Recent changes to Washington state’s economic nexus standards may simplify some of the regulations around remote sellers, but it is also likely to make more businesses subject to the state’s Business and Occupation (B&O) tax. The revised nexus standard has a lower sales threshold and removes the physical presence tests; consequently, more out-of-state vendors will have B&O tax filing obligations.

The updates become effective Jan. 1, 2020. When all the dust settles, the changes to the economic nexus standards are expected to have a minimal impact on the revenue generated by the state, but it will be an adjustment for businesses that use marketplace facilitators, and out-of-state sellers without a physical presence in Washington.


In addition to a retail sales tax, Washington imposes a gross receipts-based B&O tax. For the 2013-2017 tax years, a nonresident business created economic nexus and a B&O tax filing obligation if the business had:

  • More than $53,000 in property or payroll in the state;
  • More than $267,000 in gross receipts in the state; or
  • At least 25% of the business’s total property, payroll, or receipts were in Washington during the current or immediately preceding calendar year.

For the 2018 tax year, the state increased the payroll and property thresholds to $57,000 and the sales threshold to $285,000.

On March 14, 2019, Washington Governor Jay Inslee signed Substitute Senate Bill 5581 (SSB 5581) simplifying the state’s economic nexus provisions for out-of-state sellers and marketplace facilitators without a physical presence in the state. The changes reduced the annual B&O sales threshold, eliminated the property and payroll thresholds, and eliminated the state’s click-through nexus provisions. It also created additional reporting obligations for marketplace facilitators and placed new limits on Washington’s import commerce tax exemption.

A Closer Look at the Changes to Washington’s B&O Tax Nexus Laws

SSB 5581 is designed to simplify Washington’s current economic nexus provisions by making the state’s retail sales tax and B&O tax more uniform. These changes include:

  • The sales threshold for B&O tax purposes is reduced from $285,000 in gross receipts from retail sales in Washington to $100,000 in cumulative gross income attributed to Washington, which mirrors the economic nexus standards for retail sales tax.
  • The $57,000 property and payroll thresholds are eliminated for purposes of the B&O tax, along with the standard establishing nexus if a business has at least 25% of total payroll, property or sales in the state.

“Cumulative gross income” generally includes all of the business’s gross income attributed to Washington state under the applicable sourcing or allocation and apportionment provisions. For marketplace facilitators, this amount includes the gross proceeds from the marketplace’s own sales, as well as the cumulative gross proceeds from sales by all marketplace sellers through the marketplace facilitator’s marketplace. After an entity establishes nexus, it is deemed to have nexus for the remainder of that year and the entire subsequent year.

With these two changes, more businesses may find themselves subject to the B&O tax when the changes take effect in 2020.

Additional Recordkeeping for Marketplace Facilitators

The definition of “seller” is revised to include a marketplace facilitator, either making sales in its own right or facilitating sales on behalf of marketplace sellers. SSB 5581 defines a marketplace facilitator as a person that contracts with a seller to facilitate, for consideration, the sale of the seller’s products through a marketplace owned and operated by the person that engages, directly or indirectly, in communicating the offer and acceptance between a purchaser and a seller. A marketplace facilitator must also engage in specific activities related to a seller’s products. These could include any of the following:

  • Communicating the offer and acceptance
  • Operating the infrastructure (setting prices, taking orders, branding sales, etc.)
  • Payment processing services
  • Listing the products for sale
  • Providing fulfillment or storage services
  • Providing customer service

Effective July 1, 2019, a marketplace facilitator must provide each of its marketplace sellers with access to gross sales information for all Washington sales the marketplace facilitator made as an agent for the marketplace seller through the marketplace during the immediately preceding month. Marketplace facilitators must provide access to this information within 15 calendar days following the end of each month. Marketplace sellers will use that information to accurately report their B&O tax liability.

Changes to the Import Exemption

Under prior law, the sale of tangible personal property in import or export commerce was not subject to the B&O or retail sales tax. Effective immediately, SSB 5581 eliminates the import commerce B&O and sales tax exemptions. The tax does not apply to the wholesale sale of tangible personal property in import commerce; it only applies when the wholesale sale is a sale of unroasted coffee beans or a sale between a parent company and its wholly owned subsidiary. While the sale of tangible personal property that’s in import commerce has been severely restricted, qualifying sales of tangible personal property in export commerce continue to be exempt from B&O and retail sales tax.

Small Business Tax Credit Implications

Washington’s small business tax credit could offset the additional B&O tax in some situations, but it has a nuanced application. The state’s small business tax credit varies depending on the amount of B&O tax due from the total of all classifications after all other B&O tax credits have been taken. Service businesses doing less than about $56,000 in annual revenues and manufacturing or retail businesses doing less than about $170,000 can take the small business credit to eliminate the B&O tax. The credit is phased out for service businesses generating between $56,000 and $112,000 (approximately) in annual revenues and manufacturing or retail businesses generating between $170,000 and $340,000 (approximately).

With the small business tax credit’s potential to offset the B&O tax, Washington may not see tax revenues increase that much as a result of SSB 5581’s changes.

What to Do Now

Although the effective date of the law hits in 2020, some provisions within SSB 5581 are in place now. Marketplace facilitators and out-of-state sellers should work with their state and local tax provider to ensure they are meeting their new compliance requirements and taking advantage of available state tax credits.

For more information, please contact us.

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