The state rate (6.5 percent) and the municipal sale tax rate make up Washington’s retail sales tax. Local rates differ based on where you are.
How Much Is The Washington Sales Tax?
Sales taxes are taxes on certain products and services that a governing body charges (state or local). The state of Washington initially enacted a general state sales tax in 1933, and the rate has subsequently climbed to 6.5 percent. There may be one or more local sales taxes, as well as one or more special district taxes, in addition to the state sales tax, each of which can range from 0% to 3.9 percent. There is currently 6.5 percent to 10.4 percent combined sales taxes in Washington, depending on where you make the purchase.
As a seller of taxable products or services, you represent the state of Washington by collecting tax from customers and remitting it to the proper tax authorities. Washington State’s Department of Revenue (DOR) collects use taxes (or sales taxes).
The state of Washington owns any sales tax received from customers, not you. It is your job to keep track of the taxes you collect in order to comply with state and municipal regulations. If you do not comply, you may be subject to penalties and interest charges. Are you a business owner residing in Washington? Here’s everything that you need to know about Washington Sales Tax for businesses.
Do You Need To Pay The Business Sales Tax In Washington?
In comparison to other states, Washington’s tax structure has always been unconventional, imposing no individual income tax or corporate tax on those who live within its borders. Even before Wayfair, Washington had a reputation for being one of the most aggressive states when it came to chasing out-of-state companies, enforcing its low nexus sales thresholds, extensive lookback periods, and high penalty rates.
Known as the Business & Occupation (B&O) tax, Washington’s gross receipts tax scheme has particularly harsh regulations for out-of-state firms. The tax does not need a company or its personnel to enter the state in order to incur tax liabilities. Anyone doing business in this Northwestern state should be aware of this tax, as well as a new addition to the Washington regime that will affect capital gains in 2022. Therefore, to help you out, we have compiled the entire information about the Washington sales tax for business. Let’s begin.
Is What You’re Selling Taxable At All?
In general, services in Washington are non-taxable. However, if you supply construction services, you will almost certainly have to deal with sales tax.
With a few exceptions, tangible goods are taxable in Washington. Certain goods, prescription medications, sales to non-residents, and newspaper sales are among the exceptions.
What Are The Conditions For Washington Sales Tax For Business And Occupation?
The Washington B&O tax is a gross receipts tax levied on goods and services originating in Washington, similar to the Ohio or Oregon Corporate Activity Tax (CAT). There are certain deductions that are only available to certain industries, and B&O allows only a few deductions. Furthermore, B&O doesn’t account for profit or losses. As a result, it does not deduct the cost of goods sold, and it is chargeable in addition to Washington’s sales tax. Also, the government cannot collect it directly from customers like sales tax.
What If The Nexus Threshold Is Low?
Most states have moved toward economic nexus thresholds as a result of the Supreme Court’s Wayfair decision, making it simpler to apply sales taxes on out-of-state corporations. Washington is no exception, and it was one of the only states to impose a sales nexus requirement some years before Wayfair.
Businesses in Washington must normally file a B&O excise tax return if they can answer “yes” to any of the following questions:
- Washington receives more than $100,000 in annual gross receipts*.
- Has actual or tangible personal property that he or she owns or leases.
- Has employees, agents, technicians, or third-party representatives residing in, working in, or conducting business in Washington; this could include offering installations, repairs, services, sales solicitation, and trade exhibits, among other things.
- Using company-owned or leased cars to deliver products
Filing Sales Tax
When it comes to filing sales tax in Washington, there are three things you must do:
- Determine the amount of sales tax you owe.
- Fill out and submit a sales tax return.
- Make a deposit
How to Calculate Sales Tax On B&O
The B&O tax rate varies depending on the type of business. The activities of a firm may fall into many classifications, which can make tax calculations more difficult. It is critical that classifications are right in order to apply the relevant tax rate.
The majority of businesses fall into one of four B&O categories:
- Manufacturing, and
- Other Services and Activities
The assessment of a tax categorization necessitates a thorough examination of your facts in light of previous legal decisions, and statutes, and how to apply them to your activities. In addition, categorization determines if the taxpayer needs to file a retail sales tax return.
Following are the four major tax classifications under B&O:
Washington Sales Receipt
Classification Tax Rate*
Potential B&O Tax**
*There may be additional specialty classifications and rates available in addition to the four most common B&O classifications.
**Because available deductions and credits differ by firm, they are not included.
How to File and Pay The Sales Tax?
When it comes to filing and paying your Washington sales tax, you have three options:
- Online filing- At the Washington Department of Revenue, you can file your tax return online. You can use their online system to make a payment.
- File and pay by mail- You can file and pay by mail using a variety of forms.
Are There Any Penalties And High Exposure If The Tax Is Not Paid?
Late filing or payment penalties in Washington can be as high as 29 percent (and 39 percent in periods prior to 2015). Furthermore, Washington devotes a tremendous amount of resources to detecting non-filers, typically looking back at least seven years when a corporation with nexus fails to file. When combined with the extended lookback period and high penalty rates, the exposure can be enormous.
If your company’s revenue exceeds certain limits, you may be eligible for a Voluntary Disclosure Agreement.
What More To Consider In B&O?
- The solicitation-only provisions of Public Law 86-272 do not generally protect gross receipts taxes.
- B&O depends on gross receipts, without typical expenses and deductions.
- Taxpayers must have the proper documentation in place to eliminate intercompany receipts.
- Retail sales can include sales made through a marketplace facilitator.
Therefore, this is all about Washington Sales Tax for business. Hopefully, after reading this blog post, you will not have any confusion in any way. Lastly, let’s have a look at the quick facts about the Washington Sales Tax for your better understanding.
Washington Sales Tax- Quick Facts
- The retail sales tax is the primary source of revenue for Washington.
- The B&O nexus decision is analogous to the sales tax nexus determination.
- In addition to the B&O tax, the state does not exclude marketplace facilitators from collecting and remitting sales tax.
- Marketplace facilitators, such as Amazon, often collect sales tax at the retail sales rate. It varies by geography and sector and ranges from 7% to 10.5 percent.
Need Help With Your Business Sales Tax?
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