Alert
Washington B&O Tax Reconciliations of Apportionable Income
This article was updated on August 16, 2024.
Businesses that are subject to the Washington State business and occupation (B&O) tax and reported apportionable income—royalties or services and other activities, for example—in 2023 are required to submit an Annual Reconciliation of Apportionable Income by October 31, 2024. Extensions may be requested by contacting the Department of Revenue prior to the filing deadline. Late filing fees may apply.
Conducting Business in Washington
The state of Washington applies an economic-nexus standard rather than a physical-presence nexus standard to certain activities. This means an out-of-state business without any physical presence in Washington may in fact be doing business in Washington and is required to file the annual reconciliation, in addition to filing Washington combined excise tax returns.
Calculating Apportionable Revenue
In general, businesses with apportionable income attribute their receipts within and outside of Washington based on where the customer receives the benefit of the service, using a receipts-factor formula. In this case, the numerator is Washington annual apportionable revenue, and the denominator is worldwide annual apportionable revenue less what’s known as annual throw-out receipts.
Since many taxpayers are required to file monthly or quarterly tax returns, the state allows them to estimate current taxable income using a prior-year annual-receipts factor.
Consequently, taxpayers are required to reconcile the actual-receipts factor to determine any refund or incremental tax due on account of reconciliation. The annual reconciliation must be filed regardless of whether the calculation results in an adjustment of tax reported and paid during 2023.
Apportionable Income
Taxpayers with apportionable income include, but aren’t limited to, those filing under the following B&O tax activities and operations:
- Services and other activities
- Royalties
- Travel agents and tour operators
- International business activities, including steamship agent, customs house broker, freight forwarder, vessel or cargo charter broker in foreign commerce, and air cargo agent
- Stevedoring and associated activities
- Disposing of low-level waste
- Insurance producers, title insurance agents, or surplus line brokers
- Public or not-for-profit hospitals
- Real estate brokers
- R&D performed by not-for-profit corporations or associations
- Inspecting, testing, labeling, and storing canned salmon owned by another person
- Representing and performing services for fire or casualty insurance companies as an independent resident
- Contests of chance
- Horse races
- International investment management
- Aerospace product development
- Printing or publishing a newspaper, but only with respect to advertising income
- Printing materials other than newspapers, publishing periodicals, or magazines, but only with respect to advertising income
- Select activities involving cleaning up radioactive waste and other byproducts of weapons production and nuclear R&D
Filing Deadlines and Forms
The annual reconciliation must be submitted by October 31, 2024. This can be done either through the taxpayer’s Department of Revenue MyDOR account.
Interest and Penalties
It’s important to note that interest may apply in a manner consistent with tax assessments on underpayment of tax calculated on the annual reconciliation.
Although late filing of the annual reconciliation in Washington State can result in penalties ranging from 9% to 29%, penalties won’t apply to any additional tax that may be due on account of the reconciliation if the reconciliation is filed by October 31, 2024, for the 2023 calendar year. Extensions may be requested by contacting the Department of Revenue prior to the due date.
We’re Here to Help
If you have questions about your B&O tax returns or determining nexus in the state of Washington, please contact your Moss Adams professional.