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City Business and Occupation Taxes

This page provides a basic overview of city business and occupation (B&O) taxes in Washington State, including tax rates, the model B&O tax ordinance, cities that deviate from the model's nonmandatory provisions, and tax sharing agreements.

For information on business licenses, see our page City Business Licenses and Fees.

This information, as well as a wide variety of other city revenue sources, can also be found in our Revenue Guide for Washington Cities and Towns.

New legislation:

  • Before January 1, 2020: All cities that levy a B&O tax must update their ordinances to include the new model ordinance provisions regarding allocation and apportionment (SHB 1403). See below for more details and the new model ordinance language.
  • Effective January 1, 2021: The filing deadline for annual B&O tax filers changes to April 15, as established in RCW 82.32.045. See SSHB 1059.

Overview

Any city or town may levy a business and occupation (B&O) tax on local businesses as a percentage of the gross receipts of the business, less some deductions. This tax is imposed in addition to any state B&O taxes.

To create a certain degree of uniformity for businesses operating within Washington, all cities and towns levying a B&O tax must adopt the provisions of the statewide model B&O tax ordinance, as described below.

Cities considering establishing a local B&O tax should consider whether they have the staff time and expertise necessary to administer this tax. Establishing a B&O tax system requires routine audits by city staff to ensure compliance with the regulations and proper collection of B&O tax income.

For a list of cities that have established a B&O tax, as well as their respective tax rates, see the List of Local Business (B&O) Tax Rates maintained by the Association of Washington Cities (AWC).


Statutes

  • RCW 35.22.280(32) – Authority for first class cities to levy a B&O tax
  • RCW 35.23.440(8) – Authority for second class cities to levy a B&O tax
  • RCW 35.27.370(9) – Authority for towns to levy a B&O tax
  • RCW 35A.82.020 – Authority for code cities to levy a B&O tax
  • Ch. 35.102 RCW – Municipal business and occupation tax
  • RCW 35.21.706 – Referendum procedure. An ordinance that imposes the tax or increases the tax rate must include a provision for a referendum procedure
  • RCW 35.21.710 – Maximum B&O tax rates established
  • RCW 35.21.711 – Voter approval for higher rates

Maximum B&O Tax Rates and Use of Revenues

Businesses are put in different classes such as manufacturing, wholesaling, retailing, and services. Within each class, the tax rate must be the same, but it may differ among classes. (Utility businesses have separate provisions and are not subject to the general B&O tax provisions. For more information, see our page on Utility Taxes.)

The B&O tax may not exceed 0.2% of gross receipts or gross income (RCW 35.21.710) unless approved by a simple majority of voters (RCW 35.21.711). Seattle is currently the only city with a voter-approved B&O tax higher than 0.2%.

However, the law grandfathers in those cities that had a B&O tax rate greater than 0.2% on January 1, 1982 and allows those cities to increase their rate without voter approval. The increase is limited to a total of 10% of the January 1982 rate, with an annual incremental increase limited to 2% of the current rate. The cities that are grandfathered in at a higher rate are Aberdeen, Bellingham, Tacoma, and Westport.

B&O tax revenues are unrestricted and may be used for any lawful governmental purpose.

All ordinances that impose a B&O tax for the first time or raise rates must provide for a referendum procedure (RCW 35.21.706), regardless of whether or not the city has otherwise adopted powers of initiative and referendum.


Model B&O Tax Ordinance

In 2003, the legislature passed a bill that required the Association of Washington Cities (AWC) to convene a committee to develop a model ordinance that must be adopted by all cities imposing a B&O tax. The legislature was concerned about the lack of uniformity of the cities' B&O tax ordinances and about allegations that some business income was subject to multiple taxation.

The model ordinance, which had to be adopted by all cities with an existing B&O tax no later than December 31, 2004, exempted gross receipts under $20,000 per year and provided certain mandatory definitions, penalty and interest provisions, and payment periods. The model ordinance cannot be updated more often than every four years and was last updated in 2019.

Starting January 1, 2008, cities that levy the B&O tax must allow for allocation and apportionment (RCW 35.102.130) to minimize concerns over multiple taxation. In 2017, HB 2005 required that B&O tax cities form a task force to review service apportionment, which was followed by HB 1403 in 2019 that adopted the recommendations of the task force and requires all B&O tax cities to amend their model ordinance before January 1, 2020 to reflect these changes.

Some of the model ordinance provisions are mandatory, while others are non-mandatory (RCW 35.102.040). Any city that adopts an ordinance that deviates from the non-mandatory provisions of the model ordinance must make a description of such differences available to the public, in written and electronic form (RCW 35.102.040(4)).

Model Ordinance Documents

Cities Deviating from Non-Mandatory Provisions


Penalties, Interest, and Voluntary Disclosure

Cities with a B&O tax must calculate interest and provide for refunds, assessments for additional taxes, and penalties in accordance with chapter 82.32 RCW. (See RCW 35.102.080-.110 and the the Department of Revenue's Interest Rates for State Excise Taxes.)

Some cities have established voluntary disclosure programs to encourage unregistered businesses to comply with local tax laws and pay prior obligations by offering reduced or waived penalties for coming forward voluntarily. See the examples below:


Tax Sharing Agreement

The City of Seattle is currently the host of a tax sharing agreement (.docx) that allows participating cities to share tax data without breaching the tax confidentiality provision of the municipal tax ordinances. Any city that obtains tax information from another city is responsible for maintaining the confidentiality and security of that information in accordance with the agreement.

The agreement, along with a current list of participating cities, is required to be posted on the MRSC website. For more information, contact Joseph A. Cunha, the City of Seattle Tax Administrator.

Below is the list of participating cities:

  • Aberdeen
  • Bellevue
  • Bellingham
  • Bremerton
  • Burien
  • DuPont
  • Everett
  • Issaquah
  • Kelso
  • Kent
  • Lacey
  • Lake Forest Park
  • Longview
  • North Bend
  • Olympia
  • Pacific
  • Renton
  • Seattle
  • Shelton
  • Shoreline
  • Tacoma
  • Westport

Last Modified: October 29, 2019