Tax leaders should quantify exposure, validate sourcing and classifications, and identify defensible recovery opportunities before the new rates take effect.
Businesses in multiple categories – from highway contractors to salmon canners, manufacturers, wholesalers and retailers, even atomic waste clean-up companies – are seeing their primary Washington state tax rate rise to a flat 0.5% on Jan. 1, 2027. House Bill 2081 was passed into law in 2025, increasing the state’s Business and Occupation tax (B&O tax) and affecting a majority of the state’s business classifications.
Large companies looking to reduce the impact of these increased taxes should quantify their exposure, validate sourcing and apportionment, and identify defensible recovery opportunities as quickly as possible.
Large-Enterprise Exposure
“For a business with over $250 million a year in gross receipts in Washington, the new B&O tax rate could be a material annual tax increase,” said Joe Parker, Senior Tax Manager at CPRS. “And that’s just in B&O taxes, which must be paid by the individual or business that conducts business in Washington. Businesses also cannot deduct expenses such as labor, materials, or taxes.” The Washington Department of Revenue notes that the B&O tax is a gross receipts tax in Washington state.
Tax Impact on $250M/yr Gross Receipts:
- Manufacturing/Wholesale: 0.484% to 0.5% = $1.25M (+$40,000)
- Retailing: 0.471% to 0.5% = $1.25M (+$72,500)
The new B&O tax rate is part of an estimated $4 billion tax increase the state signed into law in 2025. The Association of Washington Business called it “the single largest tax increase in Washington state’s history.” The biggest companies in the Evergreen State – those making more than $250 million a year in taxable income – were hit last January with a 0.5% surcharge, on top of existing B&O taxes. Rates also increased to 2.1% for many services businesses.
B&O taxes are Washington’s major business tax. The B&O tax is imposed on the gross receipts of business activities conducted within the state, without any deduction for the costs of doing business. Businesses must pay the B&O tax even though they may not have any profits or may be operating at a loss.
3 Steps to Reduce tax liability
- Step 1: Quantify Exposure. Because there are many specialized B&O tax rates and preferential rates that apply to specific business activities, companies need to carefully quantify their exposure by entity and classification.
- Step 2: Validate Sourcing, Apportionment, Deductions, and Exemptions. Evaluate the methodology used to attribute customer and product sales revenue to ensure taxable revenue is not being overreported in Washington. Sourcing and apportionment rules are highly complex. Deductions and exemptions vary by business category.
- Step 3: Pursue Overpayments. Conduct a Reverse Sales & Use Tax Audit. These are backward-looking audits uncovering overpayments and securing meaningful, defensible recoveries, taking full advantage of every exemption and exclusion available. With constantly changing state and local excise tax regulations that vary across regions, complex and frequently revised rules can increase overpayment risk. Reverse audits by CPRS address these risks by leveraging 119 years of state Department of Revenue experience on its Tax Team, conducting AI-powered reviews, and using creative data mining strategies to deliver millions of dollars in tax recoveries for clients.
- Step 1: Quantify Exposure. Because there are many specialized B&O tax rates and preferential rates that apply to specific business activities, companies need to carefully quantify their exposure by entity and classification.
In addition to conducting a Reverse Sales and Use Tax Audit, companies can recover lost profits and increase financial controls through an Accounts Payable (AP) Recovery Audit. These audits sit at the intersection of accounting, operations, vendor management and data integrity. When they are done well, AP Recovery Audits reveal hidden inconsistencies, expose systemic gaps, return lost dollars to the balance sheet, and sharpen the internal controls that keep organizations financially healthy. CPRS provides AP Recovery Audits to the world’s largest companies, digging deep to uncover systemic errors and recovering lost profits that traditional ERP systems often miss.
“Stay ahead of Washington’s tax increases,” Parker suggests. “Contact CPRS to conduct a quantified exposure and recovery assessment as soon as possible.” *
* This article provides general information and is not intended to provide tax or legal advice.
