Washington Tax Guide 2026
TaxKiln Editorial · Last reviewed:
Washington has no personal income tax but levies a 7% capital gains tax on long-term gains above $250,000 per filer (RCW 82.87, upheld as constitutional in Quinn v. State, 2023). Businesses pay the Business & Occupation (B&O) tax on gross receipts — no deductions for cost of goods or expenses — at rates from 0.13% to 1.5% depending on activity classification. State sales tax is 6.5% with local add-ons (combined often 9.5%–10.5%). Seattle adds the JumpStart payroll expense tax on employees earning over $189,371 in 2026.
The 7% capital gains tax — Washington's only personal income levy
Enacted 2021, effective 2022, upheld 7-2 in Quinn v. State, 1 Wn.3d 425 (2023): a 7% tax on long-term capital gains exceeding $250,000 per individual filer (the threshold is per-return, not per-spouse — MFJ also gets $250k, not $500k). Inflation-indexed annually. Exemptions: • Real estate (any class) • Retirement account distributions • Livestock sales (>50% of taxpayer's revenue from farming) • Sale of a qualified family-owned small business (<$10M gross revenue) • Goodwill on the sale of an auto dealership Reported on the Washington Capital Gains Excise Tax Return, due April 15. Federal Schedule D long-term gains feed the WA return; the $250k deduction is applied before the 7%. Charitable deduction up to $100k for gifts to in-state organizations.
Business & Occupation (B&O) tax — the gross-receipts trap
Washington's B&O tax (RCW 82.04) applies to gross receipts of nearly all business activity — no deductions for COGS, payroll, rent, or other expenses. Major classifications and rates: • Retailing — 0.471% • Wholesaling — 0.484% • Service & Other Activities — 1.5% (1.75% if annual gross income ≥ $1M) • Manufacturing — 0.484% • Royalties — 1.5% A service business with $500k revenue and $400k expenses pays B&O on $500k — not on the $100k of profit. This punishes low-margin and consulting businesses relative to higher-margin product businesses. Small Business B&O Credit: up to $70/month phasing out as B&O liability rises. The Multiple Activities Tax Credit (MATC) prevents double-taxation when the same revenue is taxed under more than one classification.
Sales and use tax
State rate 6.5%. Local jurisdictions (cities, transit, RTA) add 0.5% to 3.9% — Seattle combined sits at 10.35%, Tacoma 10.3%, Spokane 9.0%. Destination-based sourcing for in-state shipments since 2008. Economic nexus: $100,000 of gross retail sales (no transaction count). Marketplace facilitator law (RCW 82.08.0531) puts collection on platforms. Major exemptions: groceries, prescription drugs, manufacturing machinery. Washington does NOT have a sales tax holiday.
Seattle JumpStart payroll expense tax
Seattle Municipal Code Ch. 5.38. Tax on businesses with $7M+ in Seattle payroll, paid by the EMPLOYER (not withheld), on compensation paid to employees earning $189,371+ in 2026 (inflation-indexed from $150k 2021 base). Rates (employer payroll size × employee compensation tier): • 0.7% — most employees over the threshold • 1.7% — comp over $500k+ (estimated 2026 tiers) • 2.4% — largest employers, highest comp tier Applies to remote workers if the employer has a Seattle nexus and the employee is assigned to Seattle. Upheld against Chamber of Commerce challenge in 2022.
Property tax
Statewide average effective rate ~0.87% — below national average. State school levy (~$3.60/$1,000), plus local school, county, city, and special districts. King County ~1.0%, Pierce ~1.2%, Spokane ~0.97%. The 1% statutory levy lid (RCW 84.55) limits annual property tax revenue growth to 1% absent voter approval — combined with strong assessed-value appreciation, this has compressed effective rates over time. Senior exemption (RCW 84.36.381) for 61+ and disabled with income under ~$84k (county-varied).
Self-employed and small business considerations
Self-employed Washingtonians enjoy no income tax on labor income but face B&O on gross professional/consulting revenue at 1.5% (Service & Other). On $200k of gross consulting income that's $3,000 of B&O annually — small but non-trivial. The Small Business Credit zeros it out for most under ~$125k. LLC formation: $200 (Washington Secretary of State), $60 annual report. No franchise tax. Capital gains tax is the headline issue for founders selling equity — the $10M family-business exemption is critical for exits. Paid Family & Medical Leave (PFML): 0.92% combined payroll tax (employee 0.6587%, employer 0.3413% in 2026), capped at $176,100 wage base.
Worked example: Aisha Patel, Seattle-based fractional CFO (single, 2026)
Aisha runs a solo S-corp, pays herself $180,000 W-2 + $120,000 distribution = $300,000 net business income. She sells $500,000 of long-held Microsoft RSUs (basis $150,000, LTCG $350,000) in 2026.
Federal: Standard SE-corp federal flow. Washington personal: Income tax on wages/distribution: $0. Capital gains tax: ($350,000 LTCG − $250,000 deduction) × 7% = $7,000. Washington business (S-corp): Revenue $400,000 (gross billings). B&O (Service & Other 1.75% above $1M trigger — but she's under so 1.5%): $400,000 × 1.5% = $6,000. Less Small Business Credit (phased out at her level): ~$0. Net B&O: ~$6,000. Seattle JumpStart (her business under $7M payroll — exempt): $0. PFML on her W-2: $180,000 × 0.6587% = $1,185.60 (employee share). Total WA-specific tax: ~$14,185. Compare to CA equivalent (which would be ~$25,000 personal income tax + $800 LLC + 1.5% S-corp tax + SDI = ~$30,000+).
Statute references
- Capital gains excise tax —
RCW Chapter 82.87 - Capital gains tax upheld as excise —
Quinn v. State, 1 Wn.3d 425 (2023) - Business & Occupation tax —
RCW Chapter 82.04 - Sales and use tax —
RCW Chapter 82.08, 82.12 - Marketplace facilitator collection —
RCW 82.08.0531 - Property tax levy limit —
RCW 84.55 - Seattle JumpStart payroll expense tax —
Seattle Municipal Code Ch. 5.38
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