Reed Smith Client Alerts

The Washington State Department of Revenue (“Department”) has announced that it is not implementing certain industry-targeted Business and Occupation (“B&O”) tax surcharges that went into effect on January 1, 2020 until further notice. Pending legislation would repeal the surcharges and replace them with higher rates targeting larger companies across all industries.

On January 30, 2020, the Department updated its website and Special Notice for the Workforce Education Investment Surcharge to announce that the surcharge is not being implemented because of “pending legislation.” In fact, the surcharge line will not appear on the January 2020 Combined Excise Tax Return. This means that even though monthly filers are required by statute to pay the surcharge by the February 25 filing deadline, the Department is not providing a mechanism for businesses to report the tax.


On May 21, 2019, Governor Jay Inslee signed Engrossed Second Substitute House Bill 2158 into law. The bill enacted a B&O tax surcharge on the service receipts of taxpayers primarily engaged in any combination of 43 specified business activities, effective January 1, 2020. For taxpayers subject to the surcharge, the Service and Other Activities B&O tax rate was effectively increased from 1.5% to 1.8%.

In order to help taxpayers navigate the labyrinth of business activities subject to the surcharge, the Department issued a “Workforce Education Workbook” that divided the 43 specified business activities into 13 different “industry groups” subject to the additional tax. Those industry groups are:

  1. Electric power;
  2. Aerospace manufacturing;
  3. Professional and commercial wholesalers;
  4. Business-to-business electronic markets;
  5. Non-store retailers;
  6. Information services;
  7. Finance and insurance;
  8. Intangible assets;
  9. Professional, scientific, and technical services;
  10. Management of companies;
  11. Healthcare;
  12. Business, professional, labor, political, and similar organizations; and
  13. Government.

The law also imposes a separate surcharge on affiliated groups engaged in a “select advanced computing business.”1 Advanced computing businesses are subject to an effective rate of 2.0% if worldwide gross revenue exceeds $25 billion, or 2.5% if worldwide gross revenue exceeds $100 billion.2 Advanced computing businesses are also subject to a minimum surcharge of $4 million and a maximum surcharge of $7 million.3

These surcharges were enacted separately from (and are imposed in addition to) the 1.2% B&O tax imposed upon financial institutions with at least $1 billion of net income that was also enacted on May 21, 2019 with an effective date of January 1, 2020.4 (That bill is currently being challenged on grounds that it violates procedural requirements in Washington’s constitution and that it violates the Commerce Clause of the U.S. Constitution because only out-of-state banks are subject to the surcharge.) Neither the surtax on specified financial institutions nor the pending litigation are addressed by the Department’s announcement or the current versions of the pending legislation cited by the Department.