Form a company in Washington
No personal state income tax, and a business and occupation tax charged on gross receipts rather than profit, which catches out more first time owners than any other state rule.
Why founders choose Washington, and when they should not.
- Country
- United States
- Usual entity
- LLC or corporation
Washington has no personal state income tax, which is the headline that brings people here, and a business and occupation tax that is the detail that surprises them. The B and O tax is charged on gross receipts, at a rate that varies by business classification, with no deduction for the cost of what you sold.
For a software business with high margins that is a modest cost. For a reseller, a contractor or anyone moving goods at thin margins, a tax on revenue rather than profit behaves very differently from what an owner expects, and it is owed in years the business lost money.
None of that is a reason to avoid Washington if your business is here. It is a reason to model it before you set your prices rather than after.
Who Washington fits.
Washington usually suits
- Businesses with premises, staff or customers in Washington
- Owners who have relocated to Seattle or the wider Puget Sound area
- Technology and professional services businesses with healthy margins
- Anyone already operating here who needs the entity to match
Filing in Washington, step by step.
The sequence specific to Washington, including the parts that differ from other jurisdictions.
- Order matters
- Doing these out of sequence causes rework
- 1Name
Check availability with the Secretary of State and reserve if the filing is not immediate
- 2Agent
Appoint a registered agent with a physical Washington street address
- 3Certificate
File the Certificate of Formation with the Secretary of State, and file the initial report within the period the state allows after formation
- 4Business licence
Apply for the state business licence through the Department of Revenue, which is also how you register for the business and occupation tax
- 5Classification
Establish your B and O tax classification correctly at registration
Rates differ by activity and a business doing several things can fall into more than one.
What a Washington entity owes each year.
- Missing one
- How we track these
| Obligation | Who wants it | When and how much |
|---|---|---|
| Annual report | Secretary of State | Annually, on the formation anniversary |
| B and O tax | Department of Revenue | On gross receipts at a rate set by classification. Owed whether or not the business made a profit |
| City licences | Individual cities | Several cities, Seattle among them, levy their own licence and tax |
| Registered agent | Your agent | Annually |
Washington against Texas
- Honest comparison
- Including where another jurisdiction wins
Both states are chosen partly because there is no personal state income tax, and both replace it with a levy that is not an income tax and behaves nothing like one.
Texas taxes margin above a revenue threshold, and most small businesses fall below it and owe nothing while still filing a report. Washington taxes gross receipts with no threshold of that kind and no deduction for the cost of what you sold, so a small, low margin Washington business owes B and O tax in years it lost money.
For a high margin services business the difference is minor. For anyone reselling goods or subcontracting labour, it is the single most important number in the comparison, and it belongs in your pricing rather than in a surprise letter.
What people get wrong about Washington
No income tax does not mean no business tax
The business and occupation tax applies to gross receipts. A business with no profit can still owe it, which is the opposite of how owners expect a state tax to behave.
The rate depends on what you do
B and O classifications carry different rates, and a business with several activities can fall into more than one. Classifying yourself carelessly is a common and expensive shortcut.
City level taxes exist on top
Several Washington cities levy their own business taxes and licences. Seattle in particular has its own requirements separate from the state's.
Washington questions
What is the B and O tax?
Washington's business and occupation tax, charged on gross receipts at a rate set by your business classification. There is no deduction for cost of goods, so it is owed whether or not you made a profit.
Is Washington good for a non resident founder?
Rarely. The absence of personal income tax does not help someone who does not live here, and the B and O tax applies to activity in the state.
Do I need a city business licence too?
Often yes. Several cities require their own licence and levy their own tax on top of the state's.