What is B&O tax and how to Categorize it?

B&O stands for Business and Occupation. The tax is a WA state imposed tax on gross receipts. The tax is not like an income tax, it is measured on the gross revenue brought in by a business. It is paid with the sales tax under excise tax to the Department of Revenue. B&O differs even from the sales tax in that it must be paid for revenue that was sold to another vendor with a reseller permit. Essentially, B&O will apply to every dollar that is brought in as revenue. There are certain tax credits allowed to lower this bill but we will not go into this in this article.

Now that we know how to apply the tax to our gross revenue we must know how to categorize it correctly. The sales tax, since it is only brought in and then remitted to the Department of Revenue, is generally reported in a “sales tax payable” account on the balance sheet. This is a holding account until the tax is paid and then the transaction will be completed with the balance paid leaving the sales tax payable and going to the Department of Revenue. B&O tax is dealt with differently, even though it is paid with the sales tax. B&O will be reported on the day is left the bank account and will be an operating expense. This will not just flow through the balance sheet accounts but will be on the Income Statement for the period it is paid.

Keep it reconciled,

-Justin Oliveri