The business and occupation tax (often abbreviated as the B & O tax) is a type of tax

Tax

To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

 levied by the U.S. state

U.S. state

A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...

s of Washington and West Virginia

West Virginia

West Virginia is a state in the Appalachian and Southeastern regions of the United States, bordered by Virginia to the southeast, Kentucky to the southwest, Ohio to the northwest, Pennsylvania to the northeast and Maryland to the east...

, and by municipal governments in West Virginia. The state of Ohio

Ohio

Ohio is a Midwestern state in the United States. The 34th largest state by area in the U.S.,it is the 7th‑most populous with over 11.5 million residents, containing several major American cities and seven metropolitan areas with populations of 500,000 or more.The state's capital is Columbus...

 is currently phasing in a similar gross receipts tax, with full implementation in 2010.

It is a type of gross receipts tax

Gross receipts tax

A gross receipts tax or gross excise tax is a tax on the total gross revenues of a company, regardless of their source. A gross receipts tax is similar to a sales tax, but it is levied on the seller of goods or service consumers...

 because it is levied on gross income

Gross income

Gross income in United States tax law is receipts and gains from all sources less cost of goods sold. Gross income is the starting point for determining Federal and state income tax of individuals, corporations, estates and trusts, whether resident or nonresident."Except as otherwise provided" by...

, rather than net income

Net income

Net income is the residual income of a firm after adding total revenue and gains and subtracting all expenses and losses for the reporting period. Net income can be distributed among holders of common stock as a dividend or held by the firm as an addition to retained earnings...

. While deductions

Tax deduction

Income tax systems generally allow a tax deduction, i.e., a reduction of the income subject to tax, for various items, especially expenses incurred to produce income. Often these deductions are subject to limitations or conditions...

 are not permitted for labor

Wage labour

Wage labour is the socioeconomic relationship between a worker and an employer, where the worker sells their labour under a formal or informal employment contract. These transactions usually occur in a labour market where wages are market determined...

, materials, or other overhead expenses, the State of Washington does allow certain deductions, exemptions

Tax exemption

Various tax systems grant a tax exemption to certain organizations, persons, income, property or other items taxable under the system. Tax exemption may also refer to a personal allowance or specific monetary exemption which may be claimed by an individual to reduce taxable income under some...

, and credits

Tax credit

A tax credit is a sum deducted from the total amount a taxpayer owes to the state. A tax credit may be granted for various types of taxes, such as an income tax, property tax, or VAT. It may be granted in recognition of taxes already paid, as a subsidy, or to encourage investment or other behaviors...

, by statute

Statute

A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...

.

Tax rates

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

Washington State Legislature

The Washington State Legislature is the state legislature of the U.S. state of Washington. It is a bipartisan, bicameral body, composed of the lower Washington House of Representatives, composed of 98 Representatives, and the upper Washington State Senate, with 49 Senators.The 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
Retailing Retailing Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be...	.00471
Wholesaling	.00484
Manufacturing Manufacturing Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...	.00484
Service & Other Activities	.018

Specialized B & O Tax Classifications

B & O Classification	Tax rate
Extracting, Extracting for Hire	.00484
Slaughter, Break Processing, Perishable Meat Meat Meat is animal flesh that is used as food. Most often, this means the skeletal muscle and associated fat and other tissues, but it may also describe other edible tissues such as organs and offal...  – Wholesale; Manufacturing Wheat Wheat Wheat is a cereal grain, originally from the Levant region of the Near East, but now cultivated worldwide. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...  into Flour; Soybean Soybean The soybean or soya bean is a species of legume native to East Asia, widely grown for its edible bean which has numerous uses...  & Canola Canola Canola refers to a cultivar of either Rapeseed or Field Mustard . Its seeds are used to produce edible oil suitable for consumption by humans and livestock. The oil is also suitable for use as biodiesel.Originally, Canola was bred naturally from rapeseed in Canada by Keith Downey and Baldur R...  Processing	.00138
Travel Agent Commission/Tour Operator; International Charter Freight Brokers; Stevedoring Stevedore Stevedore, dockworker, docker, dock labourer, wharfie and longshoreman can have various waterfront-related meanings concerning loading and unloading ships, according to place and country.... ; Licensed Boarding Homes	.00275
Insurance Agents'/Insurance Broker Insurance broker An insurance broker finds sources for contracts of insurance on behalf of their customers. The three largest insurance brokers in the world, by revenue, are Aon, Marsh & McLennan, and Willis Group Holdings.-Purpose of insurance brokers:... s' Commissions Commission (remuneration) The payment of commission as remuneration for services rendered or products sold is a common way to reward sales people. Payments often will be calculated on the basis of a percentage of the goods sold...	.00484
Prescription Drug Prescription drug A prescription medication is a licensed medicine that is regulated by legislation to require a medical prescription before it can be obtained. The term is used to distinguish it from over-the-counter drugs which can be obtained without a prescription...  Warehousing; Dairy Dairy A dairy is a business enterprise established for the harvesting of animal milk—mostly from cows or goats, but also from buffalo, sheep, horses or camels —for human consumption. A dairy is typically located on a dedicated dairy farm or section of a multi-purpose farm that is concerned...  Products, Bio/Alcohol Fuel, or Splitting/Processing Dried Peas	.00138
Processing for Hire; Printing Printing Printing is a process for reproducing text and image, typically with ink on paper using a printing press. It is often carried out as a large-scale industrial process, and is an essential part of publishing and transaction printing....  and Publishing Publishing Publishing is the process of production and dissemination of literature or information—the activity of making information available to the general public...	.00484
Royalties Royalties Royalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property... ; Child Care	.00484
Warehousing Warehouse A warehouse is a commercial building for storage of goods. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial areas of cities and towns. They usually have loading docks to load and unload... ; Radio & TV Broadcasting Broadcasting Broadcasting is the distribution of audio and video content to a dispersed audience via any audio visual medium. Receiving parties may include the general public or a relatively large subset of thereof... ; Public Road Construction; Government Contracting; Chemical Dependency Center Drug rehabilitation Drug rehabilitation is a term for the processes of medical or psychotherapeutic treatment, for dependency on psychoactive substances such as alcohol, prescription drugs, and so-called street drugs such as cocaine, heroin or amphetamines...	.00484
Public or Nonprofit Hospital Hospital A hospital is a health care institution providing patient treatment by specialized staff and equipment. Hospitals often, but not always, provide for inpatient care or longer-term patient stays.... s	.015
Cleanup of Radioactive Waste Radioactive waste Radioactive wastes are wastes that contain radioactive material. Radioactive wastes are usually by-products of nuclear power generation and other applications of nuclear fission or nuclear technology, such as research and medicine...  for US Government	.00471
Service & Other Activities; Gambling Gambling Gambling is the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods...  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

Tax return (United States)

Tax returns in the United States are reports filed with the Internal Revenue Service or with the state or local tax collection agency containing information used to calculate income tax or other taxes...

. 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

Revised Code of Washington

The Revised Code of Washington is the compilation of all permanent laws currently in force in the U.S. state of Washington. Temporary laws such as appropriations acts are excluded....

 (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

Internal Revenue Code

The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...

 and U.S. Treasury Regulations

Treasury regulations

Treasury Regulations are the tax regulations issued by the United States Internal Revenue Service , a bureau of the United States Department of the Treasury. These regulations are the Treasury Department’s official interpretations of the Internal Revenue Code and are one source of U.S...

. For example, bad debt

Bad debt

A bad debt is an amount that is written off by the business as a loss to the business and classified as an expense because the debt owed to the business is unable to be collected, and all reasonable efforts have been exhausted to collect the amount owed...

 can be deducted from the B & O tax in much the same way as it can be deducted from the federal income tax

Income tax in the United States

In the United States, a tax is imposed on income by the Federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and...

.

State level

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.

Local level

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.

For example:

• The state capital, Charleston
  Charleston, West Virginia
  Charleston is the capital and largest city of the U.S. state of West Virginia. It is located at the confluence of the Elk and Kanawha Rivers in Kanawha County. As of the 2010 census, it has a population of 51,400, and its metropolitan area 304,214. It is the county seat of Kanawha County.Early...
  
  , 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
  Parkersburg, West Virginia
  As of the census of 2000, there were 33,099 people, 14,467 households, and 8,767 families residing in the city. In 2006 the U.S. Census Bureau estimated that Parkersburg's population had decreased 4.4% to 31,755. The population density was 2,800.5 people per square mile . There were 16,100 housing...
  
  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 electicity for domestic use and commercial lighting.

Ohio

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.

External links

• Washington Department of Revenue brochure on the B & O 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