Quarterly Taxes

Sales Tax/Use Tax and B&O Tax (Business and Occupation Tax). Here’s a breakdown of each:

1. Sales Tax / Use Tax

Sales Tax:

• What It Is: A tax that businesses charge to customers when they sell goods or certain services.

• Who Pays It: The customer pays the sales tax, but the business is responsible for collecting it and remitting it to the state.

• When It Applies: Sales tax applies to most tangible personal property sold in Washington. Some services are also subject to sales tax, such as digital products or specific types of construction services.

• Rate: The rate varies by location. The state rate is 6.5%, but cities and counties may add local taxes, which can make the total sales tax rate anywhere from 7% to 10%.

Use Tax:

• What It Is: A tax on goods that are used, consumed, or stored in Washington but were purchased without paying Washington sales tax (typically from out-of-state vendors).

• Who Pays It: The business or individual who uses the goods or services in Washington State.

• When It Applies: If your business buys goods or equipment out of state and doesn’t pay sales tax, it is required to report and pay use tax to Washington.

• Example: If you buy equipment online from a vendor in another state that doesn’t charge you sales tax, you would owe Washington use tax on that purchase.

Filing and Payment:

• If you collect less than $5,000 in sales tax per month, you file quarterly.

• If you collect more than $5,000 per month, you must file monthly.

2. B&O Tax (Business & Occupation Tax)

What It Is:

• B&O Tax is a gross receipts tax that applies to nearly all businesses operating in Washington, regardless of profitability. It is not based on your business's net income but rather the total income your business generates from all sources.

• Who Pays It: Every business in Washington State, including LLCs, must pay this tax. It’s applied to the business’s total income from all activities (such as sales of products, services, etc.).

How It Works:

• Businesses report and pay the B&O tax based on their gross receipts (total income before expenses) rather than their profits.

• The rates vary depending on the business activity:

  • Retailing: 0.471% (if selling goods).

  • Wholesaling: 0.484% (if selling to other businesses).

  • Service and other activities: 1.5% (if offering services, such as consulting or digital services).

  • Manufacturing: 0.484% (if you’re producing goods).

  • There are special rates for certain activities, and some activities (such as certain charitable organizations) may be exempt.

Filing and Payment:

• If your LLC’s gross receipts are under $2,000 per month, you can file annually.

• If your gross receipts are between $2,000 and $5,000 per month, you must file quarterly.

• If your gross receipts exceed $5,000 per month, you need to file monthly.

Example:

• If you’re a retail business that sells $10,000 worth of goods in a month, you would owe $47.10 in B&O tax (0.471% of $10,000).

• If you’re offering services and your gross receipts are $15,000 in a month, you would owe $225 in B&O tax (1.5% of $15,000).

Key Differences Between Sales Tax/Use Tax and B&O Tax:

• Sales Tax is collected from customers on the sale of goods and certain services, while B&O Tax is a tax on the business’s total income, regardless of whether it makes a profit.

• Sales Tax is charged on sales transactions, whereas B&O Tax is not dependent on specific transactions but on overall business income.

• Sales Tax must be remitted to the state or local government, whereas B&O Tax is remitted to the Washington State Department of Revenue.

Summary:

• Sales Tax: Collected on sales to customers and varies based on location.

• Use Tax: Paid on out-of-state purchases when sales tax wasn’t charged.

• B&O Tax: A tax on your business’s gross receipts (total income), which varies based on your business activity.