SIC and NAICS codes
Both Standard Industrial Classification (SIC) and North American Industry Classification System (NAICS) codes identify a firm's primary business activity. For example a firm with SIC 571 primarily sells retail furniture. A firm with NAICS 311 is primarily engaged in food manufacturing.
These codes were developed by the federal government and are used by the U.S. Office of Management and Budget (OMB) as well as many other U.S. statistical agencies. In 1997, OMB adopted NAICS as its new industry classification system.
Every registered Washington firm is assigned a SIC or NAICS code. SIC codes can be up to four digits and NAICS codes can be up to six digits. The Quarterly Business Review (QBR) and the other Create a Report functions use these codes to group firms together in order to create useful information. Because the national standard changed from the use of SIC codes to the use of NAICS codes, in November 2004 the Department stopped assigning SIC codes and now only assigns NAICS codes.
NAICS codes provide a greater level of detail about a firm's activity than SIC codes. NAICS includes 1,170 industries and SIC includes 1,004 industries. There are 358 new industries recognized in NAICS, 250 of which are services producing industries.
Additionally, NAICS codes are based on a consistent, economic concept, while SIC codes are not. For NAICS codes, establishments that use the same or similar processes to produce goods or services are grouped together. Industries under the SIC codes were grouped together based on either demand or production.
Unlike SIC codes, the NAICS codes were developed by the U.S. federal government in cooperation with Canadian and Mexican statistical agencies. Because both Canada and Mexico use NAICS for their industry classifications, government and business analysts are now able to compare directly industrial production statistics collected and published in the three North American Free Trade Agreement countries. Additionally, NAICS provides for increased comparability with the International Standard Classification System (ISIC, Revision 3), developed and maintained by the United Nations
No. In an effort to move in line with national standards, the Department stopped assigning SIC codes to firms in November 2004 and began only assigning NAICS codes. Because the Department has stopped assigning and updating SIC codes, the Department had to convert the QBR and its other databases to NAICS codes beginning with Quarter 1, 2005 data. This means calendar year 2005 data going forward will also only be available in NAICS codes.
No. SIC codes do not seamlessly convert to NAICS codes. Therefore, a firm that may have fallen under a particular SIC code may now be classified under a completely different NAICS code. For example, a firm classified in SIC 7359 Business Services (Not Elsewhere Classified) could now be classified under NAICS 491110 Postal Service, or NAICS 541340 Drafting Services, among others.
With the release of the Quarter 1, 2005 QBR, the Department also released NAICS versions of the QBR data for year 2004 (including quarterly and calendar year data). If you need NAICS data prior to 2004, use our online Create a Report tool. The other Create a Report functions contain data going back to 1994. You can use the Gross Business Income report to replicate QBR table 1. Or you can use the Local Sales/Use report to replicate QBR tables 3 and 4. For help with how to search and use the Create a Report tool, click here.
Gross business income (GBI)
Gross business income equals a firm's combined reported gross income for the retail sales, business and occupation (B&O), and public utility taxes. Prior to 1995 the Department had included other tax data in the calculation of gross business income; however, this resulted in duplication and overstated a firm's actual gross income. Therefore, gross business income data before 1995 may be misleading when compared to current data.
There are a couple of other considerations when using gross business income information:
Many small firms, agricultural firms, and other select industries are not required to report taxes due to exemptions and filing thresholds. As a result, the gross income for these firms are not represented in statewide gross income figures.
Retail sales tax requirements
If a firm is exempt from paying B&O taxes but makes retail sales of taxable goods and services, the firm must report its retail sales taxes. Therefore, while a small firm may be exempt from paying B&O taxes, it may have to report sales and use taxes. Because such a firm only reports a portion of its gross income when it reports sales and use taxes, its gross income figures will be understated.
B&O tax implications
The B&O tax applies at various stages in the chain of production (e.g. manufacturing, wholesaling, and retailing). For example, a manufacturer produces a widget and sells it to a wholesaler; the manufacturer pays manufacturing B&O tax on the income from the sale of the widget. The wholesaler then sells the same widget to a retailer and pays wholesaling B&O tax. Then the retailer sells the widget to an end consumer and pays the retailing B&O tax. In effect, the income from the sale of that single widget is counted and taxed three times. Because of this "pyramiding" of the tax, gross income reported for B&O tax may not be compatible with other published data on income sources, like personal income.
When using the gross business income report function, what do the total taxable and tax due amounts represent?
Like the gross income, the total taxable and tax due figures equal the sum of the taxable and tax due for the retail sales, business and occupation (B&O), and public utility taxes. The taxable amount equals the total gross income less the total deductions. This is the total amount subject to tax. Because each tax type (i.e. B&O, public utility, retail sales tax, etc.) has its own tax rate and taxable amount, there is not a single tax rate you can use to derive the total tax due.
No. This amount does not take into account any credits. Credits are later subtracted from the tax due to compute the final tax liability.
No. The data used to calculate gross business income are not reported to the Department by location. For example, when a firm reports its business and occupation taxes, it provides a single tax return and a single figure for all locations at which it does business. The Department cannot determine how much gross income is earned at a given location in Washington.
Business and occupation (B&O) tax
The B&O tax is a gross receipts tax. It is measured on the value of products, gross proceeds of sale, or gross income of the business. Virtually all businesses in Washington are subject to the B&O tax, including corporations, limited liability companies (LLCs), partnerships, and sole proprietors, whether nonprofit or for profit. The major exempt activities are farming and the sale or rental of real estate. The B&O taxes found in the QBR and other Create a Report functions reflect only the state B&O taxes and do not include city B&O taxes.
Yes. In addition to the state B&O tax, some Washington cities also assess a local B&O tax. Currently, counties cannot levy B&O taxes. The B&O data reflected in the QBR and the other Create a Report functions do not contain city B&O tax figures. To find out if a city has a local B&O tax, click here.
Gross income equals the income for a particular B&O activity before any deductions. Taxable income equals the gross income less any deductions and equals the amount subject to the B&O tax. Examples of allowable deductions include bad debts, interstate and foreign sales, advancements or reimbursements, and returns/allowances/cash discounts.
No. The tax due amount reflects the taxable (gross less deductions) multiplied by the applicable tax rate. This amount does not take into account any credits. Credits are later subtracted from the tax due to calculate the final tax liability.
There are several classifications for the B&O tax based on the type of business activity. Each classification has its own tax rate. Some of the major categories and their rates are:
|B&O Tax Classification||Rate|
|Extracting/Extracting for hire||.00484|
|Service and Other Activities||.015|
For more information about the B&O tax and tax rate information click here.
No. The B&O tax is not reported to the Department by location. When a taxpayer reports to the Department, he/she provides a single tax return and a single figure for all locations at which he/she does business. Additionally, the addresses provided on the tax returns reflect mailing addresses and may not represent an actual firm location. In fact, they often are the address of a tax preparer. As a result, the Department cannot determine how much B&O tax is due for a given location in Washington State..
Retail sales and use tax
Businesses in Washington collect and remit retail sales tax on the sale of tangible personal property and certain services. Examples of services subject to the retail sales tax include, but are not limited to, cleaning, repairing, altering, or improving real or personal property.
Use tax is due on the value of taxable tangible personal property and services used in the state on which Washington retail sales tax has not been paid. For example, use tax is generally due on equipment purchased out-of-state and then used in Washington.
Yes. Some of the most frequently used exemptions to retail sales and use taxes include:
- Prescription drugs
- Sales to federal government
- Machinery and equipment used directly in a manufacturing operation
Labor and services involved in the installation and repair of the manufacturing machinery and equipment noted above
Gross income from a retail sale is calculated before any deductions or exemptions. A taxable retail sale equals the retail sale activity less deductions or exemptions and is the amount subject to retail sales tax.
A substantial portion of retail sales are not subject to retail sales tax. Examples of deductions or exemptions include food for human consumption, motor vehicle fuel, prescription drugs, medical appliances and lenses, interstate sales, sales to the federal government, and sales of goods to Native Americans for use on the reservation.
Statewide, taxable sales may understate the true level of retail activity by as much as 25 to 30 percent; however, this percentage can vary substantially across industries.
No. The tax due amount reflects the taxable income (gross less deductions) multiplied by the applicable tax rate. This amount does not take into account any credits. Credits are later subtracted from the tax due to compute a final tax liability.
The state retail sales and use tax rate is 6.5 percent for everything except sales/leases of motor vehicles. Sales/leases of motor vehicles are subject to a 6.8 percent state retail sales and use tax. Local governments also levy sales and use taxes, and their tax rates vary depending on location. To get a complete list of tax rates, check out our Local Sales Tax flyer or for a specific area try our Tax Rate Lookup Tool.
Public utility tax
It is a tax on public service businesses, including businesses that engage in transportation, communications, and the supply of energy, natural gas, and water. The tax is in lieu of the business and occupation (B&O) tax.
Income that is subject to the public utility tax is defined as operating income. This income is not subject to the B&O tax.
Gross operating income equals the amount of income subject to the public utility tax before any deductions. Taxable operating income is the amount of income subject to the public utility tax less any deductions. Examples of allowable deductions include bad debts, interstate and foreign sales, advancements or reimbursements, and returns/allowances/cash discounts.
No. The tax due amount reflects the taxable amount (gross less deductions) multiplied by the applicable tax rate. This amount does not take into account any credits. Credits are later subtracted from the tax due to compute a final tax liability.
There are five different rates, depending on the specific utility activity:
|Utility Activity||Tax Rate|
|Distribution of water||.05029|
|Generation/distribution of electrical power||.038734|
|Telegraph companies, distribution of natural gas, and collection of sewerage||.03852|
|Urban transportation and watercraft vessels under 65 feet in length||.00642|
|Railroads, railroad car companies, motor transportation, and all other public service businesses||.01926|
Most taxpayers determine their tax liability based on income accrual, meaning when the seller becomes entitled to receive payment (i.e. when the customer is billed). Some firms whose books are kept strictly on a cash basis calculate tax liability according to when payment is received.
The quarterly accrual period includes data reported by taxpayers who submit returns for business conducted during the indicated period. For example, the first quarter report includes the tax returns for all monthly taxpayers for January, February, and March, as well as the first quarter returns for all firms reporting on a quarterly basis. Because the fourth quarter includes annual reporters, there is some distortion that occurs when comparing the fourth quarter to any of the previous three quarters. However, annual reporters only represent about one-half of one percent of all excise taxes reported (i.e. B&O taxes, public utility taxes, retail sales taxes, etc.)
The letter "D" indicates that data have been withheld to avoid disclosure of individual firm information. This is required by the excise tax confidentiality statute.
Quarterly Business Review (QBR) implications
When data contained in the Quarterly Business Review (QBR) represents fewer than three firms for a particular SIC or NAICS grouping, the non-disclosable data is rolled into the two- or three-digit industry total or the grand total at the bottom.
Why doesn’t the sum of the quarterly data for a given SIC or NAICS grouping equal the annual figure?
If a particular SIC or NAICS grouping contains fewer than three firms then the data cannot be disclosed. When this occurs in the Quarterly Business Review (QBR), the Department replaces the data with a "D". However, the annual data may contain enough firms to disclose the data for that particular SIC or NAICS grouping. This can cause the annual number for that SIC or NAICS grouping to appear larger than the sum of the individual quarters.
A unit represents a single taxpayer, including businesses that report no activity. Because state taxes are not reported based on geographic location, the unit count for the state tax data does not reflect the actual number of business establishments. For example, Firm A has five branches located in five different cities. Each location is subject to the B&O tax. However, Firm A will only submit one tax return on behalf of all five locations and will only show up as one taxpayer in the unit count.
For the local sales and use tax data, the unit count indicates the number of retailers reporting taxable retail sales activity within a county or city. However, firms that have multiple branches within the same location will only show up in the data as one unit count.
One reason for this is that many small taxpayer accounts only report annually, and therefore only appear in the fourth quarter and annual Quarterly Business Review (QBR) reports. However, most unit count differences occur because of businesses that report seasonally (e.g., several months or one or two quarters) and businesses that open and close during the year. While all these businesses will appear in the annual QBR report, they may only appear in one or two of the quarterly reports. As a result, individual quarters do not accurately indicate the total number of businesses that may have reported to the Department during the entire year.
No. This would result in double-counting of taxpayers. For example, if Firm A reports taxes each quarter it would show up as a single unit in each of the four quarters. When you add the quarterly unit counts together to get to an annual figure, Firm A would then be counted four times. However, Firm A should only be counted once. On the other hand, you cannot add all four quarters together and then divide by four because some taxpayers only report during one quarter and therefore they would be underrepresented in the annual unit count.
Table 1 shows gross business income data by major industry grouping, and Table 5 shows business and occupation (B&O) tax data by major industry grouping. Gross business income equals a firm's combined reported gross income for the retail sales, B&O, and public utility taxes. The B&O data are just one component of gross income. The B&O tax is a gross receipts tax. It is measured on the value of products, gross proceeds of sale, or gross income of the business. For more information about gross business income and the B&O tax refer to the gross business income and B&O tax sections above.
Why is the Quarterly Business Review (QBR) typically published six months after the end of the reporting period?
There is typically a lag of six months or longer in the publication of QBR data from the close of the quarterly period to the actual publication of the QBR for several reasons:
- Two-month wait period The Department waits an additional two months after the end of the reporting period before compiling and analyzing the data for the QBR publication. This is to allow time to capture tax return corrections, adjustments, and data from the majority of the late returns.
- Data checks Once the information is available, the Department begins analyzing the statewide data for irregularities or inconsistencies. One of the most common problems discovered is taxpayers reporting on the wrong line of the tax return. Depending on the magnitude of these corrections, these data problems can delay the report two to six weeks.
Publication After the necessary corrections are made to the data, the Department creates the QBR tables. An additional one to two weeks are necessary for publishing the data on the Internet, and three to four additional weeks are necessary to print and mail the hard copy publication. NOTE: The Department only publishes a hard copy of the calendar year QBR.
State excise taxpayers are assigned to monthly, quarterly, or annual tax reporting. The Quarterly Business Review (QBR) data include the accruals of both monthly and quarterly taxpayers for the indicated period with the exception of the fourth quarter report which also includes amounts reported by annual taxpayers for the entire year. Because the other Create a Report functions only contain calendar year data they represent all taxpayers -- monthly, quarterly, and annual reporters.