Business and occupation (B&O) tax

Restaurants and similar type businesses are responsible for paying a variety of taxes based upon the activities they conduct. The most common of these taxes include: business and occupation (B&O) tax; Retail Sales Tax, & Use Tax. A brief description of each tax follows.

B&O tax classifications

The most common B&O tax reporting classifications for restaurants and similar businesses include: retailing, wholesaling, and service and other activities.

Retailing: Gross income from sales to consumers of prepared food, soft drinks, cigarettes, and items of tangible personal property.

Wholesaling: Gross income from sales of any taxable item to persons other than consumers. For example, sales of prepared food to a nonprofit organization that is reselling the food as part of a fund raising activity.

Note: To document a wholesale sale, the seller must obtain a reseller permit from the buyer.

Service and other activities: Gross income from “other” sources including: compensation or commissions received for allowing placement of coin-operated machines on the premises (coin-operated telephones, ATM machines, cigarette machines, candy machines, etc.), corkage fees, and allowing patrons access to the Internet. (See Other Types of Income section.)

Gambling Contests of Chance: Gross income from sales of pull-tabs, punchboard, and bingo games. (See Games, gambling and similar income.)

There are two B&O tax classifications that apply to income received from operating contests of chance:

• Gambling Contests of Chance (less than $50,000 a year) – rate 1.5%.
• Gambling Contests of Chance ($50,000 a year or greater) – rate 1.7% through June 30, 2024, and 1.76% thereafter.

Note: Washington cities may also impose a B&O tax. The Department of Revenue does not administer the B&O tax imposed by cities.

B&O tax exemptions and deductions

The law allows an exemption or deduction from the measure of the B&O tax for the following:

• Interstate sales: Prepared food delivered to customers outside the state. For example, pizza.
• Bad debts or dishonored checks: The net amount (before tax) of a dishonored check may be deducted to the extent it was taken as payment for goods or services and was included in amounts previously reported. A deduction may be taken when the debt is actually charged off the books of account.
  Note: Any amounts subsequently recovered must be included in gross income and reported.

B&O tax credit for syrup tax paid

Retailers that pay syrup tax when buying carbonated beverage syrup to make carbonated fountain drinks can claim a business and occupation (B&O) tax credit. Special Notice.

Requirements for the B&O tax credit:

• Syrup must be used by the buyer in making carbonated drinks sold by the buyer;
• Credit must be claimed in the tax reporting period when the syrup was purchased;
• Unused credit may be carried forward to future reporting periods for a maximum of one year (12 months from the end of the tax reporting period when the credit was earned);
• Credit may not exceed the B&O tax due; and
• No refunds for credits.