Business and occupation tax
The business and occupation tax (often abbreviated as the B & O tax) is a type of tax levied by the U.S. states of Washington and West Virginia, and by municipal governments in West Virginia. The state of Ohio is currently phasing in a similar gross receipts tax, with full implementation in 2010.
It is a type of gross receipts tax because it is levied on gross income, rather than net income. While deductions are not permitted for labor, materials, or other overhead expenses, the State of Washington does allow certain deductions, exemptions, and credits, by statute.
The rate of taxation is not uniform for all businesses. Rather, different types of businesses are taxed at different rates, depending upon their classification by the Washington State Legislature and the Washington State Department of Revenue. Service industry businesses have the heaviest tax burden, with a tax rate of 1.8%, more than triple the other major classifications.
Major B & O Classifications and their tax rates
|B & O Classification||Tax rate|
|Service & Other Activities||.015|
Specialized B & O Tax Classifications
|B & O Classification||Tax rate|
|Extracting, Extracting for Hire||.00484|
|Slaughter, Break Processing, Perishable Meat – Wholesale; Manufacturing Wheat into Flour; Soybean & Canola Processing||.00138|
|Travel Agent Commission/Tour Operator; International Charter Freight Brokers; Stevedoring; Licensed Boarding Homes||.00275|
|Insurance Agents'/Insurance Brokers' Commissions||.00484|
|Prescription Drug Warehousing; Dairy Products, Bio/Alcohol Fuel, or Splitting/Processing Dried Peas||.00138|
|Processing for Hire; Printing and Publishing||.00484|
|Royalties; Child Care||.00484|
|Warehousing; Radio & TV Broadcasting; Public Road Construction; Government Contracting; Chemical Dependency Center||.00484|
|Public or Nonprofit Hospitals||.015|
|Cleanup of Radioactive Waste for US Government||.00471|
|Service & Other Activities; Gambling Contests or Chance (less than $50,000 a year)||.018|
|Gambling Contests of Chance ($50,000 a year or greater)||.016|
|Retailing of Interstate Transportation Equipment||.00484|
Exemptions, deductions, and credits
Income from exempt activities need not be listed on the B & O tax return. Items claimed as deductions, however, must be listed as part of gross income before it can be taken as a deduction.
Tax credits for the B & O tax can be due to a taxpayer who overpaid his/her taxes for the prior fiscal year. Additionally, the Legislature has specially created tax credits for certain types of activities.
All exemptions, deductions, and credits are provided for by Chapter 82.04 of the Revised Code of Washington (the chapter which is the legislative basis for the B & O tax) and Title 458 of the Washington Administrative Code (the regulations of the Washington Department of Revenue). Certain provisions of these laws operate in a similar manner as the Internal Revenue Code and U.S. Treasury Regulations. For example, bad debt can be deducted from the B & O tax in much the same way as it can be deducted from the federal income tax.
At one time, West Virginia had a broad-based B&O tax at the state level similar to that in Washington. However, this tax is today collected only from public utilities, natural gas storage operators, electricity generators and synthetic fuel manufacturers. These companies are taxed at varying rates according to their business activities. Public utilities are taxed on their gross receipts, gas storage companies on their net storage, power generators on their total capacity, and synfuel manufacturers on their total synfuel sales.
Although West Virginia has largely scrapped its B&O tax at the state level, it continues to allow municipalities to collect B&O taxes of their own, and this tax is the major source of revenue for most cities in the state. According to the West Virginia State Tax Department, "This tax is imposed on the privilege of engaging in certain business activities." Like the Washington B&O tax, the West Virginia municipal B&O tax is a gross receipts tax, with no deductions whatsoever allowed. Rates vary according to the type of business, and differ from city to city.
- The state capital, Charleston, divides businesses into 14 categories for purposes of B&O taxation. Rates ranging from $0.15 per $100 gross receipts for wholesalers to $4.00 for water companies. Tax is collected on all business activity taking place within the city, regardless of where the business is domiciled, and is also collected on all gross receipts of a business domiciled in Charleston that have not been previously taxed by another local government.
- Similarly, the city of Parkersburg divides businesses into 16 different categories for B&O tax purposes, with rates ranging from $0.15 per $100 gross receipts for wholesalers to $3.60 for electric power companies' sales of electricity for domestic use and commercial lighting.
Ohio is currently in the process of phasing out its net income tax on businesses and instituting a gross receipts tax. When the phase-in is complete in 2010, Ohio and Washington will be the only states with a broad-based gross receipts tax on businesses. However, Ohio's B&O system will have a considerably higher threshold for tax liability and lower rates than Washington's system.
- "Business & Occupation Tax: RCW 82.04" (PDF). Washington Department of Revenue. 2007. Retrieved 2009-04-19.
- Tax classifications for common businesses
- Definitions of tax classifications for the B & O tax
- RCW 82.04.4284: Deduction - Bad debts
- WAC 458-20-196: Bad debts
- "Business Costs – Taxes". Business Assistance. West Virginia Development Office. Retrieved 2009-04-19.
- "Publication TSD-100: West Virginia Business Taxes" (PDF). West Virginia State Tax Department. November 2008. Retrieved 2009-04-19.
- "Business & Occupation Tax Frequently Asked Questions (FAQs)" (PDF). City of Charleston, West Virginia. 2008-07-10. Retrieved 2009-04-19.[dead link]
- "B&O Tax Calculator". The City of Parkersburg, West Virginia. Retrieved 2009-04-19.[dead link]
- Washington Department of Revenue brochure on Business tax — provides basic information on tax rates, exempt activities, deductions, and credits.
- Washington Dept. of Revenue page on B & O tax
- Chapter 82.04 of the Revised Code of Washington
- Title 458 of the Washington Administrative Code