Business and Occupation Tax.

Washington's major business tax is the business and occupation (B&O) 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.

A taxpayer may have more than one B&O tax rate, depending on the types of activities conducted.  Major B&O tax rates are 0.471 percent for retailing; 0.484 percent for manufacturing and wholesaling; and 1.5 percent (businesses with taxable income of less than $1 million) or 1.75 percent (businesses with taxable income of $1 million or more) for services and for activities not classified elsewhere.  There are many specialized B&O tax rates and preferential rates that apply to specific business activities.

In addition, a taxpayer may be eligible to utilize other tax preferences, including credits and deductions, to reduce their tax liability.  For example, a taxpayer engaging in activities subject to different B&O tax rates may be eligible for a Multiple Activities Tax Credit.  A taxpayer may also be eligible for a small business credit that will either eliminate or reduce their B&O tax liability.  The credit is $160 per month for taxpayers that report at least 50 percent or greater of their total B&O taxable amount under service and other activities, real estate brokers, and contests of chance and $55 per month for all other businesses, multiplied by the number of months in the reporting period.  The amount of the credit available phases out based on the business's gross receipts.

A business does not have to file an annual B&O tax return if the business does not owe other taxes or fees to the Department of Revenue and has annual gross proceeds of sales, gross income, or value of products for all B&O tax classifications of less than $125,000 per year.

Rental of Real Estate.

The rental of individual self-service storage space at self-storage facilities is considered a rental of real property and is exempt from B&O tax when customers have direct access to individual storage units and the space is rented for 30 days or longer.  The customers are not charged retail sales and use tax on the amount of their rent.

Beginning January 1, 2026, the rental or lease of individual self-service storage space at self-storage facilities, regardless of duration, is defined in statute as a retail sale.  The definition change subjects the gross receipts of the self-storage space rentals to the retailing B&O tax classification at a rate of 0.471 percent and subjects the rental by the consumer to retail sales and use taxes. 

The legislature intends for the revenue generated from this bill to be appropriated by agencies and programs that will direct the revenue toward the establishment and preservation of cooperatively owned manufactured home communities and programs to support and maintain affordable housing.