Washington B&O Tax Rates in 2026: What Changed for Service Businesses

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For 2026, Washington businesses should distinguish between two questions that are often blended together: which B&O classification applies to the activity, and what rate applies once that classification is known.

The first question remains fundamental. Washington Department of Revenue currently lists more than 50 B&O classifications, each tied to particular business activities. The second question became more complex for many service businesses after October 1, 2025, when Washington replaced the single common Service & Other Activities rate with a three-tier structure.

For companies planning 2026 tax accruals, reviewing margins or reconciling Excise Tax Returns, that change can materially affect the expected B&O liability even when the underlying service activity itself has not changed.

2026 takeaway

The Service & Other Activities rate is no longer automatically 1.5% for every ordinary service business. The applicable 2026 tier generally depends on prior-year taxable income under the current Washington rules.

What are the major Washington B&O tax rates in 2026?

Washington does not impose one universal B&O rate. The rate follows the classification of the business activity.

Washington DOR's current classification table lists the following major statewide rates for 2026:

Major classification	2026 rate	General context
Manufacturing	0.484%	Common statewide manufacturing rate; specialized manufacturing classifications can differ.
Retailing	0.471%	Applies to qualifying retail activity under Washington law.
Wholesaling	0.484%	Applies to qualifying wholesale activity, generally involving sales for resale.
Service & Other Activities — Tier 1	1.5%	Generally applies when prior-year taxable Service & Other Activities income is below $1 million.
Service & Other Activities — Tier 2	1.75%	Generally applies when prior-year taxable income is $1 million through $4,999,999.99.
Service & Other Activities — Tier 3	2.1%	Generally applies when prior-year taxable income is $5 million or more.

These are major classifications, not the complete rate schedule. Washington also maintains specialized classifications for industries and activities such as warehousing, printing and publishing, travel agents, aerospace-related activities, public road construction, royalties and others.

A rate table should therefore be used after the activity has been classified. If the classification is uncertain, see Washington B&O Tax Classifications: How to Identify the Right Category.

The biggest 2026 change for many service businesses: three rate tiers

Effective October 1, 2025, Washington's Service & Other Activities classification moved to three separate rate tiers. The structure remains in effect during 2026.

Washington DOR currently describes the tiers as follows:

1.5% — less than $1 million

Generally applies when prior-year taxable income subject to Service & Other Activities B&O is less than $1 million.

1.75% — $1 million to $4,999,999.99

Generally applies when prior-year taxable Service & Other Activities income falls within the middle tier.

2.1% — $5 million or more

Generally applies when prior-year taxable Service & Other Activities income reaches the top tier.

This is a meaningful change because Service & Other Activities covers many professional and service businesses, including activities commonly associated with accounting, consulting, legal, engineering and other services—subject always to the detailed classification rules for the actual activity.

For a service business, 2026 B&O planning now requires both classification analysis and a prior-year taxable-income test.

How does prior-year taxable income determine the 2026 service rate?

The rate tier is based on prior-calendar-year taxable income subject to the Service & Other Activities classification under the applicable DOR rules.

This means a company calculating its 2026 rate should not simply look at total company revenue, total U.S. revenue or even total Washington gross receipts without understanding what amount was actually taxable under the relevant Service & Other Activities framework in the prior year.

Washington DOR's guidance illustrates this distinction using taxable income after applicable deductions. For example, a business can have gross receipts above $1 million but remain in the 1.5% tier if its prior-year taxable Service & Other Activities income falls below the $1 million threshold after appropriate deductions.

Conversely, a company whose prior-year taxable income under that classification reaches the middle or upper threshold can move into the 1.75% or 2.1% tier for the current calendar year.

Affiliated groups matter

The current Service & Other Activities rate rules can also look to affiliated-group taxable income when determining the applicable tier. That is particularly important for companies operating within larger corporate groups.

A Washington entity should therefore avoid assuming that its stand-alone local revenue necessarily determines the rate. Group structure can matter under the applicable rules.

Accounting implication

The 2026 rate decision may depend on a prior-year taxable-income figure that is different from ordinary financial-statement revenue. The tax workpaper should clearly bridge the accounting records to the amount used for the tier determination.

Are there exceptions to the higher Service & Other Activities tiers?

Yes. Washington DOR currently states that the second and third Service & Other Activities tiers do not apply in the same way to certain categories, including hospitals, real estate brokers and select advanced computing businesses.

That does not mean those businesses have no B&O liability. It means the ordinary three-tier service-rate framework should not be applied without reviewing the special rules for the relevant category.

Select advanced computing businesses

Large qualifying advanced-computing groups are subject to a separate Workforce Education Investment Surcharge structure. Beginning January 1, 2026, DOR states that qualifying select advanced computing businesses continue to report applicable Service & Other Activities income at 1.5% while a separate 7.5% surcharge can apply to qualifying advanced-computing income, subject to the detailed statutory conditions and annual cap.

This is a specialized rule affecting very large groups meeting the advanced-computing definition and worldwide-revenue threshold. It should not be generalized to ordinary technology companies.

Other B&O-related changes that can matter in 2026

The three-tier service structure is the most broadly relevant rate change for many mid-market service businesses, but it is not the only 2026 development.

High-grossing business surcharge

Beginning January 1, 2026, Washington introduced a temporary surcharge for very large businesses with Washington taxable income above the statutory threshold.

DOR currently describes the surcharge as 0.5% of certain Washington taxable income over $250 million in a calendar year, subject to exclusions and exemptions. The surcharge is scheduled to expire December 31, 2029 under the current framework.

This is not an additional 0.5% automatically applied to every B&O taxpayer. It is a separate large-business rule with a high income threshold and specific exclusions.

Specified financial institutions

Specified financial institutions can also be subject to a separate surcharge tied to the Service & Other Activities B&O tax. The current classification table lists a 1.5% surcharge rate for qualifying specified financial institutions.

Payment card processing

Effective January 1, 2026, Washington created a separate Payment Card Processing B&O classification with a 3.1% rate for qualifying payment-card-processing activity. DOR also treats that income as apportionable and notes that additional specialized surcharges can apply in qualifying circumstances.

Again, this is a specialized classification. It should not be used as a proxy for general software, technology, merchant-services or financial-services activity without confirming the statutory definition.

Do the 0.471% and 0.484% rates stay the same throughout 2026?

Washington DOR's current 2026 rate table continues to show 0.471% for the standard Retailing classification and 0.484% for standard Manufacturing and Wholesaling.

However, legislation enacted in 2025 scheduled many 0.471% and 0.484% B&O rates to increase to 0.5% beginning January 1, 2027. DOR's current tax-model guidance likewise identifies January 1, 2027 as the scheduled increase date for Retailing, Wholesaling, Manufacturing and other affected classifications.

That makes 2026 a useful planning year. A business preparing budgets or multiyear forecasts should distinguish the current 2026 rate from the rate scheduled for the following year rather than applying one rate across both periods.

How should accounting support the 2026 B&O rate calculation?

The rate itself is a tax-rule question. But the accounting records determine how efficiently the company can support the inputs behind that rate and the resulting liability.

For a service business, the recurring process may need to preserve:

revenue by B&O classification;
Washington taxable income after applicable deductions;
prior-year Service & Other Activities taxable income used for the current-year tier;
affiliated-group information where relevant;
apportionment data for qualifying service income;
credits or deductions that affect final liability;
specialized activity that falls outside the ordinary Service & Other Activities framework.

A company can calculate the correct percentage and still have a weak compliance process if the tax workpaper cannot be reconciled to the books.

The stronger approach is to create a recurring bridge:

financial-statement revenue → classification → deductions/apportionment → taxable income → applicable rate → credits/surcharges → reported liability.

That bridge is especially important in 2026 because the same financial records may need to support a changed service-rate tier, changed service taxability, local Seattle or Bellevue filings and management reporting at the same time.

A simple 2026 review sequence

Confirm the business activity

Do not begin with the rate. Confirm which Washington B&O classification applies to each material revenue stream.

Identify the current 2026 rate

Use the current DOR classification table, including specialized classifications where the activity requires them.

For Service & Other Activities, determine the tier

Review prior-year taxable income and the affiliated-group rules rather than relying on current-year gross receipts alone.

Review exceptions and surcharges

Large groups, financial institutions, advanced computing businesses and specialized activities can require additional analysis.

Reconcile the calculation to the books

Document how accounting revenue becomes Washington taxable income and how the rate and credits lead to the reported liability.

Plan for 2027 where relevant

Current 2026 rates should not automatically be carried into forecasts when enacted changes are scheduled for the next calendar year.

Rate changes do not replace the broader B&O analysis

A rate is only one variable in Washington B&O compliance.

A company still needs to determine whether it has Washington nexus, whether income is properly sourced or apportioned, whether multiple classifications apply, whether deductions or credits are available and whether separate Seattle or Bellevue city taxes exist.

For the commercial framework, see Washington B&O Tax. For classification, see the preceding guide on Washington B&O classifications. The next article in this cluster addresses Washington B&O nexus for out-of-state businesses.

Official Washington sources

This article was reviewed against current Washington Department of Revenue guidance in August 2026. Rates, thresholds and specialized rules can change; verify the current source for the applicable filing period.