Washington (state)
Taxes and business formation • USA 2025–2026
LLC in Washington (state)
Corporation in Washington (state)
Tax system of Washington (state)
Income Tax
A key feature of Washington State's tax system is the complete absence of a state-level personal income tax. This makes Washington one of the few states where individuals are not required to pay income tax, regardless of the amount. This approach significantly reduces the tax burden for residents and is especially beneficial for entrepreneurs earning income through pass-through structures such as LLCs or S-corporations. However, despite the absence of an individual income tax, the state levies other types of taxes that make up for this revenue in the budget.
Sales Tax
The base sales tax rate in the state is 6.5%, and counties and cities have the right to impose additional local taxes. Depending on the jurisdiction, the total rate can reach 10.5%, especially in large cities such as Seattle. The tax applies to the sale of most goods and a wide range of services, including short-term rentals, digital products, delivery services, and certain construction and professional services. Our firm provides professional assistance in obtaining a Sales Tax Certificate and preparing the Sales and Use Tax Return.
Property Tax
Property tax rates in Washington vary by county and municipality, but on average they are about 0.84% of assessed real estate value. This is lower than in many other states, such as New Jersey or Illinois, and makes homeownership relatively affordable. An important feature is that assessments are done on an annual basis, and owners have the right to contest them if necessary. Property tax benefits are available for seniors, people with disabilities, and veterans.
Business Taxes
Washington State does not levy a Corporate Income Tax; however, businesses are subject to a tax on gross income — the Business & Occupation Tax (B&O Tax). This tax is calculated not on profit but on total revenue, which makes it especially sensitive for companies with high revenue and low margins. B&O rates depend on the type of business and range from 0.13% to 1.5% — for example, the rate for retail trade is 0.471%, and for services it is 1.5%. Some types of business are also subject to additional industry-specific taxes and licensing fees. All companies doing business in WA are required to file an Annual Report with the Secretary of State's office to maintain their legal status and keep their information up to date. If you have difficulty filing the Annual Report, our firm provides services for preparing and filing this report.
Excise Taxes
Washington State levies excise taxes on a number of categories of goods, including fuel, alcohol, tobacco products, electronic cigarettes, and the sale of marijuana (legalized in the state). In addition, there are taxes on car rentals, gambling, and communication services. Regulation of these areas requires licensing and strict compliance with standards.
Favorable Tax Conditions
Washington's main advantage is the absence of personal income tax and corporate income tax, which is especially beneficial for sole proprietors, owners of small and medium-sized businesses, and investors. At the same time, the low property tax rate makes the state attractive for purchasing residential and commercial real estate. Small businesses can take advantage of exemptions from the B&O Tax when revenue is below a certain threshold (for example, $125,000), as well as the option to use simplified reporting forms. This allows new companies to reduce their tax burden in their first years of operation.
Compared to Other States
Compared with other states, Washington's tax system has a number of unique features. Unlike California, New York, and New Jersey, there is no personal income tax, making the state attractive to high-earning individuals. There is also no corporate income tax, unlike in most states, including South and North Carolina. However, the tax burden is shifted toward the B&O Tax, which applies to all revenue regardless of a business's profitability, which requires particular attention to the structure of revenue. Sales tax in Washington is one of the highest in the country, especially in major cities. Unlike Florida, rentals of commercial real estate are not subject to sales tax, which is a plus for tenants of offices, warehouses, and production facilities. The state also levies a tax on tangible personal property used in business if it is not included in the real estate assessment. Businesses are required to keep records of their assets and file the corresponding reports.
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