Seattle provides a generally favorable atmosphere for entrepreneurs. It boasts a vibrant economy that balances traditional industries, an international port, a thriving tech scene, aerospace, art, Fortune 500 companies and small businesses. The city is home to multiple public and private universities and has a wealth of engineering and business talent. All that being said, there are no shortage of taxes you'll face as a small business owner in Seattle. While larger firms can often negotiate, lobby, threaten, cheat and hide their way out of paying taxes, you as a small business owner will be stuck paying 100% of what you owe. Unfortunately, it's not always clear exactly what is required of you by law and in most cases, the government(s) won't send you an invoice or a reminder, so if you miss out on something, you'll end up owing late fees and back taxes. It's probably a good idea to hire a Seattle based tax accountant for official advice, but for starters, we've tried to come up with an exhaustive list of the taxes you will face while operating a business in Seattle and in the State of Washington.
City of Seattle taxes
- City of Seattle Business License - Official City definition: Each business engaging in business activities in Seattle must obtain and annually renew a City business license tax certificate unless the business activity is specifically exempted from licensing and taxes. Anyone engaging in business activities within Seattle is required to obtain a Seattle business license whether or not a place of business is maintained within city limits. A branch business license is required for each additional venue doing business. There are three ways to apply for a business license tax certificate: online, by mail or in person (42 nd floor of the Seattle Municipal Tower). In most cases, licenses cost $110 per year; small businesses with total revenues of less than $20,000 annually pay $55 per year. If you have more than one business location in Seattle, you must pay an additional $10 per year for each additional branch location. If you start your business in the second half of the year, after July 1, then your license tax certificate fee will be reduced by half. All licenses expire on Dec. 31. See more on how to get a license and who needs a license at http://www.seattle.gov/licenses.
- Regulatory License - Official City definition: Regulatory License The City of Seattle further regulates specific business activities, e.g., the taxi/for-hire and transportation network company industry, marijuana businesses, tow companies, adult entertainment, amusement devices, pawnshops, etc. (see Businesses regulated by Seattle). Unless the business activity is specifically exempted, these businesses require both a standard business license tax certificate and a regulatory endorsement on the license. The application process varies for the different business types requiring a regulatory endorsement. See more at http://www.seattle.gov/business-regulations .
- Business and Occupation (B&O) Tax - This is a rather controversial tax, as it is applied whether your business makes, money, or loses it hand over first. We found this out the hard way our first year in business because although we had negative net income, we had a reasonable amount of revenue. One would imagine the tax is structured this way to disincentivize excessive write-offs. Official City definition: Every person or entity doing business within the city limits is subject to the business license tax unless specifically exempted by the Seattle Municipal Code. The Seattle business license tax, sometimes called the business and occupation tax (B&O tax), is applied to the gross revenue that businesses earn. Businesses with an annual taxable gross revenue of $100,000 or more are required to pay the tax. You do not pay the tax if your annual taxable gross revenue is less than $100,000 or if you have no business activity for the year. You are still required, however, to submit a return reporting your gross revenue, even if zero, to the City of Seattle. The Seattle business license tax rate varies by business type (see Tax Rates and Classifications). When filing your taxes, you may be required to fill out certain forms or worksheets depending on your business activities and gross revenue amount (see Special Tax Situations). There are a number of other taxes the City collects for applicable businesses in Seattle, including commercial parking, firearms and ammunition, gambling, utilities and admission (see Other Seattle Taxes). Businesses are also subject to property and sales taxes, though the City does not collect these taxes. See more at http://www.seattle.gov/business-license- tax. Deductions & Exemptions from the Business License Tax A deduction is revenue that you can legally subtract from your gross revenue amount. Although you must list the deduction amount on your return, you do not pay tax on that amount. Only deductions specifically defined in the Seattle Municipal Code are allowed (see the Deduction List). The costs of doing business cannot be deducted from your gross revenue amount. This includes: rent and utilities, insurance, material costs, employee wages, employee sales, cost of products purchased for resale. Exemptions are different than deductions. Certain organization and business types are not required to obtain a Seattle business license or pay the business license tax. Certain types of revenue are also exempt. You qualify for an exemption if your business or revenue type is defined as an exemption in the Seattle Municipal Code (see the Exemption List). You do not report exemptions on your tax return; you must report deduction amounts.
- Business Improvement Area (BIA) Taxes - This one came as a surprise to us. In our neighborhood, the BIA funds the Alliance for Pioneer Square, which leads some great initiatives around the neighborhood. The problem was, no one was required to disclose this to us when we signed our lease, so we were hit by a surprise bill of over $1,000 right after we opened our doors (and were already hemorrhaging money). This is billed annually based on square footage, so it hammers coworking spaces. It was previously assessed based on gross receipts, but retailers protested and it was changed. Official City definition:
Business Improvement Areas (BIAs) are funding mechanisms for business district revitalization and management. Specifically, the mechanism is an assessment collected from businesses and/or properties within defined boundaries. The funds collected are used to provide services for the mutual benefit of the businesses and properties being assessed. BIAs include programs and services such as marketing, public area maintenance, security, parking, streetscape improvements and professional management. In Seattle, BIAs are enacted by the City Council, using the authority of state law (RCW 35.87A) and the City Charter. The legally required process for creating a BIA is fairly simple, but it is important to have the support of most of those who will pay the assessment in order for the process to move forward smoothly. This means a well-organized effort in the neighborhood that includes a focused dialogue with potentially affected ratepayers about the district’s needs and proposed services. Once there is general consensus on a work plan and budget for the district, the organizers work with City staff to prepare a formal proposal and petition of support for signature by prospective ratepayers. The group then presents these to the City Council, which will hold a public hearing before considering the proposed ordinance. BIAs can be renewed or terminated through a similar process. How long a BIA stays in place is up to the local organizers. BIAs are governed by a Ratepayers Advisory Board, made up of those paying the assessment, which prepares an annual work program and submits it to the City. The City sends invoices to ratepayers, collects the assessments and reimburses the board according to the work program. BIA operations can be managed and implemented by a stand-alone BIA organization or through a contract with an existing organization. Services can be provided by BIA employees or through independent service providers.
See more at http://www.seattle.gov/economicdevelopment/business-districts/business- improvement-areas
Part 2 will include information on:
- King County taxes
- Business personal property taxes
- WA State taxes
- Federal taxes