Dairy product manufacturers are exempt from business and occupation (B&O) tax on certain manufacturing and selling activities through June 30, 2035. (RCW 82.04.4268)
To claim the tax preferences, manufacturers must report their gross income from dairy product manufacturing activities and then claim a deduction for the amounts attributable to qualified activities not subject to the B&O tax.
Dairy products are defined as:
The following tax classifications and activities are eligible for B&O tax deductions:
These deductions expire July 1, 2035. When they expire, the first two activities listed above will then be subject to a reduced B&O tax rate of 0.138% (RCW 82.04.260(1)).
Note: Products manufactured and sold by the manufacturer at wholesale to a customer who uses such dairy products as an ingredient or component in the manufacturing of another dairy product in Washington will not receive the preferential rate as of July 1, 2025. This activity will be subject to the standard wholesaling B&O tax rate of .484% (RCW 82.04.260(1)(c)(iii)).
Dairy product manufacturers must report their income and then take a deduction for the amounts not subject to tax. There is no application required for claiming these deductions. However, manufacturers are required to file all returns and the Annual Tax Performance Reports through My DOR.
If the business manufactures other products not classified as dairy products, that income should be reported under the Manufacturing B&O tax classification or another manufacturing classification, if appropriate.
A manufacturer taking a wholesale or retail deduction for product transported outside Washington by the buyer must keep and preserve records for up to five years. Those records must establish that the goods were transported by the purchaser in the ordinary course of business out of this state. A letter from the buyer stating this fact is adequate documentation. For wholesale sales, the buyer must also supply the seller with a copy of the buyer’s reseller permit.
A manufacturer taking a wholesale deduction for product sold to a manufacturer for use as an ingredient or component in the manufacturing of a dairy product in this state must keep and preserve records for up to five years. A letter from the buyer stating that the product was purchased as an ingredient or component in the manufacturing of a dairy product in this state is adequate documentation. The buyer must also supply the seller with a copy of the buyer’s reseller permit.
If you claimed one or more of these exemptions, you must electronically file an Annual Tax Performance Report by May 31 of the year following the year when you claimed the exemption (RCW 82.32.534).
For example, if you claimed one or more of the B&O tax exemptions in 2022, your annual report would need to be filed by May 31, 2023.
If you do not timely file this report, the exemptions claimed will be disallowed and a portion of the balance owed will be billed back to you.
For questions regarding the program and the Annual Tax Performance Report, call 360-705-6210.