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Manufacturing dairy products

Manufacturing

Businesses that manufacture or process for hire dairy products must report gross income from this activity under the Manufacturing Dairy Products business and occupation (B&O) tax classification. They may then take a deduction for the full amount under *Exempt Manufactured Products.

Note: This deduction expires July 1, 2035 . The activity will then be subject to a reduced B&O tax rate.

Selling

Manufacturers of dairy products must also report their sales under the Wholesaling or Retailing B&O tax classification. However, they may then take a B&O tax deduction for the following sales of dairy products they manufacture:

*: These deductions expire July 1, 2035. The activities will then be subject to a reduced B&O tax rate.

**: This deduction expires July 1, 2025. These sales will then be subject to the standard Wholesaling B&O tax.

Retail sales of dairy products must also be reported under the Retail Sales tax classification. However, dairy products are generally exempt from sales tax in Washington and can be deducted as Exempt Food Sales.

Cannabis is not a dairy product. Cannabis-infused products, including cannabis concentrates, are not dairy products. This means the processing of cannabis-infused products that contain dairy ingredients do not qualify for this B&O tax exemption or the reduced rate effective July 1, 2035.

Multiple Activities Tax Credit (MATC)

Businesses that perform more than one taxable activity for the same product will report each activity under the proper classification and then take the MATC so that B&O tax is only paid once.

Note: You may not claim the MATC if your manufacturing activity is exempt from B&O tax.

For more information, please see the MATC section of this guide.

Litter tax

Manufacturers of dairy products must report litter tax on products manufactured or sold (wholesale and retail) in Washington.

Reporting/documentation requirements

Businesses that claim any of the starred (*) deductions above must file an Annual Tax Performance Report by May 31 of each year following a year when they claim the deduction. This requirement will also apply to the reduced B&O tax rates that take effect after the deductions expire.

Businesses that sell dairy products to customers who will take the products out of state or customers who will use the products to make other dairy products must keep documentation to support those deductions. Generally, a letter from the customer stating their intent is enough.

Definitions

Dairy products are:

  • Products, not including any cannabis-infused product, that as of Sep. 20, 2001, are identified in 21 C.F.R., chapter 1, parts 131, 133, and 135, including by-products from the manufacturing of the dairy products, such as whey and casein.
  • Products comprised of not less than 70% dairy products that qualify under (A), measured by weight or volume.

Additional resources

Food manufacturing industry incentives

References