Will Your B&O Taxes Jump in January?
Companies doing business in the Evergreen State may see a big bump in Business and Occupation (B&O) taxes this January and next.
“State lawmakers passed the single largest tax increase in Washington state’s history,” says the Association of Washington Business (AWB). “House Bill 2081 makes sweeping changes to the state’s Business & Occupation (B&O) tax system — and those changes are coming fast.”
Part of the state’s estimated $4 billion business tax increase signed into law last May, House Bill 2081 affects nearly every entity doing business in Washington, especially those in the service industry or with high gross revenues, according to AWB. While most B&O tax hikes begin at the start of 2027, businesses making more than $250 million a year in taxable income see a 0.5% surcharge starting Jan. 1, 2026 – on top of regular B&O tax – that lasts until the end of 2029.
With 119 years of combined experience
the CPRS Tax Team brings unmatched expertise to Washington B&O, sales, and use tax challenges.
A Significant Tax Increase
According to the Tax Audit and Tax Defense experts at CPRS, this could be a 5 to 6-figure tax increase occurring overnight. “If you’re a large retailer making $250 million in revenue from sales to Washington, this could be a $10,000 tax jump for every $2 million of revenue over the surcharge threshold,” said Joe Parker, CPRS Senior Tax Manager. “And this could just be one of several new taxes that your business is exposed to with sales and even expenses sourced to Washington.”
This surcharge on high grossing businesses is a new tax on the gross receipts of the business without any deductions for expenses, Parker added. “For retailers – who already pay a 0.5% B&O tax – the surcharge effectively doubles that tax on Washington income over $250 million.”
5 Steps to Reduce Tax Liability
With 119 years of state Department of Revenue experience in-house, CPRS is the expert for sales, use, and B&O tax Audit Representation and Audit Defense services. The CPRS Tax Team serves some of the world’s largest corporations, including many in its home state of Washington. “Because Washington is a gross-receipts tax state, businesses have to pay the tax whether they’re making or losing money,” Parker said. “This also means the new .5% surcharge is straight off your bottom line.”
Parker recommends companies doing business in Washington take proactive and reactive steps to protect their income, including:
- Evaluate. Evaluate the methodology used to attribute service revenue to ensure taxable revenue is not being overreported in Washington. “Only income attributed to Washington gets taxed,” Parker adds, “so the complex calculations related to apportionment will likely need to be reworked.”
- Analyze. Analyze the workflow of invoice sourcing to reporting to verify that only Washington sales are subject to the surcharge.
- Review. Review customer and product sales for deductions or exemptions to exclude from the taxable amount. “Make sure there’s not an exemption that applies to B&O tax. For example, inter-state sales are the biggest exemption, but you also may have bad debts, returns and discounts that could reduce taxable revenue.”
- Reconcile. Reconcile your business activities to identify ways to reduce the amount subject to B&O tax. “Apportionment, sourcing sales, reporting business activities under the correct tax classification, and exemptions and deductions are the areas that likely need to be reconciled,” recommends Parker.
- Audit. With so many new taxes, businesses should consider adding a Reverse Sales & Use Tax Audit or an AP Recovery Audit to their 2026 financial plans to help offset the new Washington taxes.
New Surcharge on Big Businesses (Effective Jan. 1, 2026)
- If your business makes more than $250 million a year in taxable income, a 0.5% surcharge applies—on top of regular B&O tax.
- Expires end of 2029.
- Does include exemptions:
- Specified financial institutions.
- Manufacturing and the sale of manufactured goods by a manufacturer.
- Farmers or apiarists.
- Sales of food, food ingredients, food stamp purchases, and prescription drugs.
- Wholesale and retail petroleum product sales by a business located outside of Washington when an affiliated processor-for-hire processed the petroleum.
- Select advanced computing businesses subject to the advanced computing B&O surcharge.
- Retail and wholesale sales of motor vehicle fuel.
- Amounts reported under any of the timber products tax classifications.
Reverse Sales & Use Tax Audits are backward-looking audits uncovering overpayments and securing meaningful, defensible recoveries. Reverse Sales & Use Tax Audits take full advantage of every exemption and exclusion available.
AP Recovery Audits dig deep to uncover systemic errors and recover lost profits that traditional ERP systems often miss. CPRS facilitates efficient, AI-enhanced audit testing that provides detailed client reporting, metrics, and data security in a unified private cloud environment.
CPRS recovers billions in overpaid taxes, unrecovered incentives, and lost profits for the world’s largest companies while protecting vendor and government relationships at the national, state, and local levels. Don’t wait for government tax increases to impact your bottom line. Contact CPRS today.
B&O Rate Hikes (effective January 1, 2027)
- Most B&O tax rates that were around 0.47%–0.48% are bumped up to 0.5% (e.g., manufacturing, wholesaling, retailing).
- The service and other activities rate increases to 2.1% for businesses or affiliates with over $5 million in service income (started October 1, 2025).
- Gambling tax jumps to 1.8%.
* According to Association of Washington Business, June 2025
