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.
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.
Any city or town may levy a business and occupation (B&O) tax on local businesses, in addition to any state B&O taxes.
B&O taxes have three parts. The taxable event can be a sale at wholesale or retail, manufacturing, provision of a service, occupation of a physical space, or employment of a person. The measure of the tax can be gross receipts, number of employees, square footage, or some other basis. The rate of the tax is the amount paid per measure. It is often calculated on a percent of gross receipts, per person, or per square foot depending on the measure of the tax.
When most agencies talk about a B&O tax, they are usually talking about a “tax imposed on or measured by the value of products, the gross income of the business, or the gross proceeds of sales, as the case may be, and that is the legal liability of the business” (RCW 35.102.030). (For examples of other calculations based on factors such as square footage or number or employees, see our page on City Business Licenses and Fees.)
To create a certain degree of uniformity for businesses operating within Washington, all cities and towns levying a B&O tax on the value of products, gross income, or gross sale proceeds must adopt the provisions of the statewide model B&O tax ordinance, as described below.
Practice Tip: 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.
- 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 for retail businesses if measured by gross receipts/income, unless higher rate is approved by voters under RCW 35.21.711
B&O tax revenues are unrestricted and may be used for any lawful governmental purpose.
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.)
All ordinances that impose a B&O tax for the first time or raise rates should provide for a referendum procedure (RCW 35.21.706), regardless of whether or not the city has otherwise adopted powers of initiative and referendum. While this RCW section is followed by sections specifically discussing retail sales measured by gross receipts, MRSC believes that a conservative analysis of the statute would have the referendum apply to anything that might be defined as a B&O tax regardless of the taxable event or the measure of the tax.
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).
For retail business activities only: RCW 35.21.710 establishes a maximum B&O tax rate upon “business activities consisting of the making of retail sales of tangible personal property which are measured by gross receipts or gross income from such sales.” Note that this statute only applies to retail businesses, and only if the tax is calculated based on gross receipts/income. It does not apply to other business classes, nor does it apply to B&O taxes upon retail businesses that are based on activities other than retail sales, or that are measured by something other than gross receipts.
For retail businesses where the B&O tax is based on gross receipts/income, the maximum tax rate may not exceed 0.2% of gross receipts or gross income 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 allows cities that had a retail B&O tax rate greater than 0.2% on January 1, 1982 to continue to impose those rates and 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.
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 upon the value of products, the gross income of the business, or the gross proceeds of sales. 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
- 2019 Revised Model Ordinance
- 2019 Revised Administrative Provisions
- Summary of 2019 Changes
- Model Implementation Rules/Guidance – Does not need to be adopted as part of the code changes, but some cities will do a formal rulemaking and others may adopt this as implementation guidance
Cities Deviating from Non-Mandatory Provisions
- Bellevue (2005)
- Bellingham (2004)
- Burien (2005)
- Des Moines (2012)
- Kelso (2004)
- Kent (2013)
- Longview (2004)
- Olympia (2005)
- Renton (2017)
- Seattle (2004)
- Shelton (2004)
- Tacoma (2007)
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 Department of Revenue's Interest Rates for State Excise Taxes (click on the "interest rates" PDF link).
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:
- Everett Voluntary Disclosure Program Application
- Renton Voluntary Disclosure Program
- Seattle Voluntary Disclosure Program
- Tacoma Voluntary Disclosure Program
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:
- Lake Forest Park
- North Bend