Washington Tax Help: Resolve Federal Tax Debt with Local Experts

Washington has no state individual income tax, making it one of the most income-tax-friendly states in the nation for high earners. However, Washington imposes a capital gains excise tax of 7% on long-term capital gains above $250,000 per year (upheld by the state Supreme Court in 2023), targeting high-income investors and business owners who sell appreciated assets. The state sales tax is 6.5%, with local taxes adding 0.5% to 3.6%; Seattle has a combined rate of 10.25%, one of the highest in the country. Washington's Business and Occupation (B&O) tax applies to gross receipts at rates ranging from 0.138% for manufacturing to 1.5% for services; unlike most business taxes, the B&O tax applies regardless of profitability, creating cash flow risk for businesses with thin margins. Payroll taxes in Washington include the state unemployment insurance (SUI), the workers compensation insurance program, paid family and medical leave (0.74% of wages in 2024), and the Washington Long Term Care Trust (LTC) payroll deduction of 0.58%. Back tax problems for Washington residents include federal IRS debt from capital gains, business income, and rental income; the Washington DOR audits for B&O tax and sales tax compliance. Technology companies, construction contractors, and professional service firms frequently underreport B&O tax by misclassifying gross receipts into lower-rate categories. Washington offers installment agreements, B&O tax credits for small businesses, and a formal appeals process through the Washington State Tax Appeals Board.