The Infamous B&O Tax

Nobody likes taxes, but people really, really hate the levy Washington imposes on businesses.

Called the Business & Occupation Tax, the “B&O” is loathed with the intensity usually reserved for your college football team’s archrival. Think the Apple Cup, but with lots more money at stake.

The B&O is a tax on gross receipts. Sounds simple, right? Not at all, say business owners. First enacted as a temporary funding mechanism in 1933, it has been amended, tweaked and updated to include hundreds of exemptions, exceptions and classifications. And 39 cities in the state—including Seattle—have gotten in on the action, imposing their own versions of the B&O on top of the state tax.

“It’s crazy. It’s a nightmare to figure out,” says Steve Neighbors, chairman of Bellevue-based Terra Staffing Group, which connects job seekers with a variety of businesses.

Here’s how the state B&O works: Businesses receive a classification with a corresponding tax rate. They then apply that rate to their gross receipts and cut Washington a check. Most classifications come with a tax rate below 1 percent, which is low. But what drives many nuts is that businesses get taxed whether they make money or lose money, which critics of the levy say is especially hard on startups and small firms.

“Even in those years you’re not making a profit, the government gets paid before the owner of the business,” says Neighbors.

And classifications aren’t concrete. They vary depending on what the business does and where it does it—a feature that can drive bean counters mad. For example, if a widget factory in Wenatchee sells its product to a customer in Washington, it gets taxed at the rate for wholesalers (0.484 percent). But if it sells those widgets in Wyoming or anywhere else out of state, it's considered a manufacturer. And within the manufacturing classification, different tax rates can apply.

Neighbors says the situation is particularly maddening for his firm, which sends workers out to different types of businesses in different cities. Terra Staffing has to figure out the particular tax for the particular industry its workers toil in, and cough up accordingly. And to make matters worse, Neighbors says an exemption the staffing industry once enjoyed was recently eliminated.

“Our B&O tax tripled when that went away,” he notes.

Washington is the only state in the country that taxes businesses this way. The Washington Policy Center, an independent public-policy think tank, says the B&O is “nationally recognized as one

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