Key Takeaways

  • Washington LLCs are not subject to state income tax but may owe federal taxes and state-level business taxes.
  • LLCs must pay the Business & Occupation (B&O) tax, which is based on gross receipts rather than income.
  • Sales tax obligations depend on whether your LLC sells physical or digital products or certain services.
  • Employers in Washington must pay state unemployment insurance and workers' compensation.
  • Local city taxes may apply in addition to state taxes.
  • Tax classification flexibility at the federal level allows for sole proprietorship, partnership, S corp, or C corp status.

Starting a Washington State LLC

If you are considering filing a Washington LLC, you will want to be aware of the taxation that will occur in your business. To start a Washington LLC, you must file the Washington Articles of Organization with the Washington secretary of state. A Washington LLC can be started with one or more people. The members of the LLC are not required to be listed in the Articles of Organization.

A Washington state LLC will be taxed in several different ways:

  • Federal income tax
  • State business tax
  • State employer tax
  • Sales and use tax
  • Business and Occupation Tax.

Annual Report and Business License Requirements

In Washington, maintaining your LLC includes more than just managing taxes. You are also required to file an annual report with the Secretary of State. This report keeps your LLC in good standing and confirms details such as business address, registered agent, and members/managers.

Additionally, all Washington LLCs must obtain a state business license, also referred to as a Washington Unified Business Identifier (UBI). Most cities and counties also require local business licenses, depending on your industry and where you operate.

Key obligations include:

  • Annual Report Fee: $60, due by the end of the anniversary month of your LLC’s formation.
  • Business License: $90 for the initial license; annual renewal fees may apply.
  • Local Licensing: May be required depending on your jurisdiction.

Failure to comply can result in late fees, loss of good standing, and even administrative dissolution of the LLC.

Federal Income Tax

Sole proprietorships and single-member LLCs are treated the same under the tax code. In this case, the individual simply reports business profits on his or her individual 1040 tax return. Just like any other self-employment business, self-employment taxes are owed on the net income of a Washington LLC.

Many LLCs that consist of multiple members decide to file as a partnership, using IRS form 1065. In this case, the profits of the business are divided among the owners per the agreement. Each owner then reports his or her share of the profits on his or her individual 1040 tax form.

With any Washington LLC, profits are always taxed to the owners, whether or not the profit was actually distributed. If the profits went back into the business to pay expenses, the owners are still taxed on this money regardless.

An LLC can also choose to be taxed as a corporation by filling out IRS form 8832. This may be an option for those looking to avoid pass-through taxes. If this is elected, the federal government taxes the business as a C corporation.

State Business Tax

Washington state does not have a personal or corporate income tax, and it is one of the few states that does not. Because there is no income tax, most LLCs will not owe any state tax. This holds true both for LLCs that have elected to be taxed as a pass-through and LLCs that have elected to be taxed as a corporation.

State Employer Tax

State employer tax is only applicable for Washington state LLC businesses that have employees. The business will need to register to pay taxes for state unemployment insurance through Washington's Employment Security Department.

This is a simple enough tax to complete, and it can be completed online through the website of the state's Business Licensing Services or Form BLS-700-028. This tax requires that each quarter, the business pays UI (Unemployment Insurance) taxes and report wages paid out.

Workers’ Compensation and Other Employer Obligations

If your Washington LLC has employees, you’ll also need to comply with workers' compensation laws. You must register with the Washington State Department of Labor & Industries (L&I) to provide workers’ compensation insurance.

Other employer responsibilities include:

  • Workers’ Compensation Insurance: Mandatory coverage for almost all employees.
  • Paid Family and Medical Leave (PFML): LLCs must contribute to and report under Washington’s PFML program.
  • Minimum Wage and Overtime Rules: Washington’s minimum wage and labor regulations often exceed federal standards.

Compliance ensures you avoid fines and maintain a productive workforce.

Sales and Use Taxes

Sales and Use Taxes are applicable to any business that sells products in the state of Washington, and it requires the business to collect and pay sales taxes periodically.

To comply with this tax, the business will need to register online with the Department of Revenue, Business Licensing Services. You can also download a paper business license application. The tax returns will need to be filed periodically, such as quarterly or monthly.

In Washington, the current sales tax is 6.5 percent. Depending on the locale where your goods are sold, there may be extra taxes that the city, the special district, or the county adds. Washington is a designation-based state, and the sales tax is determined by the address to which the product is shipped, not necessarily where it is sold.

Digital Products and Marketplace Facilitators

Washington’s sales tax laws have evolved to cover more than just physical goods. Your LLC may be required to collect sales tax on:

  • Digital products: E-books, music, video streaming, and software.
  • Certain services: Telecommunications, repair services, and digital codes.
  • Marketplace facilitator sales: If you sell through platforms like Amazon or Etsy, these platforms may collect and remit sales tax on your behalf—but you are still responsible for proper registration and reporting.

The state uses a destination-based sourcing method, meaning sales tax is calculated based on the buyer's location, not the seller’s.

Registering for a sales tax permit and staying up to date with tax rate changes is crucial for LLCs involved in e-commerce or service delivery.

Business and Occupation Tax

Business and Occupation tax is a tax applied to any business operating in Washington state to pay for the privilege of operating a business in the state. Business and Occupation tax for a business is based on the classification of the business. Example classifications are:

  • Manufacturing
  • Wholesaling
  • Retailing.

Thirty-nine cities in Washington have a business and organization tax on top of the state tax.

Local Taxes and City B&O Taxes

In addition to state-level B&O tax, 39 cities in Washington impose their own B&O taxes. Cities such as Seattle, Tacoma, and Bellingham have their own rates and filing requirements.

Each city has different thresholds and rates. For example:

  • Seattle: Taxable threshold is $125,000; rates vary from 0.15% to 0.215%.
  • Tacoma: Applies to businesses earning over $250,000.
  • Bellingham: Uses classifications similar to the state’s B&O tax.

If your LLC operates or has a physical presence in these cities, you must:

  • Register for a city business license
  • File separate B&O tax returns
  • Track gross revenue by location to ensure accurate reporting

Check with each municipality to determine your obligations.

Business & Occupation Tax Classifications and Rates

Washington’s Business & Occupation (B&O) tax is based on gross receipts, not net income. This means businesses pay taxes even if they’re not profitable. The B&O tax is administered by the Washington State Department of Revenue.

B&O tax rates vary based on business activity:

  • Retailing: 0.471%
  • Wholesaling & Manufacturing: 0.484%
  • Service and Other Activities: 1.5%
  • Grocery Wholesaling: 0.138%

You must register with the Department of Revenue and file tax returns either monthly, quarterly, or annually based on your reported revenue.

Certain deductions and credits may apply, such as:

  • Bad debt deduction
  • Small business credit
  • Multiple activities tax credit (MATC)

Proper classification is essential to avoid overpaying or underreporting your B&O taxes.

Frequently Asked Questions

1. Do Washington LLCs pay income tax to the state? No. Washington does not have a personal or corporate income tax, so LLCs do not pay income tax at the state level.

2. What is the Washington state LLC tax rate? There is no flat LLC income tax, but Washington imposes a Business & Occupation (B&O) tax on gross receipts. Rates vary by business activity, ranging from 0.138% to 1.5%.

3. Do I need to file a federal tax return for my Washington LLC? Yes. LLCs must file a federal tax return, with the form depending on how the LLC is taxed (e.g., sole proprietorship, partnership, or corporation).

4. Are there any local taxes I should be aware of? Yes. Some Washington cities impose their own B&O taxes in addition to the state tax. Businesses operating in those cities must register and file accordingly.

5. What if I sell digital products or use marketplaces? You may be required to collect and remit sales tax for digital products and services. If selling through a marketplace facilitator, they may collect tax, but you're still responsible for compliance.

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