Washington State TaxesPublished:
The State of Washington has one of the least progressive tax structures. There is no personal income tax, and no corporate income tax or franchise tax. There is, however, a Business and Occupation (B&O) Tax, state and local sales taxes, and other smaller taxes. Property tax was the first tax levied in Washington State (in 1889) and it continues to be an important source of local funding today.
Washington State Tax ? Retail Sales & Use Tax
Washington has a 6.5% retail sales tax. This state tax is Washington’s main source of tax revenue and it’s imposed on the sale, use, and/or consumption of goods and services. The retail sales tax generally applies to the sale of tangible personal property (such as furniture, jewelry, and household goods) as well as certain services (such as construction, installations, repairs, cleaning, altering, decorating, tanning, and tattooing).
Typically, a registered business collects sales tax from consumers on the retail sales of items. In other cases, a business that purchases a retail item/service for its own use must pay tax that on that purchase. Businesses must report state and local retail sales tax (on a monthly, quarterly, or annual basis) and are liable for remitting the correct amount of tax to the Washington Department of Revenue.
Each locality (county or city) imposes an additional retail sales tax that is combined with the state tax rate (of 6.5%). Local sales tax rates range from 0.5% to 3.5% and vary by locality. When added to the state rate of 6.5%, this results in combined tax rates that range from 7% to 10%. Retailers collect the combined state and local sales tax from their customers.
The use tax applies to the use of goods and services in Washington, when Washington sales tax has not been correctly paid. The use tax is the counterpart of the sales tax and it becomes effective when sales tax is not collected ? consumers must pay either sales tax or use tax, but not both.
The use tax is imposed at the same rate as the sales tax, based on where the product is being used, with varying local rates. In most cases, the use tax applies to out-of-state purchases made through the Internet, mail-order catalogues, or home shopping networks. It is the responsibility of the resident/consumer to report and pay this tax.
In general, use tax is due on the following:
- Goods purchased in a state with no sales tax
- Goods purchased in a state with a sales tax rate lower than Washington’s
- Goods purchased from someone who is not authorized to collect sales tax (e.g., a purchase from a private party through a newspaper ad or online auction)
- Goods purchased from out-of-state sellers through the Internet or from a mail order catalog company
- Charges (parts and labor) for repairs performed outside the state on goods that are shipped back into Washington
- Goods leased from a business located outside of Washington that are used in Washington
- Gifts or prizes received (based on the value of the gift/prize) if the donor has not paid sales or use tax
- Goods purchased for consumption/use by a business, for which sales tax has not been paid
Use tax must be paid by the consumer when retail sales tax was not appropriately collected by the seller or service provider. The tax is due when the goods are first used in Washington, by the 15th day of the following month.
Registered businesses must report this tax under the ‘use tax’ sections of their excise tax returns. If you are not registered to do business in Washington, you can file and pay use tax online by setting up an account with the Department of Revenue. Another option is to file a ‘Consumer Use Tax Return’ form by paper.
Motor Vehicle Sales/Use Tax
This is an additional tax that applies to the retail sales, leases, and transfers of motor vehicles. It has a rate of 0.3% (three-tenths of one percent) of the net price paid by the purchaser, and it is collected by the vendor at the time of purchase.
Washington State Tax ? Business Tax
Washington State does not impose a personal or corporate income tax. However, most businesses in Washington are subject to the Sales/Use Tax (discussed above), and the Business and Occupation Tax or the Public Utility Tax.
Businesses conducting activities in Washington must be registered with the WA Department of Revenue. You must register your business if any of the following apply:
- Your gross income is $12,000 per year or more
- Your business is required to collect sales tax
- Your business is required to pay taxes or fees to the Department of Revenue
- You are a buyer or processor of specialty wood products
Business and Occupation (B&O) Tax
The B&O tax is a gross receipts tax administered by the Department of Revenue and imposed on any business conducting activity in Washington. It is reported using an excise tax return. The term ‘gross receipts’ means that there are no deductions for the cost of doing business (such as taxes, materials, or labor expenses). Thus, the B&O tax applies whether or not a business makes a profit.
The B&O tax is structured using classifications, each based on the type of business activity. All businesses are sorted under these categories with varying tax rates across classifications. The B&O tax is determined by multiplying the tax rate by a company’s amount of gross receipts or gross volume of sales. Some major B&O tax classifications and tax rates include the following:
- Retailing ? 0.471%
- Wholesaling ? 0.484%
- Manufacturing ? 0.484%
- Service and Other Activities ? 1.5%
The B&O tax is reported and paid using an excise tax return or by filing electronically. Businesses must file tax returns on a monthly, quarterly, or annual basis, depending on the type of business and its estimated annual tax liability. Also keep in mind that a company that conducts multiple business activities (such as retailing and wholesaling) may be required to report under more than one classification.
Public Utility Tax
The public utility tax is a tax on public service businesses. It applies to companies providing transportation, communications, energy, natural gas, and water. These businesses are subject to this tax instead of the B&O tax. The public utility tax is imposed on a company’s gross income and applies only to sales to consumers.
There are 5 classifications of utility activity with a separate tax rate for each. The classifications and rates are as follows:
- Distribution of water ? 5.029%
- Generation/distribution of electrical power ? 3.873%
- Telegraph companies, distribution of natural gas, and collection of sewerage ? 3.852%
- Urban transportation and watercraft vessels under 65 feet in length ? 0.642%
- Railroads, railroad car companies, motor transportation, and all other public service businesses ? 1.926%
To report the public utility tax, businesses must complete a ‘Public Utility Tax Addendum’ and attach it to their excise tax return.
Washington State Tax ? Property Tax
Property tax is the main source of funding for public schools, libraries, hospitals, parks, and other public services. It is administered on the local government level by county assessors and county treasurers. The WA Department of Revenue implements rules and reviews local administration to ensure uniformity throughout the state.
The property tax system in Washington is budget-based. This means that the budget needs of each taxing district, combined with the assessed value of property, determine what the tax levies will be. The equation for this type of system (revenue ÷ tax base = rate) allows the government to know how much tax revenue will/should be collected.
There are numerous taxing districts and many of them overlap each other. In fact, one property may be subject to tax by multiple jurisdictions. These various taxing districts fall into 4 major categories (and within these categories are separate districts for roads, ports, fire protection, libraries, hospitals, parks, and other special purposes). The 4 major categories are as follows:
- Cities and Towns
There are 2 main types of property: real property and personal property. All real and personal property located within Washington is subject to taxation, unless specifically exempted by law. The value of personal property and real property is determined by county assessors.
Real Property generally refers to land and any structures that are affixed to, installed, or built on the land (including certain equipment). The value of real property is influenced by a number of factors, such as location, view, zoning, geographical features, and surrounding properties.
Personal Property generally refers to movable items, such as machinery, furnishings, fixtures, tools, and supplies. Taxable personal property typically includes items associated with commercial, industrial or agricultural enterprises ? most personal property that is owned by individuals is exempt from tax. Every year by April 30th, owners of personal property must submit a ‘Personal Property Tax Listing Form’ (a list of the items, their purchase cost, and the year acquired) to the county assessor, who will then determine the current value.
All taxable property is assessed according to 100% of its true (or fair market) value, based on the ‘highest and best use’ of the property ? with the exception of agricultural, open space, and timber lands that qualify under the Open Space Taxation Act. Market value is defined as the amount that a willing/unobligated buyer will pay a willing/unobligated seller.
In order to assign value to a property, assessors use one (or more) of the following professional appraisal methods:
- The ‘market or sales comparison method‘ estimates value for similar properties by comparing sales.
- The ‘cost-approach method‘ considers the cost of replacing the existing structure/item with one that serves the same purpose. It provides an estimate of value based on the depreciated cost of the property.
- The ‘income method‘ is used mainly for business property and estimates that a property’s value is equal to its income-producing potential.
- The ‘trade level approach‘ is used for assessing the value of taxable personal property at the retail trade level. There are 3 distinct levels of trade which refer to the production and distribution stages of a product: the manufacturing level, the wholesale level, and the retail level. The cost and value of goods will vary depending on the level of trade.
Real property and personal property have the same tax rates. Property tax rates are expressed in dollars per $1,000 of assessed taxable value. The amount of tax due is considered a ‘lien’ on personal property, and is in effect from the date of assessment until the taxes are paid.
Property tax payments are due twice a year. Property owners will receive their tax bill from the county treasurer in February of each year. Owners must pay at least one-half of the tax due by April 30th, and the rest by October 31st. (If the amount due is $50 or less, it must be paid in full by April 30th.) Payments can be made in person or by mail to the county treasurer’s office where the property is located.
Property Tax Appeals
Owners who disagree with the assessed value of their property may appeal to the local County Board of Equalization (within 30 days or 60 days after the assessment, or by July 1st of that year, depending on the county). The Board reviews appeals and may order a change in valuation based on the evidence provided by the property owner and the tax assessor.
Real Estate Excise Tax (REET)
The REET is an excise tax on the sale of real estate. All real property is generally subject to this tax. The REET applies to the seller of the property ? however, the buyer is liable if the tax is not paid. The tax is collected by county treasurers, with rates that vary throughout the state.
Other Washington State Taxes
Cigarette Tax ? The cigarette tax applies to the sale, use, consumption, handling, possession, and/or distribution of cigarettes in Washington. It has a rate of $20.25 per carton of cigarettes and the tax is due when cigarettes are brought into the state. In addition to this tax, cigarettes are also subject to sales/use tax.
Litter Tax ? The litter tax applies to the manufacturers, wholesalers, and retailers of certain products. There are 13 categories of products, including (but not limited to) food, groceries, newspapers and magazines, paper products, glass containers, and cleaning agents. It is imposed at a rate of 0.00015 of the taxable amount.
Natural Gas Use Tax ? The natural gas use tax is imposed on the use of natural gas or manufactured gas by a consumer, if the gas vendor has not paid Public Utility Tax on the sale. This tax applies only to natural gas that is delivered to a consumer through a pipeline. It has the same rate at the state and city public utility taxes ? the state rate is 0.03852 and city rates vary by location. Tax is remitted to the Department of Revenue by consumers on a monthly or quarterly basis.
Regional Transit Authority (RTA) Tax ? The RTA tax is a voter-approved tax that applies to most metropolitan areas of Pierce County, King County, and Snohomish County. For these regions, the RTA tax increases the sales and use tax, the rental car tax, and the Motor Vehicle Excise Tax (MVET). The sales and use tax increase is 0.009 and the rental car tax increase is 0.008. The MVET is collected by the Department of Licensing.
Rental Car Tax ? This tax applies to the rental of a passenger car for a period of less than 30 days. It is in addition to the retail sales tax and it is paid by the consumer. The state rental rate is 0.059, the county rental rate is 0.01 (for Franklin, Pierce, King, and Spokane Counties) or 0.02 (King County Stadium Tax), and the RTA (Regional Transit Authority) rental rate is 0.008.
Special Hotel/Motel Tax ? The special hotel/motel tax applies to the lodging charges (for hotels, motels, rooming houses, private campgrounds, RV parks, and other similar facilities) for periods of less than 30 consecutive days. This tax is collected from the customer and it is imposed in addition to any other taxes that may apply. Rates vary depending on location, and not all locations are affected by the tax.
Tire Fee ? The tire fee is imposed on the sales of new replacement vehicle tires. Sellers must collect a $1 fee per tire from customers. The fee is refundable if a tire is returned.
Washington State Tax Resources
Washington State Department of Revenue: dor.wa.gov
WA Department of Revenue state tax forms and publications: dor.wa.gov/get-form-or-publication
Create an online account with the WA Department of Revenue to securely file and pay your taxes electronically: secure.dor.wa.gov/home/
Washington sales and use tax rates ‘Tax Rate Lookup Tool:’ hwebgis.dor.wa.gov/taxratelookup/SalesTax.aspx
Washington County Assessor and Treasurer Websites (for property tax): dor.wa.gov/FindTaxesAndRates/PropertyTax/Links
Contact the WA Department of Revenue: dor.wa.gov/content/ContactUs
Washington’s Tax Freedom Day is April 16th.