2024 Washington State Corporate Tax Rate: Business Opportunities and Growth

Introduction to the Washington State Corporate Tax Rate

Washington State, which leads the way with nearly 350,000 workers employed in tech-related jobs statewide, is brimming with top-tier talent and is consistently ranked among the best states to start a new business as well as to make a living in terms of taxes, cost of living, employment, and workplace environment. This beautiful state is home to big companies like Microsoft, Amazon, Boeing Co., and Starbucks. Over 50% of all services the state exports are technology-related, nearly double that of second-place Massachusetts. The state has the highest nation’s net percentage of new technology jobs. For those wondering about the Washington state corporate tax rate…there is none! Washington does not have personal or corporate income taxes.

The Washington Department of Revenue imposes various taxes and fees, such as industry-specific taxes, sales and use, property, and business and occupation (B&O) taxes. The business and occupation (B&O) tax favors larger, more established companies because it is levied against total revenue rather than net income, even if there is a loss. This disproportionately affects small businesses and start-ups, which need to reinvest as much initial revenue as possible to bolster growth. 

Key Takeaways 

• There is no franchise tax, corporate income tax, or personal income tax in Washington. 
• Washington imposes a 6.50% sales tax, an average local sales tax of 2.897%, and an average combined and local sales tax rate of 9.37%.
• Washington levies a business and occupation (B&O) tax on gross receipts, with rates depending on the business’s activities.
• A booming tech industry accounts for over 20% of Washington’s annual economic activity. Over the last decade, Washington’s tech sector employment has grown by nearly 34%. Tech workers account for 9.4% of the state’s total workforce, the highest in the nation.
• Washington ranks first in the workforce, economy, and “technology and innovation” categories, with a large talent pool to recruit employees.  

Is Washington a Business-Friendly State?

Washington is widely regarded as a business-friendly state. The lack of a Washington state corporate tax rate and there advantages contribute to its reputation as a good place to do business, such as

1. Absence of a State Income Tax: One significant benefit for individuals and businesses in Washington is the absence of a state income tax.
2. Robust Economy: The state’s economy is robust and diverse, with a significant presence in the technology sector (particularly in Seattle, where Microsoft, Amazon, Google, and Getty Images are headquartered), aerospace, agriculture, and other industries.
3. Entrepreneurial Environment: Washington has a thriving entrepreneurial culture, with many resources available to support startups and small businesses.
4. Skilled Workforce: Highly educated and talented workers can be found in the state, especially in engineering and technology.
5. Capital Access: Washington state boasts a notable concentration of venture capital entities and angel investors, offering avenues for business financing.
6. Infrastructure: The state has well-developed infrastructure, including transportation networks and ports that can benefit businesses involved in trade.
7. Quality of Life: Washington offers a high quality of life characterized by its vibrant arts, rich cultural offerings, many outdoor activities, and active lifestyle, which can be attractive to employees and business owners.

What Steps Must I Take to Open a Business in Washington State?

Here are the basic steps in forming a business in the State of Washington:

1. Choose a business structure.
2. Choose a name for your business. Make sure it has an identifier or terms like “Corporation,” “Incorporated,” “Limited,” “Company” (for corporations) or “LLC” (for limited liability companies).
3. Verify whether your chosen company name is still available using the Washington State Department of Revenue (DOR) business lookup. Additionally, check the US Patent and Trademark Office’s federally registered name database to ensure the name you have chosen for your business has yet to be trademarked.
4. File your documents with the WA Secretary of State. You should have the Articles of Incorporation (for corporations) or a Certificate of Formation (for LLCs) filed with the Secretary of State of Washington.
5. Apply for a business license with the Secretary of State of Washington and specify whether you are forming a partnership, corporation, or LLC.
6. Process your UBI number. Several departments within the state of Washington utilize UBIs, or “Unified Business Identifiers,” to uniquely identify your company. The confirmation process for online filings will take five days, while mail-in submissions could take up to three weeks. The Secretary of State will send you an email confirming the legality of your business and providing you with your nine-digit UBI number. You must obtain a license to conduct business within the city limits of most Washington cities. 
7. Apply for a master business license. Once you have your UBI number, you can apply with the Business Licensing Service (BLS) for your master business license, which is not a business license. Carefully filling out the application is crucial because each entry notifies particular agencies of the reports, fees, and other requirements you must fulfill for them. You may submit this application online in certain circumstances or need to file it on paper, which will require up to 21 days for processing.
8. Request additional permissions and licenses. Depending on the kind of business you run, you may also need to apply for a specialty license in addition to a master business license. To conduct business in most cities in Washington, you must obtain a permit. 
9. Submit your initial report. Corporations and LLCs operating in Washington must file their initial reports 120 days after submitting their formation documents. Your UBI number and the application ID you received when you registered your business online are required.
10. Get an EIN or federal tax identification number. If your business will be subject to federal taxes or if you intend to hire employees, you must obtain an EIN. 
11. Send FinCEN a Beneficial Ownership Information (BOI) Report. Reporting companies that are established on or after January 1, 2024, must file a Beneficial Ownership Information (BOI) report with FinCEN within 30 days of receiving confirmation (actual or public notice) of their formation, incorporation, or registration from the secretary of state or a comparable body. Reporting companies established before January 1, 2024 have until January 1, 2025 to file their first BOI report. 
12. Make tax payments to the Department of Revenue. The Department of Revenue should send you a packet of information if you checked specific boxes on your master business application. 
13. Remain compliant. On behalf of the Secretary of State, you must submit an annual report to Business Licensing Services. You can file online for a fee of $71. A notice of the upcoming renewal will be mailed to your registered agent, along with a password to access the online filing system. This renewal notice will be sent 45 days before the due date, which is the last day of the month your company was founded—your anniversary month.

Is It Necessary For a Corporation With a Mailing Address in Washington State to Register, Pay the Washington State Corporate Tax Rate, or Both?

Simply having a mailing address in Washington State does not trigger the requirement to pay a Washington state corporate tax rate. The nature and scope of a company’s business activities within the state are two factors that affect corporate income tax liability. The state does not impose a standard Washington state corporate tax rate on income. Instead, it has a business and occupation (B&O) tax, which is a gross receipt tax based on your company’s gross income, the gross proceeds of sales, or the value of the products you sell.

Unlike net income, a company’s gross revenue is subject to the B&O tax. Businesses that conduct various operations within the state are subject to the B&O tax, the rate of which varies based on the kind of business and its gross revenue. The B&O tax rate is based on the business activity you engage in. You can find the rate corresponding to your classification on Washington’s “Tax Classification for Common Business Activities” page.

To determine if your company is subject to the B&O tax or other state taxes in Washington, you should consider factors such as:

• The type of business operations your organization carries out in Washington.
• The amount of gross revenue generated from those activities.
• Whether you have a physical presence, such as an office or employees, in the state.
• Whether your company meets any exemptions or thresholds that may apply.
• Since tax laws and regulations are subject to change and individual circumstances may differ, it is important to seek specific guidance on your company’s tax obligations in the state from a tax professional or the Washington State Department of Revenue.

Registration: While having a mailing address in Washington may be one piece of information authorities consider, it’s not the sole determinant of whether you need to register your business in the state. The key factors are the type of business, its activities, and any applicable tax or licensing requirements. It’s advisable to consult with Cleer Tax professionals or contact the Washington Secretary of State’s office to determine the specific registration requirements for your business based on your unique circumstances.

Registered Agent: To be contacted for notices, demands, or process serving, the registered agent’s address needs to be a legitimate street address located in the state of Washington.  

PO Boxes, Private Mailboxes, and Virtual “Real Principal Office Address: The business’s street address must be the Principal Office (previously Principal Place of Business) address. Although they can be supplied as a backup mailing address, PO boxes or PMBs cannot be used to fulfill the physical address requirement. Depending on the setup of your company, this address may be the same as the registered agent’s address, or it may be a different place where records are kept.

As a registered agent in Washington, you must designate an individual or organization to accept service of process or lawsuit notice on your company’s behalf. During regular business hours, a process server can deliver official documents to a Washington registered agent’s physical address. 

Does the State of Washington Have An Income Tax?

No, there is no income tax on individuals. There is also no Washington state corporation tax rate. However, you must pay business and occupation tax (B&O) if you operate a business in Washington. B&O is calculated using your company’s gross income, gross proceeds from sales, or the value of your products.

Depending on whether the taxpayer is a resident or domiciliary of Washington, different rules apply regarding the application and applicability of the capital gains tax. A person is regarded as a “resident” for tax purposes if:

1. Throughout the tax year, they are residents of Washington unless they
   • Maintained NO fixed residence in the state for the WHOLE tax year; and
   • Stayed in Washington for no more than 30 days during the tax year.
2. They kept a place of residence and were physically present for more than 183 days during the taxable year, even though they were not residing in Washington during that time.

Does Washington State Have a Franchise Tax?

The state does not have a franchise tax. Instead, the primary business tax in Washington is the B&O tax, a gross receipts tax.

Will I Pay the Washington State Corporate Tax Rate If I Have My Business in Washington State But Live in a Different State?

If you operate a business in Washington State but reside in a different state, your tax obligations will depend on several factors, including the nature of your business, your business structure, and your specific activities in Washington. Here are some key considerations:

Business Structure: The tax implications can vary depending on your company’s legal structure: corporation, partnership, LLC, or sole proprietorship.  Each structure has different tax rules and requirements.

Nexus: Nexus is the connection a business has with a particular state that may trigger tax obligations. If your company has a physical presence in Washington, such as an office, employees, or property, it typically establishes a nexus and may be subject to Washington state taxes.

Business Activities: The type of business activities you conduct in Washington can also affect your tax liability. If your business generates income from activities within the state, you may be subject to Washington’s business and occupation (B&O) tax, even if you don’t live in Washington.

State Taxation Laws: Washington does not have a traditional corporate income tax on net profits, but it does have the B&O tax, which is assessed based on gross revenue. Depending on the nature of your business, you may have B&O tax obligations.

State Income Tax in Your Home State: Even if you don’t owe Washington state income tax, you might have income tax obligations in your home state. This depends on your home state’s tax laws.

Tax Credits and Reciprocity: Some states have tax agreements or reciprocity agreements with neighboring states, which can affect how income is taxed for individuals and businesses living or operating across state lines. It’s essential to check whether such agreements exist between your home state and Washington.

Professional Advice: Given the complexity of state tax laws and regulations, it’s advisable to consult with Cleer Tax professionals who can provide personalized guidance based on your specific situation.

Does Having an Employee in Washington State Trigger the Requirement to Pay the Washington State Corporate Tax Rate?

Despite not having an income tax, Washington state’s legislature passed a capital gains tax that will take effect on January 1, 2022. The presence of an employee alone may not automatically trigger nexus for all tax purposes. However, it may trigger some obligations, such as sales tax collection and employment tax withholding.

Does Having an Independent Contractor in Washington State Trigger a Corporate Income Tax Nexus?

Given that there is no Washington state corporate tax rate on income, having an independent contractor in Washington does not trigger a corporate income tax for your business.  

Does Having a Founder Living in Washington State Trigger the Requirement to Pay the Washington State Corporate Tax Rate?

There is no income tax on individuals or corporations in Washington, so having a founder in Washington state will not trigger the requirement to pay a Washington state corporate tax rate on income. Nonetheless, business and occupation (B&O) or public utility taxes apply to individuals and companies conducting business in Washington. The company’s gross receipts determine the amount of tax that is due. 

Are Employee Directors Subject to Business and Occupation Taxes?

The state B&O tax law maintains an exemption from the Business & Occupation (B&O) tax for employee compensation, even though the legislation does not expressly address employees who hold corporate directorships. Therefore, the only amount of income that an employee who holds a corporate directorship should be subject to taxation is the amount that the employee receives from the company for serving in that capacity.

Washington law does not support the Department of Revenue’s classification of employee compensation (typically included on a Form W-2) as compensation paid to an independent contractor for serving as a corporate director (typically reported on a Form 1099). Due to the new legislation, most employee directors will not be liable for B&O tax since they are usually paid as employees rather than independent contractors.

Directors who are not residents may have enough nexus to pay B&O tax. Even if corporate directors are not physically present in Washington, they may still be liable for B&O tax. A director will have a significant connection to Washington under the new legislation’s nexus provisions and will be liable for the state’s B&O tax if the director:

(a) Lives in Washington.

(b) Possesses property in Washington worth more than $50,000.

(c) Has gross receipts of more than $250,000 that can be linked to Washington or has at least 25% of its gross receipts from Washington-related director compensation and other apportionable service activities.

Does Washington Collect Sales Tax?

Yes, Washington State does collect sales tax. Washington has a state-level sales tax imposed on the sale of most tangible goods and certain services within the state. The sales tax rate charged to customers in Washington includes both the state portion (6.5%) and the local portion, which can vary depending on the location of the sale or delivery, as local jurisdictions (cities and counties) can impose additional sales tax on top of the state rate.

Services rendered to businesses and individuals, such as haircuts, medical bills, consulting fees, etc., are not considered personal property and are typically exempt from sales tax. If the tangible personal property is transferred out of the state at least two years before its sale, Washington is not entitled to any gains from the sale. Here, the two years are the current tax year and the tax year that came right before it. If the taxpayer resided in Washington at the time of the sale or exchange, Washington would receive long-term capital gains from the intangible personal property. 

Does Washington State Tax SaaS Income?

Yes, Washington has a wide range of digital products, including SaaS, and it was one of the first states to specifically call out NFTs as a taxable digital product.

Do Online Marketplaces Face Taxes in Washington?

It is possible that you will not have to pay sales tax if the marketplace facilitator gathers and files retail sales tax on your behalf. If you cross the registration threshold, you still have taxes to file and pay.

Does Washington Tax Remote Software Sales?

Yes. The laws also cover remote access software (RAS), which is subject to sales and use tax. Whether the buyer receives a perpetual or non-permanent right of use is immaterial. 

What Will I Do to Close My Business in Washington?

1. Adopt a corporate resolution to dissolve and file with the Secretary of State. Form 966 must be file filed with the IRS within 30 days.
2. Account for all the assets of the business. Don’t forget to include all outstanding accounts receivable or other amounts due to the business.
3. Pay all outstanding wages and compensation due to employees and contractors.
4. Follow the Closing a Business Checklist from the IRS. Ensure all income tax returns are submitted and all outstanding liabilities settled.
5. Pay off all loans, particularly those with personal guarantees or other security obligations. 
6. Pay all creditors of the business.
7. In accordance with the governing documents of the businesses, the remaining assets should be distributed to the owners.
8. Obtain a certificate of dissolution and file the final return with the IRS. After dissolving, a corporation has until the fifteenth day of the fourth month to file its final return.

When is My Washington State Sales Tax Return Due?

The frequency of sales tax returns you must file could be monthly, semi-monthly, quarterly, semi-annual, or annual, depending on the amount of sales tax you collect and the state of your sales tax account with Washington. 

What Happens If I File My Washington State Sales Tax Return After the Deadline?

The Department may allow extensions for the filing of an excise tax return, contingent on certain conditions. The request needs to be submitted before the deadline. In some cases, the department may waive the late return penalties. If you believe you meet the requirements and your return or payment is late, you can ask to waive the penalty. The account is considered delinquent when the payment deadline for a tax return or other established obligation has passed, and the outstanding amount is still unpaid.

Annual adjustments are made to the interest rates on excise tax assessments and refunds. Check out the list of interest rates from previous and present years.

Can Cleer Tax assist me in filing my taxes in Washington? 

Absolutely! Cleer Tax offers consultations to discuss the best structure for your startup business, no matter what state you register in. We also offer a new company package that includes a tax consultation, bookkeeping, and a chart of accounts set up to help you do it right from the start.  We also offer federal income tax preparation, which includes your state tax as well. We also offer all-in-one monthly accounting packages that include monthly statements plus your federal and state tax returns.

If you have any questions or need additional help, email us at hello@cleer.tax.