Gross Receipts Tax Compliance
What is the B&O tax?
- Washington state levies the B&O tax on gross receipts instead of income tax.
- It’s important to understand this unique tax system to ensure compliance.
Key characteristics of B&O tax
- The tax is measured on the value of products, gross proceeds of sales, or gross income of the business.
- Unlike other tax systems, there are no deductions for labor, materials, taxes, or other operational costs.
Determining gross receipts
- Computing gross receipts is a complex task with potential for error. There are certain gaps that are often overlooked in most cases.
- It’s essential to consider where the benefit of the product or service is consumed - whether within Washington, other U.S. states, or globally.
- It varies widely based on the clientele and their products or services.
Different scenarios
- Global Usage: If the benefit from services is received through US/globally, it needs to be allocated accordingly.
- Local Usage: If the revenue is received from a client where the internal HR software is developed, the apportionment must be as per the location of employees.
Complexity of compliance
- Accurate compliance requires a detailed study of contract agreements.
- Evaluating apportionment factors to determine Washington’s taxable gross receipts is time-consuming and demands expertise.