I spend a decent percentage of my time dealing with the Washington State Department of Revenue. I also receive frequent calls from out-of-state clients and prospective clients who are often shocked at the tax system here.
Many businesses find it difficult to believe that Washington taxes gross revenue (with the Business & Occupations Tax) and not income. That’s right, even if you do not make any net profit, you still owe state B&O Tax. The percentage is relatively low but the idea is difficult to grasp for business owners who are used to thinking of taxes as a percentage of profits.
So, I found it interesting that Washington ranks fairly high on the list of tax-friendly states. The ranking is based on the entire tax system and, because Washington does not have an income tax, the overall tax liability for business is relatively low. However, the sales tax here is one of the highest in the nation.
The tax system in Washington, or any other state for that matter, will depend on the type of business. Businesses who have the luxury of choosing a jurisdiction in which to operate would be well advised to study the taxing scheme in each state (and, as Amazon.com has learned, the nexus laws that determine whether a business is subject to a particular state’s law) and determine if that taxing system makes sense for the particular business.
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