Washington Enacts B&O Tax Surcharge on Services and Increases B&O Tax Rate on Financial Institutions

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:

  • A 20% surcharge on select businesses primarily engaged in any combination of specified activities (see below). This creates a combined B&O tax rate of 1.8%.
  • A 33.33% surcharge on affiliated groups engaged in select advanced computing activities with worldwide gross revenue of more than $25 billion but less than $100 billion. This creates a combined B&O tax rate of 2%.
  • A 66.66% surcharge on affiliated groups engaged in select advanced computing activities with worldwide gross revenue of more than $100 billion. This creates a combined B&O tax rate of 2.5%.

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:

  • Advertising services
  • Architecture and engineering services
  • Aerospace manufacturing
  • Consulting services
  • Design services
  • Legal services
  • Information technology services
  • Insurance carriers
  • Financial services
  • Medical services (excluding hospitals)
  • Newspaper, magazine, and other media publishing
  • Software services
  • Software publishing
  • Scientific research
  • Retailing using non-store means
  • Telecommunications services

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)

Posted on December 13, 2019