Written by: Cecilia Palli and Grant Shaver, CPA

For business and occupation (“B&O”) tax purposes, taxpayers earning apportionable revenue calculate their taxable Washington revenue by applying a “receipts factor” apportionment methodology. Taxpayers computing B&O tax in this manner are required to complete and file an Annual Reconciliation of Apportionable Income form with the Department of Revenue.

When Is the Annual Reconciliation of Apportionable Income Form Due?

The form must be submitted to the Department of Revenue by October 31 of each year. Failure to timely file the reconciliation form may result in penalties.

Who Must File?

In-state taxpayers that earn income from apportionable business activities performed for customers located inside and outside of Washington may apportion such revenue to Washington for B&O tax purposes. Out-of-state taxpayers earning apportionable income attributable to Washington are required to apportion their revenue and report to Washington when the taxpayer exceeds the nexus threshold described below. Taxpayers that are required to apportion income, or that take an apportionment deduction for B&O tax purposes, must file an annual reconciliation form.

The following is a non-exhaustive list of apportionable activities:

  • Service and other activities
  • Royalties
  • Travel agents and tour operators
  • Public and nonprofit hospitals
  • Real estate brokers
  • International investment management services
  • Aerospace product development

What Is This Filing?

The Department of Revenue allows taxpayers to use the prior year’s apportionment factor for reporting current year liabilities. This simplifies the taxpayer’s reporting method but then requires the business to do a true-up at the end of the year to determine the current year’s factor based on actual data.

The purpose of the annual reconciliation is to correct apportionable receipts reported to the Department using the previous year’s factor or incomplete year-to-date data. If additional B&O tax is due as a result of the reconciliation, late payment penalties are automatically waived provided the form is filed by the October 31 deadline. The form is required to be filed even if the true-up results in no additional tax liability.

How Is the Single-Factor Apportionment Formula Applied?

The numerator of the factor is the apportionable revenue attributable to Washington State. The denominator of the apportionment factor is the apportionable revenue attributable to those states (including Washington) in which the company files business tax returns or is deemed to have created nexus under Washington’s economic nexus standards. (Apportionable revenue sourced to a state or country in which the business does not have substantial nexus is excluded from the denominator and is commonly known as throw-out revenue.) The business’ gross income from apportionable activities is multiplied by the apportionment factor to determine the amount of receipts that are subject to B&O tax.

A business is considered to have substantial B&O tax nexus in Washington if it:

  • has more than $100,000 in receipts sourced to this state;
  • has physical presence in this state; or
  • is commercially domiciled in this state.

Where Do I File?

The form is available on the Department of Revenue’s website. The filing can also be completed using the Department’s MyDOR online system.

What if I Need Help?

Please contact Clark Nuber’s State and Local Tax team with any questions regarding apportionment or if you desire any assistance in fulfilling the annual reconciliation requirement.

Co-author Cecilia Palli is a Senior Associate in Clark Nuber’s State and Local Tax practice.


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This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.