Washington is a state in the Pacific Northwest. It is the 18th largest state and the 13th most populous state. The state was admitted to the union as the 42nd state in 1889.
The Puget Sound in Washington is an inlet of the Pacific Ocean consisting of numerous islands, deep fjords, and bays carved out by glaciers. The remainder of the state consists of deep temperate rainforests in the west; mountain ranges in the west, central, northeast and far southeast; and a semi-arid basin region in the east, central and south, given over to the intensive agriculture. Washington is the second most populous state on the West Coast, after California. Mount Rainier, an active stratovolcano, is the state’s highest elevation, at almost 14,411 feet, and is the 2nd topographically prominent mountain in the continental United States, the first being Denali in Alaska.
Business Climate
Washington has a relatively strong economy. Significant businesses within the state include the design and manufacture of aircraft (Boeing) automotive (Paccar), computer software development (Microsoft, Bungie, Amazon, Nintendo of America, Valve Corporation, ArenaNet), telecom (T-Mobile US), electronics, biotechnology, aluminum production, lumber and wood products (Weyerhaeuser), mining, beverages (Starbucks, Jones Soda), real estate (John L. Scott, Colliers International, Windermere Real Estate, Kidder Mathews), retail (Nordstrom, Eddie Bauer, Car Toys, Costco, R.E.I.), and tourism.
The apple industry is paramount to Washington. Because of the favorable climate of dry, warm summers and cold winters of central Washington, the state has led the nation in apple production since the 1920s. Washington produces 7 principal varieties of apples, which are exported to over 60 countries.
Washington ranks second in the country in the production of wine, behind only CA. While there are some vitcultural activities in the cooler, western half of the state, the majority of wine grape production takes place in the desert-like eastern half. The rain shadow of the Cascade Range leaves the Columbia River Basin with around 8 inches of annual rain, making irrigation and water rights of paramount interest to the Washington wine industry. Vitculture in the state is also influenced by long sunlight hours (on average, two more hours a day than in California during the growing season) and consistent temperatures.
Tax Climate
The state of Washington is one of seven states that does not levy a personal income tax. The state does not collect a corporate income tax or franchise tax either. Washington businesses are responsible for various state levies, including the business and occupation tax (B&O), a gross receipts tax which charges varying rates for different types of businesses. It is measured on the value of products, gross proceeds of sale, or gross income of the business. It is calculated on the gross income from activities. This means there are no deductions from the B&O tax for labor, materials, taxes, or other costs of doing business.
Property tax accounts for about 30% of the state’s total state and local revenue. It continues to be the most important revenue source for public schools, fire protection, libraries, parks and recreation, and other special purpose districts.
Sales Tax Structure
Washington’s state base sales tax is 6.5%, which is combined with a local sales tax that varies by locality and can be over 10% in many areas. This sales tax applies to services as well as tangible items. Most food items are exempt from sales tax; however, prepared foods, dietary supplements, and soft drinks remain taxable.
Washington has enacted economic nexus legislation. Remote sellers are required to register, collect and remit WA sales tax if the company’s gross receipts is more than $100,000 in cumulative in the current or immediately preceding year. This legislation goes into effect on October 1, 2019. However, we caution that the state also previously had legislation for reporting and a differing economic nexus legislation. Call us for more details on this evolution!
Washington is aggressive in its approach to the taxation of technology products for sales tax purposes. All digital products are taxable. Prewritten computer software that is electronically downloaded is taxable. However, custom computer software that is electronically downloaded is exempt. Lastly, Software as a Service (SaaS) is taxable. How products are produced, sold and delivered is critical to determining their tax status.
Some states have annual sales tax holidays, during which certain items the state wants to promote the purchase of (like school supplies, emergency preparedness supplies, or energy efficient appliances) can be purchased sales tax free. However, Washington does not have any sales tax holidays in 2019.
Random Facts
- Washington state has more glaciers than the other 48 contiguous states combined.
- Washington state’s capitol building was the last state capitol to be built with a rotunda.
- Spokane was the smallest city in size to host a World’s Fair, which was in 1974.
- The highest point in Washington is Mount Rainier. It was named after Peter Rainier, a British Soldier who fought against the Americans in the Revolutionary War.
- Popular games such as, Pictionary, Pickle-ball, and Cranium were all invented in Washington.
- The forests of the Olympic Peninsula are among the rainiest places in the world and the only rainforests (such as the Hoh Rain Forest) in the continental United States.
- Washington is the birthplace of Jimi Hendrix (Seattle) and Bing Crosby (Tacoma).
- During the Great Depression, a series of hydroelectric dams were constructed along the Columbia River as part of a project to increase the production of electricity. This culminated in 1941 with the completion of the Grand Coulee Dam, the largest dam in the United States.
Our team at Miles Consulting Group is available to discuss the specifics of your state tax situation, whether in Washington or other states, we can help you navigate the complex tax structures arising from your multistate operations. Call us to help you achieve the best tax efficiencies.
