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Amounts received by an individual from a corporation for serving as a member of that corporation’s board of directors (director fees) are subject to the B&O tax. Corporate directors, while acting in that capacity, are not considered employees of the corporation whose board they serve on.
Director fees subject to B&O tax
All compensation received, in any form, for services rendered as a corporate director is subject to service and other activities B&O tax including, but not limited to:
- Fees.
- The value of stock options or property received in exchange for services.
- Awards.
- Bonuses.
- All reimbursements of expenses incurred in connection with such services, such as telephone costs, preparation fees for meetings, and travel expenses.
In most cases, director fees must be included on an official IRS Form 1099-MISC. The department will generally accept amounts shown on the IRS Form 1099-MISC as the amount subject to tax.
Where a corporate director is also an employee of a corporation, only the nonemployee director fees received for services rendered as a corporate director are subject to B&O tax. Income earned as an employee is exempt from B&O tax.
Stock options
Director fees include the value of stock options granted as compensation to the extent that amount should be reported on the IRS Form 1099-MISC.
Please note that all taxpayers are required to keep suitable records, including copies of all federal income tax and state tax returns, as may be necessary to determine the amount of any tax.
Apportioning director fees
Corporate directors who are taxable on their director fees in Washington and another state may be entitled to report their taxable income for B&O tax purposes on an apportioned basis. A corporate director is taxable in another state if:
- They are subject to tax in another state on their director fee income.
- Another state has jurisdiction to tax that corporate director’s income under the same substantial nexus standards, whether or not that state actually imposes a tax.
Corporate directors entitled to apportion their director fee income will be taxable on that portion of their director fee income received from corporations headquartered in this state. However, corporate directors could be liable for B&O tax on director fees received from corporations headquartered outside Washington if:
- The director performs at least some of the activities of a corporate director for the out-of-state corporation within this state.
- The director is not taxable on the director fees in the other state.
Please see our Apportionment guide for more information.
Determining nexus
A corporate director must register if they meet any of the following thresholds in the current or prior year:
- Has physical presence nexus in Washington.
- Has more than $100,000 in combined gross receipts sourced or attributed to Washington.
- Is domiciled in Washington.
Registering
Corporate directors are not required to register with the department if all of the following apply:
- Your gross income from all activities subject to B&O tax within Washington is less than $12,000 per year.
- You are not required to collect or pay to the department any other tax or fee administered by the department.
To register, you must apply for a business license through My DOR.
Reporting your tax
You must report amounts received as director fees on excise tax returns under the Service and Other Activities B&O classification. You may be eligible to claim a small business B&O tax credit that is automatically calculated when you enter your gross amounts into the excise tax return online through My DOR.
Corporations reporting tax
To ease the administrative burden placed on a corporate director, the department may allow corporations to agree to report and pay taxes on behalf of their registered directors. However, corporation participation is voluntary. If the corporation decides to file on behalf of their directors then they must complete the Corporate Director Fees B&O Tax Payment Agreement. Once processed, you will receive a signed copy from the department for your records.
If you are reporting on behalf of the corporate director, you should have a properly filled out and signed confidential tax information authorization (CTIA) on file as well.
The department will not require any corporate director to register with the department or remit B&O tax so long as:
- The full amount of the tax owed by the corporate director has been remitted to the department pursuant to the agreement.
- The corporate director engages in no other business activity that would require the director to register with the department.
Corporate directors remain responsible for the timely and accurate filing of tax returns and payment of all applicable taxes. This is the case even when the corporation on whose board the director serves has been authorized by the department to file returns and pay taxes on behalf of their directors. For more information, you may contact our Taxpayer Account Administration Division at 360-705-6218.
References
RCW 82.04.360 – Exemptions—Employees—Independent contractors—Booth renters
RCW 82.32.070 – Records to be preserved—Examination—Estoppel to question assessment—Unified business identifier account number records
WAC 458-20-138 – Personal services rendered to others
WAC 458-20-19402 – Single factor receipts apportionment—Generally
