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.), income from pull-tab, punchboard, bingo games, corkage fees, and allowing patrons access to the Internet. (See Other Types of Income section.)
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. Special Notice.
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.