Sales tax now applies to some services

Starting October 1: Some business services are now subject to retail sales tax, as required by state law, ESSB 5814. When you buy these services, vendors should add sales tax to your bill. If you sell these services, you should begin collecting retail sales tax. Learn more about Services newly subject to retail sales tax.

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  5. Business And Occupation (B&O) Tax

Business and occupation (B&O) tax

Restaurants and similar type businesses are responsible for paying a variety of taxes based upon the activities they conduct. The most common of these taxes include: business and occupation (B&O) tax; Retail Sales Tax, & Use Tax. A brief description of each tax follows.

B&O tax classifications

The most common B&O tax reporting classifications for restaurants and similar businesses include: retailing, wholesaling, and service and other activities.

Retailing: Gross income from sales to consumers of prepared food, soft drinks, cigarettes, and items of tangible personal property.

Wholesaling: Gross income from sales of any taxable item to persons other than consumers. For example, sales of prepared food to a nonprofit organization that is reselling the food as part of a fund raising activity.

Note: To document a wholesale sale, the seller must obtain a reseller permit from the buyer.

Service and other activities: Gross income from “other” sources including: compensation or commissions received for allowing placement of coin-operated machines on the premises (coin-operated telephones, ATM machines, cigarette machines, candy machines, etc.), corkage fees, and allowing patrons access to the Internet. (See Other Types of Income section.)

Gambling Contests of Chance: Gross income from sales of pull-tabs, punchboard, and bingo games. (See Games, gambling and similar income.)

There are two B&O tax classifications that apply to income received from operating contests of chance:

  • Gambling Contests of Chance (less than $50,000 a year) – rate 1.5%.
  • Gambling Contests of Chance ($50,000 a year or greater) – rate 1.7% through June 30, 2024, and 1.76% thereafter.

Note: Washington cities may also impose a B&O tax. The Department of Revenue does not administer the B&O tax imposed by cities.


B&O tax exemptions and deductions

The law allows an exemption or deduction from the measure of the B&O tax for the following:

  • Interstate sales: Prepared food delivered to customers outside the state. For example, pizza.
  • Bad debts or dishonored checks: The net amount (before tax) of a dishonored check may be deducted to the extent it was taken as payment for goods or services and was included in amounts previously reported. A deduction may be taken when the debt is actually charged off the books of account.
    Note: Any amounts subsequently recovered must be included in gross income and reported.


B&O tax credit for syrup tax paid

Retailers that pay syrup tax when buying carbonated beverage syrup to make carbonated fountain drinks can claim a business and occupation (B&O) tax credit.

Requirements for the B&O tax credit:

  • Syrup must be used by the buyer in making carbonated drinks sold by the buyer;
  • Credit must be claimed in the tax reporting period when the syrup was purchased;
  • Unused credit may be carried forward to future reporting periods for a maximum of one year (12 months from the end of the tax reporting period when the credit was earned);
  • Credit may not exceed the B&O tax due; and
  • No refunds for credits.