Washington State 2025–2027 Business Tax Increases: What Small & Mid-Sized Businesses Need to Know
On May 20, 2025, Governor Bob Ferguson signed Washington’s $78 billion budget( which included a $14billion dollar deficit)—funded in large part by a wave of new and expanded business taxes. From higher B&O rates to increased sales-tax, capital-gains levies, and surtaxes, these changes will ripple through every corner of the state’s economy.
Here’s a deep dive on what’s coming, and what businesses are most effected, and how to prepare.
Key Tax Changes by Industry:
1. Service Firms (Accountants, IT, Consultants)
Old B&O Rate: 1.75%
New Rate (by Fall 2025): 2.10%
Impact: A firm billing $1 million annually will pay an additional $14,000 in B&O tax each year. If they only have $50,000 after all expenses and liabilities that will leave them with only making $36,000 a year.
2. Retailers & Wholesalers
Permanent B&O Bump: From 0.471% to 0.50% (effective 2027)
Impact: On $5 million in gross receipts, that’s an extra $14,450 per year.
3. Big Tech & Financial Institutions
Advanced Computing Surcharge: Drastically higher rates on data centers and cloud operations.
Financial Institution Rate Increases: Broader base and steeper brackets for banks, brokerages, and fintech firms.
4. High-Value Capital Gains
New Capital Gains Tax: ~9.9% on long-term gains above $1 million
Impact: A $2 million stock sale now carries nearly $198,000 in state capital-gains tax.
5. Credit Card Processors & Payment Networks
Reclassification & Functional Test: By 2026, many payment processors lose exemption status, adding a new layer of B&O and service-fee taxes.
6. Storage & Niche Services
Previously Exempt: Warehousing, self-storage, and certain logistics services
Now Taxable: These providers will face B&O liabilities on gross receipts for the first time.
7. Professional Services & Sales Tax
Shift: Legal, medical, architectural, and other professional services enter the sales-tax umbrella in late 2025
Impact: Practices must collect up to 8.9% in state and local sales tax on service fees.
Why It Matters
Less Cash for businesses: Washington’s gross-receipts tax model hits small businesses hardest—forcing price increases and lowering already small profit margins.
Complex Compliance: New classifications and surtaxes mean more filing categories, more audits, and higher accounting fees.
Competitive Disadvantage: Small and mid-sized firms can’t always absorb rising costs, making growth and hiring tougher.
Consumer price Increases: Now Consumers will be hit even harder as businesses have to increase their prices.
While the recent tax increases were introduced to address the state's multi-billion dollar budget shortfall, they reflect a broader pattern of fiscal mismanagement and unchecked spending. These taxes are the largest state level tax increases in Washington State history—and they come at a time when small businesses are still recovering from state mandated covid closures, record inflation, labor shortages, record high wages and supply-chain headaches.
While the recent tax increases were introduced to address the state's multi-billion dollar budget shortfall, they reflect a broader pattern of fiscal mismanagement and unchecked spending. Rather than implementing sustainable reforms, Washington State continues to mis manage tax payer dollars, placing an increasing financial burden on small businesses and working residents.
Small businesses are vital pathways to economic opportunity and community resilience. As these tax hikes take effect, owners must adapt strategically—reevaluating pricing, restructuring service offerings, and sharpening their financial forecasting. At Balanced CFO Services, we guide businesses through shifting tax landscapes with proactive planning, tailored cash-flow models, and outcome-focused advice.
Ready to navigate Washington’s new tax reality?
Book your Balanced CFO consultation today and turn these challenges into a roadmap for growth and stability.
