Licenses and taxes are like bookends. Whenever you get a business license, wheels are set in motion ... which result in having a duty to make reports and possibly send in taxes.
The Basics
Who you're working with: Washington State Department of Revenue, or DOR for short
How Often: Either......annually, quarterly, or monthly
Types of Tax: Sales Tax, Use Tax, Business and Occupation Tax (B&O)
Website: dor.wa.gov
Who has to pay~
B&O Tax: Everybody, but small businesses get a credit
Sales Tax: Some of you, if your work is categorized as Retail
Use Tax: Some of you, if you purchase business tools/supplies from out of state
What you're being taxed on~
B&O Tax: Gross Sales
Sales Tax: Percentage of Retail Sales
Use Tax: Percentage of items purchased out of state
The Process:
You log onto the DOR website, go to a portal, make a "report" by filling in some numbers. This report will show you if you owe taxes, and how much. If you are doing Service work only, it's fairly simple. If you do Retail work, it's a little more complicated.
To Get Help:
Call the DOR! Their job is to help you understand + to make reports. So far, in my experience, they've been knowledgeable and friendly. 1.800.647.7706
The Story ~ how it works in Washington state, in a nutshell.
You decide to start a business—Woohoo! At some point, you find your way to the Business Licensing Service (BLS) and get a state license—too legit! Now ... since you're a business, the state says: you gotta pay some taxes for the privilege of doing business. Also, if you're doing any retail work (making products, or improving physical things), then we need you to collect Sales Tax. So ... they send your info over the Department of Revenue, the DOR.
The DOR creates an account for you, and decides how often they want you to pay taxes + submit any sales tax you've collected. They create a letter and mail it to you. It's got some important info. It's one to read and keep! It will tell you how often to make reports and submit taxes: annually, quarterly, monthly. Also, it has a code that you'll need—the PAC Code which is required for setting up online payments.
Here are some FAQs + Answers
How often do I have to make reports and send in payments?
Either annually, quarterly, or monthly. The letter will tell you how often you need to report and send in taxes. If you lost the letter, or you're not sure, you can find out by calling the WA state DOR: 1-800-647-7706. It's common for small businesses to be annually or quarterly.
What's the Due Date for Annual reporting?
April 15
Note: It used to be January 31. The due date was shifted in 2020.
What are the Due Dates ... if I report Quarterly to the state?
January 31
April 30
July 31
October 31
I got a paper form in the mail. Do I have to use it?
My recommendation is to file online, and NOT use the paper form. Why? The paper form is very confusing, and it's easy to make mistakes. Once you file online, they will stop sending you the paper form. To set up your online account, you'll likely need a PAC code. This is listed at the top of the paper form, so find that code before you recycle that crazy thing!
I was assigned Quarterly payments. Ugh. Why is that? Can I change it?
Basically, the state wants to collect tax money on a regular basis. If you have a Retail business (meaning you'll be collecting sales tax) and/or if it looks like your income will be high, they will assign you to making reports quarterly.
♥ Please don't worry too much though! Once you know how to make reports to the state, it only takes a few minutes!
If you want to change it to reporting annually, in the past, the only way was to call the state in January. If your income is low enough, they'll make the change. That number is: 1-800-647-7706. It's possible that there are new rules, so you might try calling soon if you want to check.
You talk about Making Reports, Paying Taxes, Submitting Taxes, are these all the same thing?
Great question. They're slightly different. I like to think about things at the most basic level first. Once you have a business, you are required to Make Reports to the state. Sometimes, if you're very small, and/or do service work, then you won't owe any money. Yay! BUT, you still have to make the reports so the state knows this. This is step one of the process.
Paying taxes are when your business is actually being taxed. That's the B&O tax, and Use Tax. This is based off a percentage of your Gross Sales, and any purchases out of state. The money comes out of your pocket.
Submitting taxes is different. This is Sales Tax that you've collected from your buyers. It is tax based on their purchase. It comes from their pocket. You're simply the carrier of that money.
I heard that I have to send in Estimated Quarterly Tax Payments? Is this the same or different?
This is a super common question. This different. When you have a business, you must report to all levels of government: city, county, state, and the IRS. It's easy and reasonable to get them mixed up!
"Estimated quarterly tax payments" are part of paying your federal taxes to the IRS. These are estimated based off the profit your business is likely to make. They are due four times a year: Jan 15, Apr 15, Jun 15, Sep 15. Click here to read more.
If the state says that you must report quarterly, that is for state taxes, which include: B&O, sales tax, use tax. These are calculated from your actual sales.
How can I get more info + help with this?
Lots of ways!
♥ Coming soon: Walkthrough Blog Post, with screenshots. (The DOR has a new portal that I've still gotta learn.) To see screenshots of the OLD system, click here for Service Providers. Or here, for Retailers. This will at least give you the general idea.
♥ Tax Help Pop-up Shop. Or any other Pop-up Shop. Get 1-on-1 help with Yours Truly for an affordable rate. Click here to see the current series, or email me at: jennygirlfriday@gmail.com.
♥ Get help from the state DOR. They offer workshops, online tutorials, and even consulting! Click here to see more info at DOR.wa.gov.
♥ If you currently work with an accountant or bookkeeper, check with them.
Have any more questions?
Please email me at jennygirlfriday@gmail.com. I would love to get an answer to you, and to add more to this post!
♥ Jenny Girl Friday
P.S. Did this help? I hope so! Pretty please share with any friends, or post on Facebook. I think self-employed folks are keeping the soul in Seattle. I want to make the chores of business easier, so you can all keep being awesome and shining your light.
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