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Editorial 6 MIN READ

Washington in June 2017: the LLC with no income tax and a gross-receipts tax

A $200 online filing, a $71 yearly renewal, and a Business & Occupation tax that surprises founders who read only the headline

The Editors
Staff, Incorporator.org
6 min read Updated
Contents 6 sections
  1. The mechanics
  2. The Initial Report — 120 days, easy to miss
  3. Maintenance: $71, annually, on your anniversary
  4. The Business & Occupation tax
  5. Who this state actually makes sense for
  6. Sources

Washington LLC costs $200 to form online and $71 a year to keep. The state has no personal or corporate income tax. It does have a gross-receipts tax called the Business & Occupation tax, and that tax is the thing most founders learn about late.

This is a guide for someone forming in Washington in June 2017. It assumes you have already ruled out Delaware and are forming in the state because you operate here.

The mechanics

You file a Certificate of Formation with the Corporations & Charities Division of the Secretary of State. The statute is RCW 25.15.071, and it asks for the same six things every state asks for: the LLC's name, the registered agent's name and Washington address, the principal office address, any specific dissolution date, anything else the members want on file, and the names and addresses of the people signing.

The fee is $200 if you file online through the Corporations & Charities Filing System and $180 if you file by paper. The online tier is the faster and cheaper-in-staff-time option for the state, which is why it is priced above the mail tier on paper but is usually the right choice in practice: paper filings sit in a queue. Expedited service costs an additional $50 on top of the base fee and moves you to the front of the queue.

Washington went through a substantive rewrite of its LLC statute in 2015, and the new Chapter 25.15 RCW took effect January 1, 2016. If you are reading older formation guides, confirm they reference the current chapter. Two changes matter for a founder: the LLC agreement may now be oral or implied rather than strictly written (RCW 25.15.006), and fiduciary duties of loyalty and care are codified at RCW 25.15.038 rather than left for the courts to infer from partnership law. The first change is a trap — the default-rule regime still rewards a written operating agreement, and "we have an understanding" is a weak thing to bring into a dispute.

You will also need a Unified Business Identifier, which the state issues through the Business Licensing Service at the Department of Revenue. The UBI application is a $19 fee and it is what puts you on the B&O tax rolls, registers you with Employment Security if you will have employees, and gets your trade name on file. Many founders file the Certificate of Formation and then forget the UBI step; the state does not forget.

The Initial Report — 120 days, easy to miss

Washington requires every new LLC to file an Initial Report within 120 days of formation. The statute is RCW 23.95.255, which was enacted as part of Washington's adoption of the Uniform Business Organizations Code and applies across entity types. The report lists the principal office and the LLC's governors.

If you form online, the Secretary of State lets you submit the Initial Report in the same session for no additional fee, and this is the obviously correct move. If you file by paper, the Initial Report becomes a separate $10 filing that you have to remember on your own timeline. If you don't file it at all, the state has authority to administratively dissolve you.

The 120-day window is the single most missed deadline in Washington formation. The second is the one below.

Maintenance: $71, annually, on your anniversary

Washington LLCs file an Annual Report every year, due by the end of the month you were formed in. The fee is $60 to the Secretary of State plus an $11 business license renewal fee collected at the same time through the Department of Revenue, which is how the $71 round-trip figure shows up in most guides. File online through CCFS; the paper form is longer than the online flow.

Miss the anniversary and the state eventually administratively dissolves the LLC. Reinstatement is possible but costs the accumulated fees plus a reinstatement surcharge, and for the months you were dissolved you were technically not shielded by the veil. This is the kind of gap that rarely matters until one time it does.

The Business & Occupation tax

Washington has no state income tax. It taxes businesses instead, on gross receipts, under Chapter 82.04 RCW. The B&O tax is calculated on what you bring in, not on what's left after expenses. There are no deductions for labor, materials, rent, or any other cost of doing business. A consulting LLC that grosses $200,000 and spends $195,000 to earn it still owes B&O on the $200,000.

The rate depends on what kind of activity produced the revenue. Retailing is 0.471%. Wholesaling and manufacturing are 0.484%. Service and other activities — which is where most professional-services LLCs land — is 1.5%. The Department of Revenue publishes the full classification schedule; if you sell across multiple categories, you owe at each rate.

The small-business credit at RCW 82.04.4451 takes the edge off for the smallest entities. A service-classified business with gross receipts under roughly $56,000 a year owes no B&O after the credit; the credit phases out as receipts rise. For a freelancer operating through an LLC, this usually means no B&O for the first year or two. For a seven-figure services business, the 1.5% is real money.

The practical consequence: an LLC paying itself to its single member as a disregarded entity for federal purposes still files a Washington excise tax return every month, quarter, or year depending on size, and pays B&O on the LLC's gross receipts. The federal tax answer and the Washington tax answer are decoupled.

Washington also layers on sales tax, use tax, and, depending on the city, a municipal B&O that mirrors the state's structure. Seattle, Tacoma, Bellevue, and several others run their own regimes. If you are forming a Seattle-based LLC, the city's B&O is collected separately from the state's and has its own thresholds.

Who this state actually makes sense for

Washington is the default for a business operated by Washington residents. The no-income-tax framing is real — a profitable services LLC taxed as an S-corp at the federal level sends zero dollars to Olympia in personal income tax, which over time is the difference between Washington and Oregon or California for a founder who stays here. What it does not do is free you from state tax; the B&O catches you on the way in instead.

Three patterns predict trouble. The first is a thin-margin reseller who doesn't realize wholesaling B&O applies on gross, not on markup; at 0.484% of a million dollars of pass-through inventory, the tax swallows the spread. The second is a services founder who grows past the small-business credit and discovers 1.5% of top-line is a real number. The third is a founder who forms the LLC, skips the UBI, and operates for a year before the Department of Revenue catches up with a back-assessment plus penalties.

None of this is a reason to avoid Washington if you live and work here. It is a reason to price the B&O into your quotes from the first invoice and to file the Initial Report the same week you file the Certificate of Formation. Do both online, do both in one sitting, and the formation side of the state largely leaves you alone until next June.

Sources

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