Effective January 1, 2020, Washington will impose a three-tiered Business & Occupation (B&O) tax surcharge (called the Workforce Education Investment Surcharge) on the amount of tax payable under the Services and Other Activities B&O tax classification by businesses primarily engaged in one or more specified services. The surcharge is in addition to the Services and Other Activities B&O tax rate of 1.5%. The three tiers are as follows:
In-state and out-of-state businesses that are primarily engaged in one or more of the 43 specified business activities should report the surcharge on their excise tax return. “Primarily engaged” means that more than 50% of gross income is generated from one or more of these activities in the current or preceding calendar year. The 43 specified business activities, include, but are not limited to:
Advanced computing businesses should report the advanced computing surcharges quarterly, separately from other excise taxes. For more information on the Workforce Education Investment Surcharge, visit the Washington DOR webpage.
Also, effective January 1, 2020, an additional 1.2% B&O tax is imposed on the income of specified financial institutions that are subject to service and other activities B&O tax. This tax is imposed in addition to any other taxes on specified financial institutions. A “specified financial institution” is a financial institution that is a member of a consolidated financial institution group that reported an annual net income of at least $1 billion on its consolidated financial statement for the previous calendar year, not including net income attributable to noncontrolling interests. (Special Notice, Washington Department of Revenue, October 18, 2019; Special Notice, Washington Department of Revenue, November 7, 2019; Workforce Education Investment Surcharge webpage, Washington Dept. of Revenue website)
UPDATE: The Washington Department of Revenue has announced that implementation of the Workforce Education Investment Surcharge is being delayed until further notice due to pending legislation. Affected businesses should note that the surcharge line will not appear on the January 2020 excise tax return. The Department of Revenue will post updates on their webpage as more information becomes available. (Workforce Education Investment Surcharge webpage, Washington Dept. of Revenue website)
UPDATE: Washington has created an additional B&O tax rate under the Service and Other Activities classification to fund Workforce Education. Effective April 1, 2020, the B&O tax will be imposed at two separate rates under the Service and Other Activities classification. If a taxpayer had taxable income of $1 million or more in the prior calendar year, they will be subject to a 1.75% B&O tax rate. If a taxpayer had taxable income of less than $1 million in the prior calendar year, they remain subject to the 1.5% B&O tax rate. If a taxpayer is a member of an affiliated group, the taxable income includes taxable income subject to the Service and Other Activities classification for all affiliated group members. The Service and Other Activities classification will have two separate lines on the tax return to reflect the different tax rates. For more information, visit our news item.