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The business and occupation tax (often abbreviated as B&O tax or B/O tax) is a type of
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
levied by the
U.S. state In the United States, a state is a constituent political entity, of which there are 50. Bound together in a political union, each state holds governmental jurisdiction over a separate and defined geographic territory where it shares its sov ...
s of Washington,
West Virginia West Virginia is a state in the Appalachian, Mid-Atlantic and Southeastern regions of the United States.The Census Bureau and the Association of American Geographers classify West Virginia as part of the Southern United States while the ...
, and, as of 2010,
Ohio Ohio () is a state in the Midwestern region of the United States. Of the fifty U.S. states, it is the 34th-largest by area, and with a population of nearly 11.8 million, is the seventh-most populous and tenth-most densely populated. The sta ...
, and by municipal governments in West Virginia and Kentucky. It is a type of
gross receipts tax A gross receipts tax or gross excise tax is a tax on the total gross revenues of a company, regardless of their source. A gross receipts tax is often compared to a sales tax; the difference is that a gross receipts tax is levied upon the seller of ...
because it is levied on gross income, rather than
net income In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, ...
. While deductions are not permitted for
labor Labour or labor may refer to: * Childbirth, the delivery of a baby * Labour (human activity), or work ** Manual labour, physical work ** Wage labour, a socioeconomic relationship between a worker and an employer ** Organized labour and the labour ...
, materials, or other overhead expenses, the State of Washington does allow certain deductions, exemptions, and credits, by
statute A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made by l ...
.


Alabama

Municipalities in Alabama charge a tax on gross wages called an occupational tax. This is a tax on employers for providing jobs to the local community. The municipalities that charge the job providers are: Attalla 2% Auburn 1% Bear Creek 1% Bessemer 1% Birmingham 1% Brilliant 1% Fairfield 1% Gadsden 2% Glencoe 2% Goodwater 0.75% Guin 1% Hackleburg 1% Haleyville 1% Hamilton 1% Leeds 1% Lynn 1% Midfield 1% Mosses 1% Mountain Brook 0% Opelika 1.5% Rainbow City 2% Red Bay 0.5% Shorter 1% Southside 2% Sulligent 1% Tuskegee 2%


Washington


Tax rates

The rate of taxation is not uniform for all businesses. Rather, different types of businesses are taxed at different rates, depending upon their classification by the
Washington State Legislature The Washington State Legislature is the state legislature of the U.S. state of Washington. It is a bicameral body, composed of the lower Washington House of Representatives, composed of 98 Representatives, and the upper Washington State S ...
and the
Washington State Department of Revenue Washington commonly refers to: * Washington (state), United States * Washington, D.C., the capital of the United States ** A metonym for the federal government of the United States ** Washington metropolitan area, the metropolitan area centered on ...
.
Service industry The tertiary sector of the economy, generally known as the service sector, is the third of the three economic sectors in the three-sector model (also known as the economic cycle). The others are the primary sector (raw materials) and the second ...
businesses have the heaviest tax burden, with a tax rate of 1.5%, more than triple the other major classifications.


Major B & O Classifications and their tax rates


Specialized B & O Tax Classifications


Exemptions, deductions, and credits

Income from exempt activities need not be listed on the B & O
tax return A tax return is the completion of documentation that calculates an entity or individual's income earned and the amount of taxes to be paid to the government or government organizations or, potentially, back to the taxpayer. Taxation is one of ...
. Items claimed as ''deductions'', however, must be listed as part of gross income before it can be taken as a deduction.
Tax credits A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state. It may also be a credit granted in recognition of taxes already paid or a form of state "disc ...
for the B & O tax can be due to a taxpayer who overpaid his/her taxes for the prior
fiscal year A fiscal year (or financial year, or sometimes budget year) is used in government accounting, which varies between countries, and for budget purposes. It is also used for financial reporting by businesses and other organizations. Laws in many ju ...
. Additionally, the Legislature has specially created tax credits for certain types of activities. All exemptions, deductions, and credits are provided for by Chapter 82.04 of the
Revised Code of Washington The Revised Code of Washington (RCW) is the compilation of all permanent laws currently in force in the U.S. state In the United States, a state is a constituent political entity, of which there are 50. Bound together in a political union, ...
(the chapter which is the legislative basis for the B & O tax) and Title 458 of the Washington Administrative Code (the regulations of the Washington Department of Revenue). Certain provisions of these laws operate in a similar manner as the
Internal Revenue Code The Internal Revenue Code (IRC), formally the Internal Revenue Code of 1986, is the domestic portion of federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 ...
and U.S. Treasury Regulations. For example,
bad debt Bad debt, occasionally called uncollectible accounts expense, is a monetary amount owed to a creditor that is unlikely to be paid and for which the creditor is not willing to take action to collect for various reasons, often due to the debtor not ...
can be deducted from the B & O tax in much the same way as it can be deducted from the
federal income tax Income taxes in the United States are imposed by the federal government, and most states. The income taxes are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowa ...
.


West Virginia


State level

At one time, West Virginia had a broad-based B&O tax at the state level similar to that in Washington. However, this tax is today collected only from public utilities, natural gas storage operators, electricity generators and synthetic fuel manufacturers. These companies are taxed at varying rates according to their business activities. Public utilities are taxed on their gross receipts, gas storage companies on their net storage, power generators on their total capacity, and synfuel manufacturers on their total synfuel sales.


Local level

Although West Virginia has largely scrapped its B&O tax at the state level, it continues to allow municipalities to collect B&O taxes of their own, and this tax is the major source of revenue for most cities in the state. According to the West Virginia State Tax Department, "This tax is imposed on the privilege of engaging in certain business activities." The West Virginia municipal B&O tax is a gross receipts tax, with no deductions whatsoever allowed. Rates vary according to the type of business, and differ from city to city. For example: *The state capital, Charleston, divides businesses into 14 categories for purposes of B&O taxation. Rates ranging from $0.15 per $100 gross receipts for wholesalers to $4.00 for water companies. Tax is collected on all business activity taking place within the city, regardless of where the business is domiciled, and is also collected on all gross receipts of a business domiciled in Charleston that have not been previously taxed by another local government. *Similarly, the city of
Parkersburg Parkersburg is a city in and the county seat of Wood County, West Virginia. Located at the confluence of the Ohio and Little Kanawha rivers, it is the state's fourth-largest city and the largest city in the Parkersburg-Marietta-Vienna metrop ...
divides businesses into 16 different categories for B&O tax purposes, with rates ranging from $0.15 per $100 gross receipts for wholesalers to $3.60 for electric power companies' sales of electricity for domestic use and commercial lighting.


Ohio

Ohio phased out its net income tax on businesses and instituted a gross receipts tax. With the phase-in completed in 2010, Ohio and Washington are the only states with a broad-based gross receipts tax on businesses. However, Ohio's B&O system has a considerably higher threshold for tax liability and lower rates than Washington's system.


References

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External links


Washington Department of Revenue brochure on Business tax
— provides basic information on tax rates, exempt activities, deductions, and credits.
Washington Dept. of Revenue page on B & O taxChapter 82.04 of the Revised Code of WashingtonTitle 458 of the Washington Administrative Code
Taxation in Ohio Taxation in Washington (state) Taxation in West Virginia Sales taxes