Alert
State and Local Tax Changes for 2026: What Seattle Businesses Need to Know
A Seattle business and occupation (B&O) tax update, Proposition 2, was passed by voters in the November general election. The city B&O rate and threshold increases will take effect January 1, 2026.
What Changes with Proposition 2?
The Seattle B&O tax is a gross receipts tax imposed on the privilege of doing business in the city. The tax is measured by the value of products, gross proceeds of sales, or gross income derived in whole or in part from such business activities. The city B&O tax is not the same as the Washington state B&O tax and must be filed separately.
Proposition 2 will increase the B&O threshold along with B&O tax rates for tax periods beginning after January 1, 2026. The changes are as follows.
B&O Tax Threshold Increased from $100,000 to $2 million
Seattle businesses with less than $2 million won’t owe any B&O tax. Businesses with gross receipts over $2 million will only pay taxes on the receipts over the threshold, creating a new standard deduction of $2 million. This is an increase from the prior gross receipts threshold of $100,000, and the introduction of a standard deduction for city B&O tax.
B&O Tax Rate Increased Through 2032
The manufacturing, retail, and wholesale classifications B&O tax rate will increase from 0.222% of taxable gross receipts to 0.342% through 2029, with an option for the Seattle city council to extend through 2032. In 2033, the rate will reduce to 0.273%.
The transportation freight for hire and service and other classifications B&O tax rate will increase from 0.427% of taxable gross receipts to 0.658% through 2029, with an option for the Seattle city council to extend through 2032. In 2033, the rate will reduce to 0.526%.
Credits are available for some hospitals and health care centers to offset the B&O tax increase.
Who’s Affected by Proposition 2?
Approximately 90% of Seattle businesses that currently pay the B&O tax will see reduced taxes, and roughly 75% of Seattle B&O taxpayers will no longer owe the tax.
An estimated 2,300 businesses will see an increase in their B&O tax rate. Proposition 2 targets Seattle’s largest businesses and is forecasted to generate about $80 million annually.
Looking Forward
These changes to Seattle’s B&O tax become effective January 1, 2026. Manual filers will see the changes on tax forms starting February 1, and FileLocal users will see the changes by April 1.
We’re Here to Help
To learn more about Proposition 2 and how it could impact your business, contact your firm professional.