. Although the salon must collect sales tax from the buyer, the sale qualifies as casual and isolated. Under the Retailing B&O tax classification, the salon may take a "casual sales" deduction equal to the amount of the sale.
  
  
• Returns and Allowances: A salon may take a B&O tax deduction for returned goods for which the buyer receives a full refund including the proportional amount of sales tax. The refunded sales tax should be separately stated on the refund invoice.
  
  
• Bad Debts: A deduction is allowed on returned checks and other income that has been reported on your tax returns that you are not able to collect on.

Persons making retail sales must collect retail sales tax from the customer unless the sale is specifically exempt. Persons making retail sales are subject to the Retailing B&O tax even if the sale is exempt from sales tax.

Wholesaling B&O Tax Classification

The definition of a wholesale sale includes the sale of tangible personal property to a person who is not a consumer and who provides a resale certificate. Income from wholesale sales is subject to B&O tax under the Wholesaling classification. The measure of tax under the Wholesaling classification is the gross proceeds of sales. Generally, this is represented by the selling price.

For example: A salon may sell hair care products to independent booth/chair renters. If the booth/chair renter will resell such product to her own customers, a resale certificate may be given so that sales tax is not due and a wholesale sale occurs.

Service and Other Activities B&O Tax Classification

Income from performing 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. Many of the services typically performed by beauty operators are taxable under the Service and Other Activities classification.

What activities are taxable under Service and Other Activities B&O tax?

Income derived from providing haircuts, coloring, permanents, manicures, massage therapy, booth/chair rental, etc., is taxable under the Service and Other Activities classification.

City Business and Occupation Tax and Licenses

Many cities impose a tax on general business activities. Although commonly referred to as a B&O tax, the Department of Revenue does not administer local B&O doingbusiness/businesstypes. That tax administration is left to each city or town that imposes a B&O tax. Local B&O tax classifications may or may not mirror Washington State's B&O tax applications, exemptions, deductions, and measures of tax. Consequently, you should contact each city or town in which you conduct business regarding their specific doingbusiness/businesstypes.

Approximately 160 Washington cities impose licensing requirements. For those cities imposing a tax on general business activities, the licensing requirements are in addition to the tax. Licensing fees vary from city to city. Fees may be based on a flat rate, number of employees, type of business, or square footage of office or building space.

The Washington State Department of Licensing operates the Business Licensing Guide, an online "licensing library," providing federal, state, county and city licensing contact information for proper licensing based on your business activity.