Rental vs. license to use real estate

Renting or leasing real estate is not subject to business and occupation (B&O) tax or retail sales tax. However, income earned from providing a license to use real property is subject to B&O tax and may be subject to retail sales tax.

Rental or lease

A rental or lease of real estate gives someone the right to use a specific piece of property. For an activity to qualify as an exempt rental of real estate, all of the following must be true:

• There must be a landlord/tenant relationship.
• The lessee must have exclusive use of the rented space.
• The rental period must be one complete month or 30 days, or longer.
• The lessee must have the exclusive right of continuous possession.
• The lessee must have dominion and control of the rented space.

Note: Starting April 1, 2026, renting storage space at self-service storage facilities is no longer an exempt rental of real estate. Income from renting or leasing this storage space is subject to B&O tax under the Service and Other Activities classification.

License to use

A license to use real estate only gives permission to use the property. It does not give the user exclusive control over it. Under a license to use real estate, the owner usually keeps control of things like lighting, heating, cleaning, repairs, and when the property is open or closed. A license can apply to all or part of the property.

Licenses to use real property are generally subject to B&O tax under the Service and Other Activities tax classification. There are exceptions for lodging and automobile parking as described below.

Sales of lodging by hotels, rooming houses, motels, trailer camps, and similar establishments with licenses to use real estate are subject to Retailing B&O and retail sales tax. However, if the agreement allows someone to occupy the property continuously for a full month or for 30 days in a row or more, it is presumed to be a nontaxable lease or rental of real estate.

Additionally, banquet/meeting facilities provided by a lodging business (hotel, motel, etc.) are subject to sales tax.

Charges by automobile parking businesses are also subject to Retailing B&O and retail sales tax. However, exclusive use of a designated parking space for a continuous period of one month or 30 consecutive days or more is considered a nontaxable lease or rental of real estate.

Example: Owners of coin-operated machines sometimes place their machines in businesses owned by others. In exchange, the business owner is typically entitled to a share of the machine’s receipts. This arrangement constitutes a license to use real property, and the income received by the business owner is subject to B&O tax under the Service and Other Activities classification.

Example: A barber or beautician might use a portion of a barber shop or beauty salon owned by another, typically a chair or booth rental. This arrangement is a license to use real property because the barber or beautician does not have exclusive possession and control of the property. The income earned from the chair or booth rental is subject to B&O tax under the Service and Other Activities classification.

Example: A lawyer might use an office in a building owned by another.

• If the lawyer is renting an office space for 30 days, has exclusive use of the space, has dominion and control of the office, has their own separate entrance, and is not dependent on the landlord to access the office, it is a rental of real estate and is exempt from tax.
• If the lawyer is co-sharing an office space where they do not have exclusive use of the space or dominion and control of the office, it is considered a license to use real estate, and the income from this activity is subject to Service and Other Activities B&O tax.