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State and Local Tax Updates


Simplified City B&O Tax Apportionment for Service Businesses

Effective January 1, 2020, companies filing Business and Occupation (B&O) returns with Washington cities may need to update their filing procedures. Due to recent Washington State legislation (SHB 1403), the method of apportioning revenues reported under the Service classification has changed.

Previously, Washington taxpayers conducting business in multiple cities were required to apportion their revenue to the various cities using a two factor apportionment formula. This legislation made changes to the service income factor as discussed below, the payroll factor remains the same.

The new legislation simplifies the service income factor by redefining “customer location” for city B&O tax purposes, and introducing the concept of “throw-out income” for the service income factor.

Under the new rules, “customer location” is defined as follows:

  • If the customer is not engaged in business and the service requires them to be physically present (ex. salons, medical/dental services), then service income will be sourced to the location where the service is performed.
  • If the customer is not engaged in business and the service does not require them to be physically present (ex. legal or accounting services for individuals), then
    1. Service income is sourced to the customer’s residence; or
    2. If the customer’s residence is not known, the source the revenue to the customer’s billing or mailing address.
  • If the customer is engaged in business, service income is sourced in the following order:
    1. Location where the services are ordered from, if known.
    2. At the customer’s billing / mailing address if the order location is unknown.
    3. At the customer’s commercial domicile if none of the above are known.

The throw-out provision requires service income sourced to a customer location where the taxpayer is not taxable to be excluded from the denominator of the service income fraction.

Many Washington cities are in the process of publishing guidance on their websites. The City of Seattle has an apportionment worksheet available at the bottom of their apportionment page.

Headcount Tax Rears Its Ugly Head, Again

Earlier last week, House Bill 2907 was introduced which would allow King County to impose a tax on businesses with employees who earn at least $150,000 a year. The tax is earmarked for affordable housing, public safety, homeless services and behavioral-health services within King County.

This proposal has similarities to the headcount tax that the City of Seattle passed in 2018, but was repealed immediately under pressure from the public.

Under the current proposed bill, King County would be able to impose a tax of 0.1% to 0.2% tax on compensation paid by businesses to employees making $150,000 or more starting in 2021. Small businesses (those with 50 employees or fewer that pay half their employees under $150,000 per year) would be exempt.

Additional information and public hearing times can be found here. Berntson Porter will be following the status of this and other tax bills as the legislative session progresses.

For questions on local apportionment, contact Rachel Roberson, Tax Senior Manager, at 425.454.7990 or


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