Seattle’s B&O tax is a tax on business revenue, not profit. Beginning January 1, 2026, businesses with less than $2 million of Seattle taxable revenue owe no city B&O tax. At $2 million or more, an annual $2 million standard deduction applies before calculating the tax.
For 2026–2032, the principal rates are 0.342% for retail and several related classifications and 0.658% for Service and Other Business Activities. These are classification rates, not revenue-size brackets. The deduction changes the effective rate as revenue rises.
Updated September 8, 2026. The rules below concern Seattle city B&O, which is separate from Washington state B&O.
The $2 million threshold and deduction
Seattle voters approved Proposition 2 in November 2025. Its Seattle Shield changes took effect in 2026. For a business preparing its return, the key distinction is between the threshold test and the standard deduction.
- Determine Seattle gross income under the applicable sourcing and apportionment rules.
- Subtract available deductions other than the standard deduction to find taxable revenue for the threshold test.
- If the result is below $2 million for the calendar year, no city B&O is due.
- If the result is $2 million or more, apply up to $2 million of annual standard deduction and calculate tax on the balance.
The provisions do not create a $4 million exemption. At exactly $2 million, the standard deduction ordinarily reduces the remaining taxable amount to zero.
A company’s worldwide revenue is not automatically its Seattle taxable revenue. Resolve sourcing, apportionment, and available deductions before applying the $2 million test. See Seattle’s implementation guidance.
Seattle B&O rates for 2026–2032
| Classification | Rate |
|---|---|
| Manufacturing / Extracting | 0.342% |
| Printing / Publishing | 0.342% |
| Wholesaling | 0.342% |
| Retail Sales / Retail Services | 0.342% |
| Service / Other Business Activities | 0.658% |
| Transporting Freight for Hire | 0.658% |
| Tour Operator / Processor for Hire | 0.342% |
These percentages correspond to the decimal rates 0.00342 and 0.00658 used in calculations. Source: Seattle’s rate table.
A larger services firm does not move into a higher marginal-rate bracket merely because it earns more revenue. For both a $3 million and a $20 million services business, the applicable rate is 0.658%; the same $2 million deduction shields a larger proportion of the smaller firm’s revenue.
Scheduled 2033 step-down: under Ordinance 127267, the principal rates decline to 0.273% and 0.526% beginning January 1, 2033. These remain above the pre-2026 rates. Confirm the law in force when modeling future years.
Check classification before calculating tax
Beginning January 1, 2026, Seattle reclassified specified service activities as retail activities. The classification of software, IT, advertising, and other affected services needs particular attention. Use the city’s current definitions rather than simply carrying forward last year’s return.
The Seattle classification question is separate from Washington state B&O and retail sales tax. A change in the city rate does not answer whether state sales tax must be collected.
See the service-to-retail reclassification discussion and the city’s current guidance linked from its business-tax page.
Examples: one services classification
Assume the amounts below are annual Seattle taxable revenue before the standard deduction, all revenue belongs in Service and Other Business Activities, and no other deductions, credits, or special rules apply.
| Revenue before standard deduction | Amount after deduction | 2026 tax at 0.658% |
|---|---|---|
| $1,500,000 | No tax under threshold | $0 |
| $2,000,000 | $0 | $0 |
| $3,000,000 | $1,000,000 | $6,580 |
| $5,000,000 | $3,000,000 | $19,740 |
| $20,000,000 | $18,000,000 | $118,440 |
At $20 million, the prior 0.427% services rate would have produced $85,400 under these assumptions. The new calculation produces $118,440, an increase of $33,040. At $3 million, however, the deduction more than offsets the rate increase.
What if the business has multiple classifications?
The annual standard deduction is shared across the business’s classifications. It is not $2 million for each line of the return.
Seattle directs the business to apply the deduction first against the classification with the highest rate, then apply any remaining balance against the lower-rate classification.
Example: assume $1.5 million of services revenue and $1.5 million of retail revenue, both Seattle taxable amounts before the standard deduction. Apply $1.5 million of the deduction to services first. Apply the remaining $500,000 to retail. The result is $1 million of retail taxable amount at 0.342%, or $3,420 of city B&O.
Quarterly filers begin using the annual deduction with the earliest quarter containing taxable revenue, until it is exhausted. It is not a fresh $2 million each quarter. Unused deduction does not carry into another tax year. Manufacturers should also check Seattle’s multiple activities tax credit instructions.
Filing dates and business licenses
The changes apply to 2026 activity. Seattle’s first-return dates are:
| Filing frequency | First return under the new rules |
|---|---|
| Quarterly | First quarter 2026: April 30, 2026 |
| Annual | Calendar year 2026: April 30, 2027 |
Confirm the filing frequency assigned to your account. Seattle notified some quarterly filers that they would move to annual filing as a result of the higher threshold.
Being below the $2 million threshold does not eliminate the return-filing requirement. It also does not eliminate business-license renewal or fees. Seattle calculates the business license tax certificate fee using the taxable amount before the standard deduction.
How Seattle B&O fits with other taxes
A business may owe both Washington state B&O and Seattle B&O. Seattle’s $2 million threshold does not exempt the business from the state tax.
Starting in 2028, an individual owner may also owe Washington’s income tax. ESSB 6346 Section 204 provides a limited, nonrefundable credit for state B&O or public utility tax on income included in both calculations. That provision does not credit Seattle B&O. Apply the credit’s conditions and related income adjustments rather than subtracting every business tax from the owner’s bill.
Seattle’s employer payroll taxes have separate coverage and allocation rules. Read the JumpStart and Social Housing tax guide and the Washington tax hub when modeling total costs.
Common questions
Is this a tax on profit?
No. It is based on gross receipts under the applicable city rules. Ordinary costs such as wages and rent generally do not reduce the tax base merely because they are expenses for income-tax purposes.
Does a $2.1 million services business owe tax on all $2.1 million?
Assuming $2.1 million of Seattle taxable revenue before the standard deduction and no other adjustments, the $2 million deduction leaves $100,000. Tax at 0.658% is $658.
What should I check before filing?
Confirm classification and Seattle sourcing, apply available deductions in the right order, track how much annual standard deduction has been used, and check the account’s filing frequency. For a mixed business, those steps matter more than multiplying company-wide revenue by a headline rate.
If you need help coordinating the business and owner-level questions, book a 20-minute call. For a longer planning walkthrough, see the Washington State Tax Planning Guide.
This article provides general information and is not legal or tax advice for a particular return.
