Washington S‑Corporations: State Tax and Federal Rules

Washington does not impose an individual or corporate income tax. Instead, businesses are taxed through Washington’s gross receipts Business & Occupation (B&O) tax and are responsible for collecting and remitting retail sales/use tax on taxable sales. S‑corporation owners must register with the Department of Revenue (DOR), file and pay state excise taxes, follow sourcing and marketplace rules for sales tax, and meet employer requirements (such as unemployment insurance coverage) to operate in Washington (no state income tax; B&O applies) Business & occupation tax, Retail sales tax.

Entity formation and tax posture

• No income tax: Washington has no individual or corporate income tax; instead, Washington taxes business activity through the B&O tax and retail sales/use tax (not an income tax regime) Business & occupation tax, Retail sales tax.

• Choosing and registering an entity: Corporations are formed with the Washington Secretary of State, then apply for a DOR business license. Registration is required if you plan to hire employees, sell taxable products or services, have $12,000+ gross income, or meet nexus/endorsement thresholds Apply for a business license.

• Business licensing workflow: The DOR’s Business License Application includes ownership structure, endorsements, and employer information. Applications can be filed online through My DOR, with typical processing timelines and fees described by DOR Apply for a business license, Business License Application (form).

Business & Occupation (B&O) tax

• Gross receipts tax and classifications: The B&O tax is measured on the value of products, gross proceeds of sales, or gross income of the business. Rates vary by classification (e.g., retailing, wholesaling, service and other activities). There are no deductions for labor, materials, or other costs of doing business, although specific credits and deductions may apply Business & occupation tax.

• Credits and deductions: DOR’s B&O page highlights credits such as the Small Business B&O Tax Credit and the Multiple Activities Tax Credit and explains how to report credits on your excise tax return Business & occupation tax.

• Local B&O taxes: Some cities levy a local B&O tax in addition to the state B&O tax; check applicable municipal rules and apportionment requirements (DOR provides a link to local B&O tax rates) Business & occupation tax.

Retail sales and use tax

• Taxability and exemptions: Retail sales tax applies to taxable sales; use tax applies when sales tax is not collected at purchase. DOR’s exemption list links to RCWs and includes categories such as interstate sales and numerous industry‑specific exemptions Retail sales and use tax exemptions.

• Sales tax tools and sourcing: DOR provides online tools to determine sales/use tax rates and location codes for sourcing. Generally, sales are sourced to where the buyer receives the goods/services Retail sales tax.

• Marketplace sellers and facilitators: Marketplace facilitators are generally responsible for collecting/remitting retail sales tax on facilitated sales, but sellers still file their excise tax returns (for B&O and other applicable taxes). DOR provides information about marketplace rules and compliance (see Marketplace Fairness program overview) Retail sales tax—Marketplace fairness, and deductions related to facilitated sales are reflected in DOR’s deductions page (e.g., “Gross Sales Tax Collected by Facilitator”) Deductions.

Nexus and registration thresholds

• Nexus and registration triggers: You must register if you sell taxable goods/services in Washington, plan to hire employees, expect $12,000+ in gross income, or otherwise meet nexus thresholds or need state or local endorsements. DOR’s licensing page outlines triggers and the Business Licensing Wizard provides a tailored checklist Apply for a business license.

• General tax help and resources: DOR’s home page provides access to tax rate lookup, licensing, and other tools relevant to sourcing and registration Washington Department of Revenue—Home.

Employer requirements (state endorsements)

• Unemployment insurance (UI): If you employ one or more persons, UI coverage is generally required. You can add the UI state endorsement during the DOR licensing process; the Business License Application collects employer details and sets up accounts with the Employment Security Department as needed Business License Application (form), Apply for a business license.

Local taxes and endorsements

• City/county endorsements: Many cities and counties require separate business endorsements (licenses) in addition to state registration. DOR’s licensing page explains when endorsements are needed and how they affect processing timelines and fees Apply for a business license.

• Local B&O reminders: In addition to the state B&O tax, some cities impose their own B&O—check local requirements and any apportionment rules that may apply Business & occupation tax.

Service providers: changes effective October 1, 2025

• Newly taxable services: Engrossed Substitute Senate Bill 5814 (ESSB 5814) expanded the retail sales tax base to include certain services starting October 1, 2025 (e.g., advertising services, specified IT services, custom website development, live presentations, investigation/security/armored car services, temporary staffing, custom software services). DOR provides detailed inclusions/exclusions and interim guidance for each service category Services newly subject to retail sales tax, Retail sales tax (effective date summary).

Practical compliance steps for S‑corp owners in Washington

• Form your corporation with the Washington Secretary of State (if applicable), then apply for the DOR business license and any required city/county endorsements. Registration is required when you sell taxable goods/services, plan to hire employees, exceed $12,000 gross income, or meet nexus thresholds Apply for a business license.

• Set up your excise tax account to report B&O and retail sales/use tax. Use DOR’s online rate and location tools for proper sales tax sourcing, and track applicable exemptions/deductions (e.g., interstate sales; see DOR’s exemptions list and deduction categories) Retail sales and use tax exemptions, Deductions, Retail sales tax.

• If you sell through a marketplace facilitator, retain evidence that the facilitator collects/remits sales tax for you. You must still file your own excise tax return for B&O and claim the appropriate facilitated sales deduction as instructed Retail sales tax—Marketplace fairness, Deductions.

• Evaluate your B&O classification(s) and available credits (e.g., Small Business B&O Tax Credit, Multiple Activities Tax Credit). File returns and report credits as directed by DOR’s B&O guidance Business & occupation tax.

• Confirm employer obligations and set up unemployment insurance through the DOR licensing process (UI endorsement), coordinating with the Employment Security Department as needed Business License Application (form), Apply for a business license.

• Monitor the October 1, 2025 changes for service providers and begin charging retail sales tax for newly taxable services on and after that date. DOR provides service‑specific descriptions and interim guidance Services newly subject to retail sales tax.

Key Washington‑specific takeaways

• Washington has no individual or corporate income tax; S‑corp owners encounter the gross receipts B&O tax and must collect/remit retail sales/use tax on taxable sales Business & occupation tax, Retail sales tax.

• Registration, filing, and payment requirements apply once you meet nexus or income thresholds; city/county endorsements may also be required to operate legally Apply for a business license.

• Marketplace facilitators can collect sales tax for your sales, but you remain responsible for filing your excise tax return and reporting B&O; facilitated sales deductions and sourcing rules apply Retail sales tax—Marketplace fairness, Deductions.

• Employers must comply with unemployment insurance rules via DOR’s licensing/endorsement process Business License Application (form), Apply for a business license.

• Effective October 1, 2025, certain services become taxable for retail sales tax purposes; service‑based S‑corps should update invoices and collection practices accordingly Services newly subject to retail sales tax, Retail sales tax.

This essay is not tax advice. Always consult a qualified tax professional for your specific situation.