Washington State is often lumped in with states like Texas and Florida as a "no income tax" haven. And technically, that is correct — Washington has no personal or corporate income tax. But it does have the Business and Occupation (B&O) tax, which catches many new LLC owners off guard.
The B&O Tax Explained
Washington's Business and Occupation tax is a gross receipts tax — meaning it is based on your total revenue, not your profit. This is a critical distinction. Even if your business loses money, you still owe B&O tax on every dollar of revenue.
Rates vary by business type:
- Retailing: 0.471%
- Wholesaling/manufacturing: 0.484%
- Service and other: 1.5%
For service businesses (consultants, freelancers, agencies), that 1.5% rate on gross revenue can add up quickly. A service LLC earning $200,000 in revenue would owe $3,000 in B&O tax — regardless of profit.
Small Business Credit
Washington does offer a small business B&O tax credit that phases out as income increases. Businesses with annual gross income below about $125,000 may see a reduced or eliminated B&O tax burden through this credit.
How to Form a Washington LLC
- Choose your name. Must include "LLC" or "Limited Liability Company." Check availability through the Washington Secretary of State's Corporations & Charities Filing System.
- File a Certificate of Formation. File online. Fee: $200.
- Appoint a registered agent. Must have a Washington address.
- Get your EIN. Free from IRS.gov.
- Register for B&O tax. Register with the Washington Department of Revenue to obtain your UBI (Unified Business Identifier) number.
- Create an operating agreement. Not required but recommended.
Ongoing Requirements
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Start Free- Annual report: Due on your formation anniversary. Fee: $60.
- B&O tax: Filed monthly, quarterly, or annually depending on revenue level.
- City business licenses: Many Washington cities (Seattle, Tacoma, Bellevue) require separate business licenses and levy additional local B&O taxes.
The Seattle Factor
If your LLC is based in Seattle, you also owe Seattle's city B&O tax. For most businesses, the rate is approximately 0.415% on gross revenue. And yes, this is in addition to the state B&O tax. Other cities in King County have similar local taxes.
Should You Form in Washington?
If you live and work in Washington, absolutely. The lack of income tax is a genuine advantage, especially for high-income LLC owners. The B&O tax is an annoyance but is relatively low for most small businesses, and the small business credit helps.
If you are a service professional earning over $200,000, factor the B&O tax into your cost comparison. At 1.5% of gross revenue, it can be higher than the income tax you would pay in some other states — but for most business owners, Washington's overall tax burden is still below the national average.
Form your Washington LLC with Sedes for $29 plus the $200 state filing fee.
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