State tax overview

Registration & UBI number

Generally, every person conducting business in Washington must register with the state through the Business Licensing Service. Once registered, the business owner receives a nine-digit unified business identifier (UBI) number. Generally, this number is also the Department’s account ID.

Businesses also receive the state Business License, which must be displayed in a conspicuous place at the business location for which it is issued. A business with more than one location must place a license at each place of business.

Washington’s major taxes

Almost every person doing business in Washington is subject to three major taxes.

They are:

• Business and occupation tax
• Retail sales tax
• Use tax

Business and Occupation (B&O) tax

Almost all businesses in Washington are subject to the state B&O tax. This includes corporations, LLC’s, partnerships, and sole proprietorships. The B&O tax is a gross receipts tax on the business. It is measured on the value of products, gross proceeds of sale, or gross income of the business. There are no deductions from the B&O tax for labor, materials, taxes or other costs of doing business.

The B&O tax rates vary depending on the tax classification into which an activity falls. The major classifications for a convenience store and gas station are retailing and service & other activities. The B&O tax rate for retailing is 0.471% and the rate for service & other activities is 1.5%. The B&O tax rate for service and other activities temporarily increases to 1.8% effective May 1, 2010. The temporary increase expires July 1, 2013.

Generally, sales of consumable supplies, prepackaged food items, prepared food items, alcohol, and cigarettes are reported under the retailing B&O tax classification.

Businesses making retail sales are subject to B&O tax under the retailing classification, even when the sales are not subject to retail sales tax. Example: most prepackaged food products are exempt from retail sales tax, but the income from these sales is taxable under the retailing B&O tax classification.

The state B&O tax is reported on the Department’s excise tax return, which may be filed electronically. Convenience stores and gas stations usually file these returns on a monthly basis. Businesses are assigned a reporting frequency by the Department when they first register their business.

Washington cities may also impose a B&O tax. However, the Department does not administer these taxes. Please contact the city you are located in to determine if local B&O taxes apply.

Retail sales tax

Collecting sales tax from customers

Retail sales tax must be collected by the business on all sales subject to the retailing classification of the B&O tax, unless there is a specific retail sales tax exemption. Retail sales tax is comprised of a state and local rate.

Retailers are liable for remitting the correct amount of tax, even if they under-collected or did not collect the tax from the purchaser. Businesses are responsible for collecting retail sales tax from purchasers. All amounts collected are considered to be trust funds of the state.

Retail sales tax is collected on the selling price of an item, which includes any additional charges such as a fee for handling or any other amount that is separately stated on the invoice.

All sales invoices or documents of sale must separately state the retail sales tax collected. The tax cannot be included in a lump sum price. When sales tax is not separately stated, it is presumed that the tax was not collected by the seller or paid by the buyer. Some items sold by convenience stores and gas stations are exempt from retail sales tax and include the following:

• Grocery type (prepackaged) food items
• Newspapers
• Gasoline

Remember: Sales invoices must be given to customers for all purchases.

Paying sales tax on business purchases

Retail sales tax must also be paid by convenience store and gas station owners on items purchased by a business for its own use. Examples of consumable supplies include the purchase of ice supplies, cleaning supplies, paper towels, shop cloths, and toilet paper used in the business location. Retail sales tax must also be paid on the purchase of furniture and equipment.

Use tax

Use tax is a tax on the use of goods or certain services in Washington when sales tax has not been paid. Goods used in this state are subject to either the sales or use tax, but not both.

Use tax is based on the value of the article or service and includes charges for labor, materials, freight, handling, or any other amount paid or accrued when separately stated on an invoice.

Examples when use tax is due include:

• Mail order, telephone, or Internet purchases from people with no presence in Washington.
• Goods purchased with a reseller permit and then used or consumed.
• Tangible personal property acquired with the purchase of real property.
• Goods purchased in a state with no sales tax or a tax rate lower than Washington’s.

Use tax is paid directly to the state using the use tax lines of the excise tax return or the use tax form. The local use tax rates are the same as the retail sales tax rates. The correct local tax rate is determined by the location at which the goods are first put to use in this state.

Note: Always pay use tax when an out of state vendor does not collect retail sales tax.