Douglas Andersen, Tax Partner | Susan Rarick, Tax Partner | Elisa Reyes, Tax Partner | Juan Acevedo, Tax Manager

June 23, 2025

On May 20, 2025, Washington State enacted significant changes to their Business and Occupation (B&O) taxes by signing Engross Substitute House Bill 2081 (ESHB 2081) into law.

What is the Washington B&O Tax?

The Washington Business & Occupation (B&O) tax is a gross receipts tax levied on businesses operating in the state, in the absence of any corporate income or individual income taxes.

Tax is calculated on gross income and, depending on revenue, filing frequency will be either monthly, quarterly, or annually.

What are the major tax changes detailed within HB 2081?

1. B&O Tax Rate:
   1. Tax rates previously sitting at around .47%-.48% have been increased to 0.5% (extractors, manufacturers, retailers, wholesalers, among others)
   2. Tax rate on gambling (income generated by random chance activities) has increased from 1.5% to 1.8%
   3. Tax rate increased from 1.75% to 2.1% for services and other activities for businesses with gross aggregate income greater than or equal to $5,000,000
2. Surcharge on High Grossing Businesses
   1. In addition to other B&O taxes imposed, if your business makes more than $250,000,000 in a calendar year, you must pay a surcharge of 0.5% on all income over $250,000,000
   2. Exemptions to the surcharge includes but are not limited to:
      1. Manufacturing and sale of manufactured goods
      2. Farmers
      3. Grocery Sales
      4. Wholesale and Retail Sales of Petroleum and Motor Vehicle Fuel
3. Additional Tax on Financial Institutions
   1. Financial institutions with annual net income above $1 billion will pay a tax at a rate of 1.5%
4. Advanced Computing Surcharge
   1. Advanced computing firms will pay an increased surcharge of 7.5%, with an annual cap increasing from $9,000,000 to $75,000,000
5. Modified Rules/Clarifications for Investment Income Deductions
   1. Business organizations can no longer deduct investment income if it is non-incidental (greater than 5% of your worldwide income), unless the organization:
      1. Is a nonprofit organization
      2. Is a family investment vehicle
      3. Is a retirement account

When do these changes go into effect?

There are various effective dates for the different provisions within the bill, including:

• B&O Tax rate changes, effective January 1, 2027
  • Service rate change is effective October 1, 2025
• Surcharge on Big Business, effective January 1, 2026
• Additional Tax on Financial Institutions, effective October 1, 2025
• Advanced Computing Surcharge, effective January 1, 2026

Have questions or need guidance?

If you have any questions regarding the status of these proposed changes, please contact your HCVT state and local tax partners for assistance.