Washington increases B&O tax for service-based businesses

May 28, 2019
May 28, 2019
0 min. read

On May 21, 2019, Washington Governor Jay Inslee signed House Bill 2158, increasing the Business and Occupation (B&O) tax rate for certain designated service-based industries and for large advanced computing companies effective Jan. 1, 2020.

House Bill 2158 imposes a 20% surcharge across designated service-based industries, raising the effective rate from 1.5% to 1.8% of gross receipts. The surcharge applies to receipts taxable under the “service and other activities” tax classification. The service-based industries affected by the surcharge are widely varied and include, but are not limited to: healthcare, financial services, information technology, telecommunications, utilities, engineering, publishers, professional services and broadcasting.

The legislation also imposes a 33.33% B&O tax surcharge on advanced computing businesses with at least $25 billion, but less than $100 billion, of annual revenue from their affiliated group, resulting in a total tax rate of 2%. A 66.66% B&O tax surcharge is imposed on advanced computing businesses with over $100 billion of annual revenue from their affiliated group, resulting in a total a tax rate of 2.5%. The legislation provides that the surcharges on qualifying advanced computing companies will be not less than $4 million for each affiliated group and are capped at $7 million annually. These businesses are required to disclose to the department whether they are a member of an affiliated group, as failure to comply fully eliminates the $7 million cap.

Takeaways

Washington’s B&O tax rate is increasing for certain service-based businesses and large advanced computing companies. Any business with nexus in Washington, particularly service-based businesses, should speak with their tax adviser and determine if they are subject to the surcharges beginning on Jan. 1, 2020.

RSM contributors

  • Kirsten Moritz-Baune
    Senior Director