Governor Signed 2017–2019 Washington State Operating Budget and Compromise Legislation

On June 30, 2017, Governor Jay Inslee signed the 2017–2019 Washington State operating budget and several other bills that are part of the operating budget compromise.

One of these bills is House Bill (HB) 2163, which imposes economic nexus for business and occupation (B&O) tax purposes on certain taxpayers engaged in retailing activity. It also creates notice and reporting requirements for certain remote sellers, referrers, and marketplace facilitators that don’t collect or remit sales tax. HB 2163 eliminates the sales and use tax exemption for bottled water and narrows the use tax exemption for self-produced fuel.

Another part of the budget compromise, HB 2242, funds the state’s basic education program by establishing a new state property tax for common schools.

Economic Nexus Expansion

Effective on July 1, 2017, HB 2163 extends economic nexus for B&O tax purposes to taxpayers engaged in retailing activity if the taxpayer meets one of the following criteria:

  • More than $267,000 in receipts are from Washington
  • At least 25% of total property, payroll, or total receipts are in Washington during the current or immediately preceding calendar year

Previously, taxpayers engaged in retailing activity were only considered to have nexus for B&O tax purposes if they had a physical presence in Washington, also known as physical nexus. With HB 2163, retailing activities are now subject to the same economic nexus thresholds, known as economic nexus, as apportionable and wholesaling activities.

This means taxpayers engaged in retailing, apportionable, or wholesaling activities that meet economic thresholds now have nexus with Washington for B&O tax purposes—whether or not they have a physical presence in the state.

Sales and Use Tax Collection Obligations

Effective on January 1, 2018, HB 2163 expands upon the click-through nexus standard for certain remote sellers adopted in Washington in 2015. The bill requires certain remote sellers, referrers, and marketplace facilitators to either collect and remit sales or use tax or to comply with specified notice and reporting requirements.

Sales and Use Tax Collection

Remote sellers and marketplace facilitators that have gross receipts sourced to Washington of at least $10,000, and referrers who during the current or previous calendar year received at least $267,000 of gross business income from referral services sourced to Washington are subject to the new legislation. 

Notice Requirements

Remote sellers, referrers, and marketplace facilitators are required to post conspicuous notices on their websites and invoices that include a statement for Washington consumers that includes the following:

  • Sales or use tax is due on certain purchases
  • A purchaser may have to file a use tax return with the Washington State Department of Revenue (DOR)

Reporting Requirements

Remote sellers and marketplace facilitators must provide an annual report to each Washington purchaser from which the seller didn’t collect sales or use tax that details the purchaser's transactions in the previous year.

Referrers must provide an annual report to each marketplace seller to which the referrer transferred a potential purchaser located in Washington during the previous year.

Remote sellers, marketplace facilitators, and referrers must all file annual reports with the DOR as well.

State Property Tax Changes

Effective on October 19, 2017, HB 2242 establishes an additional state property tax meant to increase public school funding. The bill also creates a school-district levy-lid cap that effectively limits the amount a school district can collect in local property taxes.

As a result of this legislation, property taxes will fluctuate in school districts across the state—increasing or decreasing depending on a number of variables, including property values.

General Manufacturing B&O Tax Revision

On July 7, 2017, the governor vetoed one of the budget compromise bills, Senate Bill 5977, which would have reduced the general manufacturing B&O tax rate and lowered the processing-for-hire rate from 0.484% to 0.2904% over four years. 

We're Here to Help

Whether you’re based in Washington or based in another state and have operations or activities in Washington, we can help you understand how your business may be impacted by the new legislation and manage your state tax liabilities. For more information, reach out to your Moss Adams professional or contact us at

Contact Us with Questions

Enter security code:
 Security code